Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
May. 01, 2016 | May. 27, 2016 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Document Period End Date | May 1, 2016 | |
Amendment Flag | false | |
Entity Registrant Name | KRISPY KREME DOUGHNUTS INC | |
Entity Central Index Key | 1,100,270 | |
Current Fiscal Year End Date | --01-29 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock Shares Outstanding | 60,993,276 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | KKD |
CONSOLIDATED STATEMENT OF INCOM
CONSOLIDATED STATEMENT OF INCOME - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
CONSOLIDATED STATEMENT OF INCOME [Abstract] | ||
Revenues | $ 136,484 | $ 132,474 |
Operating expenses: | ||
Direct operating expenses (exclusive of depreciation and amortization expense shown below) | 107,991 | 103,772 |
General and administrative expenses | 7,483 | 7,554 |
Depreciation and amortization expense | 4,056 | 3,993 |
Impairment charges and lease termination costs | 453 | 4 |
Pre-opening costs related to Company Stores | $ 607 | 323 |
Gains on commodity derivatives, net | (447) | |
Operating income | $ 15,894 | 17,275 |
Interest income | 71 | 147 |
Interest expense | (439) | (377) |
Other non-operating income and (expense), net | (2) | 184 |
Income before income taxes | 15,524 | 17,229 |
Provision for income taxes | 6,108 | 6,563 |
Net income | $ 9,416 | $ 10,666 |
Earnings per common share: | ||
Basic | $ 0.15 | $ 0.16 |
Diluted | $ 0.14 | $ 0.16 |
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 28,701 | $ 50,785 |
Receivables, net | 29,863 | 28,088 |
Receivables from equity method franchisees | 468 | 338 |
Inventories | 16,936 | $ 16,312 |
Assets held for sale | 2,817 | |
Other current assets | 3,208 | $ 3,619 |
Total current assets | 81,993 | 99,142 |
Property and equipment | $ 126,581 | $ 127,709 |
Investments in equity method franchisees | ||
Goodwill and other intangible assets | $ 30,974 | $ 30,985 |
Deferred income taxes | 69,462 | 74,874 |
Other assets | 10,004 | 10,165 |
Total assets | 319,014 | 342,875 |
CURRENT LIABILITIES: | ||
Current portion of lease obligations | 333 | 326 |
Accounts payable | 22,695 | 19,760 |
Accrued liabilities | 29,332 | 29,633 |
Total current liabilities | 52,360 | 49,719 |
Lease obligations, less current portion | 11,266 | 11,217 |
Other long-term obligations and deferred credits | $ 26,734 | $ 25,799 |
Commitments and contingencies | ||
SHAREHOLDERS' EQUITY: | ||
Preferred stock, no par value; 10,000 shares authorized; none issued and outstanding | ||
Common stock, no par value; 300,000 shares authorized; shares issued and outstanding: May 1, 2016 - 60,914 shares and January 31, 2016 - 63,069 shares | $ 229,822 | $ 266,724 |
Accumulated deficit | (1,168) | (10,584) |
Total shareholders equity | 228,654 | 256,140 |
Total liabilities and shareholders' equity | $ 319,014 | $ 342,875 |
CONSOLIDATED BALANCE SHEET (Par
CONSOLIDATED BALANCE SHEET (Parentheticals) - $ / shares shares in Thousands | May. 01, 2016 | Jan. 31, 2016 |
CONSOLIDATED BALANCE SHEET [Abstract] | ||
Preferred stock, par value per share | ||
Preferred stock, shares authorized | 10,000 | 10,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value per share | ||
Common stock, shares authorized | 300,000 | 300,000 |
Common stock, shares issued | 60,914 | 63,069 |
Common stock, shares outstanding | 60,914 | 63,069 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 9,416 | $ 10,666 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization expense | 4,056 | 3,993 |
Deferred income taxes | 5,412 | $ 5,950 |
Impairment charges | 500 | |
Loss on disposal of property and equipment | 29 | $ 34 |
Share-based compensation | $ 1,568 | 1,997 |
Unrealized gains on commodity derivative positions | (1,060) | |
Other | $ 178 | 74 |
Change in assets and liabilities: | ||
Receivables | (1,465) | (4,720) |
Inventories | (624) | 1,869 |
Other current and non-current assets | 520 | 1,039 |
Accounts payable and accrued liabilities | (718) | (2,771) |
Other long-term obligations and deferred credits | 623 | 74 |
Net cash provided by operating activities | 19,495 | 17,145 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchase of property and equipment | (8,047) | (4,546) |
Proceeds from disposals of property and equipment | (5) | 216 |
Acquisition of stores and franchise rights from franchisees | (185) | (312) |
Other investing activities | 89 | 821 |
Net cash used for investing activities | (8,148) | (3,821) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Repayment of lease obligations | (86) | (82) |
Proceeds from exercise of stock options | 1,334 | 519 |
Repurchase of common shares | (34,679) | (6,090) |
Net cash used for financing activities | (33,431) | (5,653) |
Net increase (decrease) in cash and cash equivalents | (22,084) | 7,671 |
Cash and cash equivalents at beginning of period | 50,785 | 50,971 |
Cash and cash equivalents at end of period | 28,701 | 58,642 |
Supplemental schedule of non-cash investing and financing activities: | ||
Assets acquired under leasing arrangements | $ 140 | $ 947 |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands | Total | Common Stock [Member] | Accumulated Deficit [Member] |
Beginning Balance at Feb. 01, 2015 | $ 267,786 | $ 310,768 | $ (42,982) |
Balance, shares at Feb. 01, 2015 | 64,926 | ||
Comprehensive income | 10,666 | $ 10,666 | |
Exercise of stock options | 519 | $ 519 | |
Exercise of stock options, shares | 81 | ||
Share-based compensation | 1,997 | $ 1,997 | |
Share-based compensation, shares | 35 | ||
Repurchase of common shares | $ (7,625) | $ (7,625) | |
Repurchase of common shares, shares | (402) | (402) | |
Ending Balance at May. 03, 2015 | $ 273,343 | $ 305,659 | $ (32,316) |
Balance, shares at May. 03, 2015 | 64,640 | ||
Beginning Balance at Jan. 31, 2016 | $ 256,140 | $ 266,724 | (10,584) |
Balance, shares at Jan. 31, 2016 | 63,069 | 63,069 | |
Comprehensive income | $ 9,416 | $ 9,416 | |
Exercise of stock options | 1,625 | $ 1,625 | |
Exercise of stock options, shares | 200 | ||
Share-based compensation | 1,568 | $ 1,568 | |
Share-based compensation, shares | 90 | ||
Repurchase of common shares | $ (40,095) | $ (40,095) | |
Repurchase of common shares, shares | (2,445) | (2,445) | |
Ending Balance at May. 01, 2016 | $ 228,654 | $ 229,822 | $ (1,168) |
Balance, shares at May. 01, 2016 | 60,914 | 60,914 |
Accounting Policies
Accounting Policies | 3 Months Ended |
May. 01, 2016 | |
Accounting Policies [Abstract] | |
Accounting Policies | Note 1 Accounting Policies Krispy Kreme Doughnuts, Inc. (KKDI) and its subsidiaries (collectively, the Company) are engaged in the sale of doughnuts and complementary products through Company-owned stores. We also license the Krispy Kreme business model and certain of our intellectual property to franchisees in the United States and over 25 other countries around the world, and derive revenue from franchise and development fees and royalties from those franchisees. Additionally, we sell doughnut mixes, other ingredients and supplies and doughnut-making equipment to franchisees. Merger Agreement On May 8, 2016, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Cotton Parent, Inc., a Delaware corporation (Cotton), Cotton Merger Sub Inc., a North Carolina corporation and a wholly owned subsidiary of Cotton (Merger Sub), and JAB Holdings B.V., a Dutch Besloten Vennootschap met beperkte aansprakelijkheid (private company with limited liability) (JAB). Cotton and Merger Sub are affiliates of JAB. Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Cotton (the Merger). Our Board of Directors (the Board) unanimously adopted, approved and declared advisable the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement and unanimously resolved to recommend that our shareholders vote to approve the Merger Agreement. The Merger is subject to a vote of our shareholders. As a result of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger (the Effective Time) (other than shares held by Cotton, Merger Sub, certain affiliates of Cotton, or direct or indirect wholly owned subsidiaries of the Company) will be canceled and automatically converted into the right to receive $ 21.00 We have made various representations and warranties in the Merger Agreement that are customary for a company in the quick service restaurant industry. The completion of the Merger is subject to the satisfaction or waiver of a number of closing conditions, including, among others, (1) approval of the Merger Agreement by the holders of a majority of our outstanding common stock; (2) the absence of any material adverse effect on the Company occurring after the date of the Merger Agreement; (3) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (4) the absence of any legal prohibitions or certain governmental proceedings affecting the closing of the Merger; and (5) subject to certain materiality qualifications, the continued accuracy of our representations and warranties, and performance by the Company of required covenants and obligations (to be performed at or prior to the closing of the Merger), as of the closing of the Merger. The Merger Agreement also includes provisions permitting termination by each of the Company and Cotton under certain circumstances, including (1) if the Merger is not completed by November 8, 2016 (the Termination Date), (2) if the required approval of our shareholders is not obtained or (3) if the other party breaches its representations, warranties or covenants and such breach would cause the failure of a corresponding closing condition to be satisfied by the Termination Date. In connection with a termination of the Merger Agreement under specified circumstances, including if we enter into an alternative transaction we determine is superior pursuant to the terms of the Merger Agreement, we may be required to pay Cotton a termination fee of $ 42.0 The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which was filed with our Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the SEC) on May 9, 2016 and is hereby incorporated by reference. During the three months ended May 1, 2016, we recorded approximately $ 454,000 Significant Accounting Policies BASIS OF PRESENTATION. The consolidated financial statements contained herein should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 31, 2016 (the 2016 Form 10-K). The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 10 of Regulation S-X and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States of America (GAAP) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with our accounting practices described in the 2016 Form 10-K, but have not been audited. In our opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of our results of operations for the periods presented. The consolidated balance sheet data as of January 31, 2016 were derived from our audited financial statements. BASIS OF CONSOLIDATION. The financial statements include the accounts of KKDI and its subsidiaries. Investments in entities over which we have the ability to exercise significant influence but which we do not control, and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method . EARNINGS PER SHARE. The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued, computed using the treasury stock method. Such potential common shares consist of shares issuable upon the exercise of stock options and the vesting of currently unvested restricted stock units. Three Months Ended May 1, May 3, 2016 2015 (In thousands) Numerator: net income $ 9,416 $ 10,666 Denominator: Basic earnings per share - weighted average shares outstanding 64,098 66,603 Effect of dilutive securities: Stock options 1,171 1,643 Restricted stock units 138 327 Diluted earnings per share - weighted average shares outstanding plus dilutive potential common shares 65,407 68,573 Stock options with respect to 244,000 302,000 190,000 171,000 Recent Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes guidance for subsequent measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. This update is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This guidance states that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to the line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. This guidance became effective in the first quarter of fiscal 2017. As all of our debt issuance costs are related to line-of-credit arrangements and are currently classified as assets, the adoption of this guidance did not have any impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance about whether a cloud computing arrangement includes a software license. This guidance became effective in the first quarter of fiscal 2017 and did not impact our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, Revenue from contracts with customers (Topic 606): Identifying performance obligations and licensing, an update on identifying performance obligations and accounting for licenses of intellectual property. Additionally, in May 2016, the FASB issued ASU 2016-12, Revenue from contracts with customers (Topic 606): Narrow-scope improvements and practical expedients, which includes amendments for enhanced clarification of the guidance. This guidance is effective for fiscal years beginning on or after December 15, 2017 including interim periods within those fiscal years and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. |
Segment Information
Segment Information | 3 Months Ended |
May. 01, 2016 | |
Segment Information [Abstract] | |
Segment Information | Note 2 Segment Information Our operating and reportable segments are Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. The Company Stores segment is comprised of the stores owned and operated by us. These stores sell doughnuts and complementary products through both on-premises and consumer packaged goods - wholesale (CPG) channels, although some stores serve only one of these distribution channels. The Domestic Franchise and International Franchise segments consist of our franchise operations. Under the terms of franchise agreements, domestic and international franchisees pay royalties and fees to us in return for the use of the Krispy Kreme trademark and ongoing brand and operational support. Revenues and costs related to licensing certain Company-owned trademarks to domestic third parties other than franchisees also are included in the Domestic Franchise segment. Expenses for these segments include costs to recruit new franchisees, to assist in store openings, to support franchisee operations and marketing efforts, as well as allocated corporate costs. The majority of the ingredients and materials used by Company stores are purchased from the KK Supply Chain segment, which supplies doughnut mix, other ingredients and supplies and doughnut-making equipment to both Company and franchisee-owned stores. All intercompany sales by the KK Supply Chain segment to the Company Stores segment are at prices intended to reflect an arms-length transfer price and are eliminated in consolidation. Operating income for the Company Stores segment does not include any profit earned by the KK Supply Chain segment on sales of doughnut mix and other items to the Company Stores segment; such profit is included in KK Supply Chain operating income. The following table presents the results of operations of our operating and reportable segments for the three months ended May 1, 2016 and May 3, 2015. Segment operating income is consolidated operating income before general and administrative expenses, corporate depreciation and amortization expense, impairment charges and lease termination costs, pre-opening costs related to Company Stores, gains on commodity derivatives, net and gain on refranchisings, net of business acquisition charges. Three Months Ended May 1, May 3, 2016 2015 (In thousands) Revenues: Company Stores $ 93,993 $ 90,717 Domestic Franchise 4,137 3,709 International Franchise 6,855 6,728 KK Supply Chain: Total revenues 64,049 63,517 Less intersegment sales elimination (32,550 ) (32,197 ) External KK Supply Chain revenues 31,499 31,320 Total revenues $ 136,484 $ 132,474 Operating income: Company Stores $ 5,963 $ 7,357 Domestic Franchise 2,533 2,094 International Franchise 4,578 4,904 KK Supply Chain 11,972 10,949 Total segment operating income 25,046 25,304 General and administrative expenses (7,483 ) (7,554 ) Corporate depreciation and amortization expense (609 ) (595 ) (453 ) (4 ) (607 ) (323 ) - 447 Consolidated operating income $ 15,894 $ 17,275 Depreciation and amortization expense: Company Stores 3,270 $ 3,169 Domestic Franchise 17 17 International Franchise - - KK Supply Chain 160 212 Corporate 609 595 Total depreciation and amortization expense $ 4,056 $ 3,993 Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources among segments. |
Receivables
Receivables | 3 Months Ended |
May. 01, 2016 | |
Receivables [Abstract] | |
Receivables | Note 3 Receivables The components of receivables are as follows: May 1, January 31, 2016 2016 (In thousands) Receivables: Consumer packaged goods - wholesale customers $ 11,311 $ 10,808 Unaffiliated franchisees 13,960 13,233 Due from third-party distributors 2,238 2,440 Other receivables 1,530 667 Current portion of notes receivable 1,170 1,224 30,209 28,372 Less allowance for doubtful accounts: Consumer packaged goods - wholesale customers (181 ) (180 ) Unaffiliated franchisees (165 ) (104 ) (346 ) (284 ) $ 29,863 $ 28,088 Receivables from equity method franchisees (Note 5): Trade $ 468 $ 338 The changes in the allowance for doubtful accounts are summarized as follows: Three Months Ended May 1, May 3, 2016 2015 (In thousands) Allowance for doubtful accounts related to receivables: Balance at beginning of period $ 284 $ 495 Provision for doubtful accounts 73 (118 ) Net recoveries (chargeoffs) (11 ) (13 ) Balance at end of period $ 346 $ 364 We also have notes receivable from certain of our franchisees included in Other assets in the accompanying consolidated balance sheet, which are summarized in the following table. May 1, January 31, 2016 2016 (In thousands) Notes receivable: Notes receivable from franchisees $ 4,413 $ 4,829 Less portion due within one year included in receivables (1,170 ) (1,224 ) $ 3,243 $ 3,605 Notes receivable at May 1, 2016 and January 31, 2016 consist principally of amounts payable to us related to sales of equipment and to the sale of certain leasehold interests to a franchisee. In addition to the foregoing notes receivable, we had promissory notes totaling approximately $ 1.2 million at May 1, 2016 and January 31, 2016 principally representing royalties and fees due to us which, as a result of doubt about their collection, we had not yet recorded as revenues . |
Inventories
Inventories | 3 Months Ended |
May. 01, 2016 | |
Inventories [Abstract] | |
Inventories | Note 4 Inventories The components of inventories are as follows: May 1, January 31, 2016 2016 (In thousands) Raw materials $ 7,096 $ 6,844 Work in progress 126 126 Finished goods and purchased merchandise 9,714 9,342 $ 16,936 $ 16,312 |
Investments in Franchisees
Investments in Franchisees | 3 Months Ended |
May. 01, 2016 | |
Investments in Franchisees [Abstract] | |
Investment in Franchisees | Note 5 Investments in Franchisees As of May 1, 2016, we had an ownership interest in two zero May 1, 2016 Company Investment Ownership and Percentage Advances Receivables (Dollars in thousands) Kremeworks, LLC 25.0 % $ 900 $ 411 Kremeworks Canada, LP 24.5 % 667 57 1,567 468 Less: reserves and allowances (1,567 ) - $ - $ 468 January 31, 2016 Company Investment Ownership and Percentage Advances Receivables Kremeworks, LLC 25.0 % $ 900 $ 300 Kremeworks Canada, LP 24.5 % 667 38 1,567 338 Less: reserves and allowances (1,567 ) - $ - $ 338 The carrying values of the Company's investments and advances in Kremeworks, LLC (Kremeworks) and Kremeworks Canada, LP (Kremeworks Canada) were zero at May 1, 2016 and January 31, 2016. In addition, the Company had reserved all of the balance of its advances to Kremeworks and Kremeworks Canada at such dates; accrued but uncollected interest on such advances of approximately $ 380,000 370,000 |
Credit Facility and Lease Oblig
Credit Facility and Lease Obligations | 3 Months Ended |
May. 01, 2016 | |
Credit Facility and Lease Obligations [Abstract] | |
Credit Facility and Lease Obligations | Note 6 Credit Facility and Lease Obligations Lease obligations consist of the following: May 1, January 31, 2016 2016 (In thousands) Capital lease obligations $ 2,754 $ 2,709 Financing obligations 8,845 8,834 11,599 11,543 Less: current portion (333 ) (326 ) $ 11,266 $ 11,217 Lease Obligations We acquire equipment and facilities under capital and operating leases and build-to-suit arrangements. In certain build-to-suit leasing arrangements, we incur hard costs related to the construction of leased stores and we are therefore deemed the owner of the leased stores for accounting purposes during the construction period. We record the related assets and liabilities for construction costs incurred under these build-to-suit leasing arrangements during the construction period. Upon completion of the leased store, we consider whether the assets and liabilities qualify for derecognition under the sale-leaseback accounting guidance. These leasing arrangements do not qualify for sale-leaseback treatment and, accordingly, we record the transactions as financing obligations. A portion of the lease payments is allocated to land and is classified as an operating lease. The remainder of the lease payments is allocated between interest expense and amortization of the financing obligations. The assets are depreciated over their estimated useful lives. At the end of the lease term, the carrying value of the leased asset and the remaining financing obligation are expected to be equal, at which time we may either surrender the leased assets as settlement of the remaining financing obligation or enter into a new arrangement for the continued use of the asset. 2013 Revolving Credit Facility On July 12, 2013, we entered into a $ 40 million revolving secured credit facility (the 2013 Facility) which matures in July 2018. The 2013 Revolving Credit Facility is secured by a first lien on substantially all of our personal property assets and certain of our domestic subsidiaries. No borrowings were made on the 2013 Facility on the closing date . Interest on borrowings under the 2013 Facility is payable either at the London Interbank Offered Rate (LIBOR) or the Base Rate (which is the greatest of the prime rate, the Federal funds rate plus 0.50 %, or the one-month LIBOR rate plus 1.00 % ), in each case plus the Applicable Percentage. The Applicable Percentage for LIBOR loans ranges from 1.25 % to 2.15 %, and for Base Rate loans ranges from 0.25 % to 1.15 %, in each case depending on our leverage ratio. As of May 1, 2016, the Applicable Percentage was 1.25 %. The 2013 Facility contains provisions which permit us to obtain letters of credit, issuance of which constitutes usage of the lending commitments and reduces the amount available for cash borrowings. At May 1, 2016, we had approximately $ 10.3 million of letters of credit outstanding, substantially all of which secure our reimbursement obligations to insurers under our self-insurance arrangements. We are required to pay a fee equal to the Applicable Percentage for LIBOR-based loans on the outstanding amount of letters of credit. There also is a fee on the unused portion of the 2013 Facility lending commitment, ranging from 0.15 % to 0.35 %, depending on our leverage ratio. As of May 1, 2016, the fee on the unused portion of the 2013 Facility was 0.15 . The 2013 Facility requires us to meet certain financial tests, including a maximum leverage ratio and a minimum fixed charge coverage ratio. The leverage ratio is required to be not greater than 2.25 to 1.0 and the fixed charge coverage ratio is required to be not less than 1.3 to 1.0. As of May 1, 2016, our leverage ratio was 0.3 to 1.0 and the fixed charge coverage ratio was 3.4 to 1.0. The operation of the restrictive financial covenants described above may limit the amount we are able to borrow under the 2013 Facility. The restrictive covenants did not limit our ability to borrow the full $ 29.7 million of unused credit under the 2013 Credit Facility as of May 1, 2016. The 2013 Facility also contains covenants which, among other things, generally limit (with certain exceptions): liquidations, mergers, and consolidations; the incurrence of additional indebtedness (including guarantees); the incurrence of additional liens; the sale, assignment, lease, conveyance or transfer of assets; certain investments; dividends and stock redemptions or repurchases in excess of certain amounts; transactions with affiliates; engaging in materially different lines of business; certain sale-leaseback transactions; and other activities customarily restricted in such agreements. The 2013 Facility also prohibits the transfer of cash or other assets to the Parent Company (as defined in the 2013 Facility), whether by dividend, loan or otherwise, but provides for exceptions to enable the Parent Company to pay taxes, directors' fees and operating expenses, as well as exceptions to permit dividends in respect of our common stock and stock redemptions and repurchases, to the extent permitted by the 2013 Facility. The 2013 Facility also contains customary events of default including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other indebtedness in excess of $ 5 5 Borrowings and issuances of letters of credit under the 2013 Facility are subject to the satisfaction of usual and customary conditions, including the accuracy of representations and warranties and the absence of defaults. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
May. 01, 2016 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | Note 7 Commitments and Contingencies Except as disclosed below, we currently are not a party to any material legal proceedings. Pending Litigation K 2 Asia Litigation On April 7, 2009, a Cayman Islands corporation, K 2 alleges that we and the other defendants conspired to deprive the plaintiffs of claimed exclusive rights to negotiate franchise and development agreements with prospective franchisees in the Philippines, and seeks unspecified damages. We therefore do not know the amount or range of possible loss related to this matter. We believe that these allegations are false and continue to vigorously defend against the lawsuit. On July 26, 2013, the Superior Court dismissed the Philippines-based defendants for lack of personal jurisdiction, and the plaintiffs appealed that decision. On January 22, 2015, the North Carolina Supreme Court denied the pl aintiffs' request to review the case. We moved for summary judgment on May 7, 2015 and are awaiting a decision by the Superior Court. We do not believe it is probable that a loss has been incurred with respect to this matter, and accordingly no liability related to it has been reflected in the accompanying financial statements. Merger-Related Litigation On May 26, 2016, a purported shareholder of the Company, Ronnie Stillwell, filed a putative class action complaint challenging the Merger in Superior Court in the State of North Carolina. The complaint names as defendants JAB, Cotton, Merger Sub and the members of the Board and also names the Company as a nominal defendant. The complaint seeks, among other relief, an order enjoining the Merger, compensatory damages, and an award of attorney's fees and costs on the grounds that, among other things, the members of the Board allegedly breached their fiduciary duties in connection with entering into the Merger Agreement and adopting and approving the Merger. The complaint further alleges that JAB, Cotton and Merger Sub aided and abetted the alleged breaches of fiduciary duties. It is possible that this complaint will be amended to make additional claims and/or that additional lawsuits making similar or additional claims relating to the Merger will be brought. On May 26, 2016, legal advisors representing Melissa Weers, who is purportedly a shareholder of the Company, submitted a letter through the mail to the Board of the Company demanding legal action against the Board for a purported breach of fiduciary duty related to the Merger. The letter alleges, among other things, that the directors of the Company agreed to inadequate merger consideration and undervalued the Company. Additionally, the letter alleges that measures in the Merger Agreement created unreasonable protective devices to preclude competing offers. The letter further states Ms. Weer's belief that the Board of the Company was neither independent nor disinterested in the Merger, preventing directors from fulfilling their fiduciary duties to the Company's shareholders. In closing, the letter demands attention from the Board. The letter further asks the Board to authorize litigation against Cotton and its affiliated entities for aiding and abetting these supposed breaches. On June 8, 2016, the Company received a demand letter from legal advisors representing Stu Bonnin, who is also purportedly a shareholder of the Company. In addition to alleging a breach of fiduciary duty related to the Merger, the letter also alleges a breach by the members of the Board of their duties of care, candor and good faith by causing the Company to issue materially incomplete and misleading disclosures in the Company's PREM14A Preliminary Proxy Statement filed on May 31, 2016. Specifically, the letter alleges that the disclosures were deficient and misleading because they did not include information as to the nature and timing of post-merger employment discussions. In closing, the letter demands that the Board take action to disclose the material information allegedly omitted from the Preliminary Proxy Statement. Other Legal Matters We are also engaged in various legal proceedings arising in the normal course of business. We maintain insurance policies against certain kinds of such claims and suits, including insurance policies for workers' compensation and personal injury, all of which are subject to deductibles. While the ultimate outcome of these matters could differ from our expectations, we currently do not believe their resolution will have a material adverse effect on our consolidated financial statements. Other Commitments and Contingencies Our primary bank had issued letters of credit on our behalf totaling $ 10.3 million at May 1, 2016, substantially all of which secure our reimbursement obligations to insurers under our self-insurance arrangements. |
Shareholders' Equity
Shareholders' Equity | 3 Months Ended |
May. 01, 2016 | |
Shareholders' Equity [Abstract] | |
Shareholders' Equity | Note 8 Shareholders' Equity Share-Based Compensation for Employees and Directors We measure and recognize compensation expense for share-based payment (SBP) awards based on their fair values. The fair value of SBP awards for which employees and directors render the requisite service necessary for the award to vest is recognized over the related vesting period. The aggregate cost of SBP awards charged to earnings for the three months ended May 1, 2016 and May 3, 2015 is set forth in the following table. We did not realize any excess tax benefits from the exercise of stock options or the vesting of restricted stock units during any of the periods. Three Months Ended May 1, May 3, 2016 2015 (In thousands) Costs charged to earnings related to: Stock options $ 99 $ 323 Restricted stock units 1,469 1,674 Total costs $ 1,568 $ 1,997 Costs included in: Direct operating expenses $ 631 $ 1,028 General and administrative expenses 937 969 Total costs $ 1,568 $ 1,997 Repurchases of Common Stock In fiscal 2014, our Board authorized the repurchase of our common stock, and subsequently increased that authorization such that it now totals $ 255 8,612,395 shares under the authorization at an average price of $ 17.56 per share, for a total cost of $ 151.2 million. Repurchases of approximately $ 34.2 million and $ 5.9 million were settled during the three months ended May 1, 2016 and May 3, 2015, respectively. As of May 1, 2016, approximately $ 103.8 . We generally permit holders of restricted stock unit awards to satisfy their obligations to reimburse us for the minimum required statutory withholding taxes arising from the vesting of such awards by surrendering vested common shares in lieu of reimbursing in cash. The following table summarizes repurchases of common stock for the three months ended May 1, 2016 and May 3, 2015. Three Months Ended May 1, May 3, 2016 2015 Common Common Shares Stock Shares Stock (In thousands) Shares repurchased under share repurchase authorization 2,415 $ 39,645 391 $ 7,428 Shares surrendered in reimbursement for withholding taxes 30 450 11 197 2,445 $ 40,095 402 $ 7,625 |
Impairment Charges and Lease Te
Impairment Charges and Lease Termination Costs | 3 Months Ended |
May. 01, 2016 | |
Impairment Charges and Lease Termination Costs [Abstract] | |
Impairment Charges and Lease Termination Costs | Note 9 Impairment Charges and Lease Termination Costs The components of impairment charges and lease termination costs are as follows: Three Months Ended May 1, May 3, 2016 2015 (In thousands) Impairment of long-lived assets $ 500 $ - Lease termination costs: Provision for lease termination costs 203 4 Less - reversal of previously recorded accrued rent expense (250 ) - Total lease termination costs (47 ) 4 Total impairment charges and lease termination costs $ 453 $ 4 We test long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, unfavorable observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of our annual budgeting process. Impairment charges generally relate to Company stores expected to be closed or refranchised, as well as to stores we believe will not generate sufficient future cash flows to enable us to recover the carrying value of the stores' assets, but which we have not yet decided to close. When we conclude that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), we record impairment charges to reduce the carrying value of those assets to their estimated fair values. The fair values of these assets are estimated based on the present value of estimated future cash flows, on independent appraisals and, in the case of assets we currently are negotiating to sell, on our negotiations with unrelated third-party buyers. Impairment charges related to our long-lived assets were $500,000 in the first quarter of fiscal 2017 and relate to the refranchising of certain shop locations which was completed during the second quarter of fiscal 2017 as described in Note 14. The fair value of the impaired store assets was estimated based on our negotiations with unrelated third-party buyers. Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which we cease use of the leased property. The fair value of these liabilities was estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords. The transactions reflected in the accrual for lease termination costs are summarized as follows: Three Months Ended May 1, May 3, 2016 2015 (In thousands) Balance at beginning of period $ 278 $ 116 Provision for lease termination costs: Provisions associated with store closings, net of estimated sublease rentals 202 - Adjustments to previously recorded provisions resulting from settlements with lessors and adjustments of previous estimates (7 ) 1 Accretion of discount 8 3 Total provision 203 4 Payments on unexpired leases, including settlements with lessors (105 ) (35 ) Balance at end of period $ 376 $ 85 The lease termination accrual at May 1, 2016 of $ 376,000 |
Income Taxes
Income Taxes | 3 Months Ended |
May. 01, 2016 | |
Income Taxes [Abstract] | |
Income Taxes | Note 10 Income Taxes Our effective income tax rate was 39.3 for the three months ended May 1, 2016 compared to an effective income tax rate of 38.1 We have established a valuation allowance of $ 1.4 million at May 1, 2016 and January 31, 2016 that represents the portion of our deferred tax assets that management estimates will not be realized in the future. Such assets are associated principally with state net operating loss carryforwards related to states in which the scope of our operations has decreased. In such states, our ability to realize the net operating loss carryforwards is adversely affected because we are expected to have little income earned in or apportioned to those states in the future . Realization of net deferred tax assets generally is dependent on generation of taxable income in future periods. While management believes its forecast of future taxable income is reasonable, actual results inevitably will vary from management's forecasts. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements. |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
May. 01, 2016 | |
Fair Value Measurements [Abstract] | |
Fair-Value Measurements | Note 11 Fair Value Measurements The accounting standards for fair value measurements define fair value as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standards for fair value measurements establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents our assets and liabilities that are measured at fair value on a recurring basis at May 1, 2016 and January 31, 2016. May 1, 2016 (1) Level 1 Level 2 Level 3 (In thousands) Assets: 401(k) mirror plan assets $ 2,517 $ - $ - January 31, 2016 (1) Level 1 Level 2 Level 3 (In thousands) Assets: 401(k) mirror plan assets $ 2,158 $ - $ - (1) There were no transfers of financial assets or liabilities among the levels within the fair value hierarchy during the three months ended May 1, 2016 or during the year ended January 31, 2016. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The following table presents the nonrecurring fair value measurements recorded during the three months ended May 1, 2016. There were no material nonrecurring fair value measurements recorded during the three months ended May 3, 2015. Three Months Ended May 1, 2016 Level 1 Level 2 Level 3 Total gain (loss) (In thousands) Long-lived assets $ - $ 2,457 $ - $ (500) Lease termination liabilities $ - $ 202 $ - $ 48 Long-Lived Assets During the three months ended May 1, 2016, long-lived assets having an aggregate carrying value of $ 3.0 2.5 500,000 Lease Termination Liabilities During the three months ended May 1, 2016, we recorded provisions for lease termination costs related to closed stores based upon the estimated fair values of the liabilities under unexpired leases as described in Note 9; such provisions were reduced by previously recorded accrued rent expense related to those stores. The fair value of these liabilities was computed as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. These inputs are classified as Level 2 within the valuation hierarchy. For the three months ended May 1, 2016, the $ 250,000 202,000 |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
May. 01, 2016 | |
Derivative Instruments [Abstract] | |
Derivative Instruments | Note 12 Derivative Instruments We are exposed to certain risks relating to our ongoing business operations. The primary risk managed by using derivative instruments is commodity price risk. We do not hold or issue derivative instruments for trading purposes. Commodity Price Risk We are exposed to the effects of commodity price fluctuations in the cost of ingredients of our products, of which flour, sugar and shortening are the most significant. In order to bring greater stability to the cost of ingredients, from time to time we purchase exchange-traded commodity futures contracts, and options on such contracts, for raw materials which are ingredients of our products or which are components of such ingredients, including wheat and soybean oil. We are also exposed to the effects of commodity price fluctuations in the cost of gasoline used by our delivery vehicles. To mitigate the risk of fluctuations in the price of our gasoline purchases, we may purchase exchange-traded commodity futures contracts and options on such contracts. The difference between the cost, if any and the fair value of commodity derivatives is reflected in earnings because we had not designated any of these instruments as hedges. Gains and losses on these contracts are intended to offset losses and gains on the hedged transactions in an effort to reduce the earnings volatility resulting from fluctuating commodity prices. The settlement of commodity derivative contracts is reported in the consolidated statement of cash flows as a cash flow from operating activities. We had no commodity derivative contracts as of May 1, 2016. Interest Rate Risk We are exposed to market risk from increases in interest rates on any borrowings outstanding under our 2013 Credit Facility. As of May 1, 2016, there were no borrowings outstanding under such facility. Quantitative Summary of Derivative Positions and Their Effect on Results of Operations There were no derivative instruments in the consolidated balance sheet as of May 1, 2016 or January 31, 2016. The effect of derivative instruments on the consolidated statement of income for the three months ended May 1, 2016 and May 3, 2015 was as follows: Amount of Derivative Gain or (Loss) Recognized in Income Three Months Ended May 1, May 3, Derivatives Not Designated as Hedging Instruments Location of Derivative Gain or (Loss) Recognized in Income 2016 2015 (In thousands) Agricultural commodity futures contracts Gains on commodity derivatives, net $ - $ (335 ) Gasoline commodity futures contracts Gains on commodity derivatives, net - 782 Total $ - $ 447 |
Acquisitions
Acquisitions | 3 Months Ended |
May. 01, 2016 | |
Acquisitions [Abstract] | |
Acquisitions | Note 13 Acquisitions Acquisition of Krispy Kreme Shop On April 23, 2015, we entered into several legal arrangements with a franchisee, which included an asset purchase agreement and management agreement, whereby we agreed to operate the franchisee's Krispy Kreme 312,000 2.7 252,000 27,000 137,000 104,000 Acquisition of Franchise Rights We acquired the franchise rights to develop certain CPG channels of trade from certain of our franchisees for approximately $ 185,000 1.6 |
Subsequent Events
Subsequent Events | 3 Months Ended |
May. 01, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 14 Subsequent Events On May 2, 2016, subsequent to the end of the first quarter of fiscal 2017, we completed the refranchising of four Company-owned locations in Jacksonville, Florida to a franchisee. The cash consideration received was approximately $ 1.5 million with an additional $ 1.3 million of purchase consideration dependent on the future performance of the sold locations. Assets related to the transaction totaling $ 2.5 million were classified as held for sale at May 1, 2016. Additionally, in connection with this sale, we closed two stores in the Jacksonville market. Subsequent to the end of the first quarter of fiscal 2017, on May 8, 2016, we entered into a Merger Agreement with Cotton and JAB as more fully described in Note 1. Additionally, on May 26, a putative class action complaint challenging the Merger was filed in Superior Court in the State of North Carolina and a letter was received from lawyers representing a separate alleged shareholder demanding legal action against the Board for a purported breach of fiduciary duty related to the Merger, each as described in Note 7. On June 8, 2016, a second letter was received from lawyers representing yet another alleged shareholder demanding action from the Board related to purported breaches of fiduciary duties and the duties of care, candor and good faith, also as described in Note 7 |
Accounting Policies (Policies)
Accounting Policies (Policies) | 3 Months Ended |
May. 01, 2016 | |
Accounting Policies [Abstract] | |
Merger Agreement | Merger Agreement On May 8, 2016, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Cotton Parent, Inc., a Delaware corporation (Cotton), Cotton Merger Sub Inc., a North Carolina corporation and a wholly owned subsidiary of Cotton (Merger Sub), and JAB Holdings B.V., a Dutch Besloten Vennootschap met beperkte aansprakelijkheid (private company with limited liability) (JAB). Cotton and Merger Sub are affiliates of JAB. Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Cotton (the Merger). Our Board of Directors (the Board) unanimously adopted, approved and declared advisable the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement and unanimously resolved to recommend that our shareholders vote to approve the Merger Agreement. The Merger is subject to a vote of our shareholders. As a result of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger (the Effective Time) (other than shares held by Cotton, Merger Sub, certain affiliates of Cotton, or direct or indirect wholly owned subsidiaries of the Company) will be canceled and automatically converted into the right to receive $ 21.00 We have made various representations and warranties in the Merger Agreement that are customary for a company in the quick service restaurant industry. The completion of the Merger is subject to the satisfaction or waiver of a number of closing conditions, including, among others, (1) approval of the Merger Agreement by the holders of a majority of our outstanding common stock; (2) the absence of any material adverse effect on the Company occurring after the date of the Merger Agreement; (3) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (4) the absence of any legal prohibitions or certain governmental proceedings affecting the closing of the Merger; and (5) subject to certain materiality qualifications, the continued accuracy of our representations and warranties, and performance by the Company of required covenants and obligations (to be performed at or prior to the closing of the Merger), as of the closing of the Merger. The Merger Agreement also includes provisions permitting termination by each of the Company and Cotton under certain circumstances, including (1) if the Merger is not completed by November 8, 2016 (the Termination Date), (2) if the required approval of our shareholders is not obtained or (3) if the other party breaches its representations, warranties or covenants and such breach would cause the failure of a corresponding closing condition to be satisfied by the Termination Date. In connection with a termination of the Merger Agreement under specified circumstances, including if we enter into an alternative transaction we determine is superior pursuant to the terms of the Merger Agreement, we may be required to pay Cotton a termination fee of $ 42.0 The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which was filed with our Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the SEC) on May 9, 2016 and is hereby incorporated by reference. During the three months ended May 1, 2016, we recorded approximately $ 454,000 |
BASIS OF PRESENTATION | BASIS OF PRESENTATION. The consolidated financial statements contained herein should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 31, 2016 (the 2016 Form 10-K). The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 10 of Regulation S-X and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States of America (GAAP) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with our accounting practices described in the 2016 Form 10-K, but have not been audited. In our opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of our results of operations for the periods presented. The consolidated balance sheet data as of January 31, 2016 were derived from our audited financial statements. |
BASIS OF CONSOLIDATION | BASIS OF CONSOLIDATION. The financial statements include the accounts of KKDI and its subsidiaries. Investments in entities over which we have the ability to exercise significant influence but which we do not control, and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method . |
EARNINGS PER SHARE | EARNINGS PER SHARE. The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued, computed using the treasury stock method. Such potential common shares consist of shares issuable upon the exercise of stock options and the vesting of currently unvested restricted stock units. Three Months Ended May 1, May 3, 2016 2015 (In thousands) Numerator: net income $ 9,416 $ 10,666 Denominator: Basic earnings per share - weighted average shares outstanding 64,098 66,603 Effect of dilutive securities: Stock options 1,171 1,643 Restricted stock units 138 327 Diluted earnings per share - weighted average shares outstanding plus dilutive potential common shares 65,407 68,573 Stock options with respect to 244,000 302,000 190,000 171,000 |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes guidance for subsequent measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. This update is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This guidance states that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to the line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. This guidance became effective in the first quarter of fiscal 2017. As all of our debt issuance costs are related to line-of-credit arrangements and are currently classified as assets, the adoption of this guidance did not have any impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance about whether a cloud computing arrangement includes a software license. This guidance became effective in the first quarter of fiscal 2017 and did not impact our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, Revenue from contracts with customers (Topic 606): Identifying performance obligations and licensing, an update on identifying performance obligations and accounting for licenses of intellectual property. Additionally, in May 2016, the FASB issued ASU 2016-12, Revenue from contracts with customers (Topic 606): Narrow-scope improvements and practical expedients, which includes amendments for enhanced clarification of the guidance. This guidance is effective for fiscal years beginning on or after December 15, 2017 including interim periods within those fiscal years and early adoption is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated financial statements. |
Accounting Policies (Tables)
Accounting Policies (Tables) | 3 Months Ended |
May. 01, 2016 | |
Accounting Policies [Abstract] | |
Schedule of Computation of Earnings Per Share | Three Months Ended May 1, May 3, 2016 2015 (In thousands) Numerator: net income $ 9,416 $ 10,666 Denominator: Basic earnings per share - weighted average shares outstanding 64,098 66,603 Effect of dilutive securities: Stock options 1,171 1,643 Restricted stock units 138 327 Diluted earnings per share - weighted average shares outstanding plus dilutive potential common shares 65,407 68,573 |
Segment Information (Tables)
Segment Information (Tables) | 3 Months Ended |
May. 01, 2016 | |
Segment Information [Abstract] | |
Schedule of Operations by Reporting Segment | Three Months Ended May 1, May 3, 2016 2015 (In thousands) Revenues: Company Stores $ 93,993 $ 90,717 Domestic Franchise 4,137 3,709 International Franchise 6,855 6,728 KK Supply Chain: Total revenues 64,049 63,517 Less intersegment sales elimination (32,550 ) (32,197 ) External KK Supply Chain revenues 31,499 31,320 Total revenues $ 136,484 $ 132,474 Operating income: Company Stores $ 5,963 $ 7,357 Domestic Franchise 2,533 2,094 International Franchise 4,578 4,904 KK Supply Chain 11,972 10,949 Total segment operating income 25,046 25,304 General and administrative expenses (7,483 ) (7,554 ) Corporate depreciation and amortization expense (609 ) (595 ) (453 ) (4 ) (607 ) (323 ) - 447 Consolidated operating income $ 15,894 $ 17,275 Depreciation and amortization expense: Company Stores 3,270 $ 3,169 Domestic Franchise 17 17 International Franchise - - KK Supply Chain 160 212 Corporate 609 595 Total depreciation and amortization expense $ 4,056 $ 3,993 |
Receivables (Tables)
Receivables (Tables) | 3 Months Ended |
May. 01, 2016 | |
Receivables [Abstract] | |
Schedule of Components of Receivables | May 1, January 31, 2016 2016 (In thousands) Receivables: Consumer packaged goods - wholesale customers $ 11,311 $ 10,808 Unaffiliated franchisees 13,960 13,233 Due from third-party distributors 2,238 2,440 Other receivables 1,530 667 Current portion of notes receivable 1,170 1,224 30,209 28,372 Less allowance for doubtful accounts: Consumer packaged goods - wholesale customers (181 ) (180 ) Unaffiliated franchisees (165 ) (104 ) (346 ) (284 ) $ 29,863 $ 28,088 Receivables from equity method franchisees (Note 5): Trade $ 468 $ 338 May 1, January 31, 2016 2016 (In thousands) Notes receivable: Notes receivable from franchisees $ 4,413 $ 4,829 Less portion due within one year included in receivables (1,170 ) (1,224 ) $ 3,243 $ 3,605 |
Schedule of Changes in the Allowances for Doubtful Accounts | The changes in the allowance for doubtful accounts are summarized as follows: Three Months Ended May 1, May 3, 2016 2015 (In thousands) Allowance for doubtful accounts related to receivables: Balance at beginning of period $ 284 $ 495 Provision for doubtful accounts 73 (118 ) Net recoveries (chargeoffs) (11 ) (13 ) Balance at end of period $ 346 $ 364 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
May. 01, 2016 | |
Inventories [Abstract] | |
Schedule of Inventory | May 1, January 31, 2016 2016 (In thousands) Raw materials $ 7,096 $ 6,844 Work in progress 126 126 Finished goods and purchased merchandise 9,714 9,342 $ 16,936 $ 16,312 |
Investments in Franchisees (Tab
Investments in Franchisees (Tables) | 3 Months Ended |
May. 01, 2016 | |
Investments in Franchisees [Abstract] | |
Schedule of Investments in Franchisees | May 1, 2016 Company Investment Ownership and Percentage Advances Receivables (Dollars in thousands) Kremeworks, LLC 25.0 % $ 900 $ 411 Kremeworks Canada, LP 24.5 % 667 57 1,567 468 Less: reserves and allowances (1,567 ) - $ - $ 468 January 31, 2016 Company Investment Ownership and Percentage Advances Receivables Kremeworks, LLC 25.0 % $ 900 $ 300 Kremeworks Canada, LP 24.5 % 667 38 1,567 338 Less: reserves and allowances (1,567 ) - $ - $ 338 |
Credit Facility and Lease Obl27
Credit Facility and Lease Obligations (Tables) | 3 Months Ended |
May. 01, 2016 | |
Credit Facility and Lease Obligations [Abstract] | |
Schedule of Lease Obligations | May 1, January 31, 2016 2016 (In thousands) Capital lease obligations $ 2,754 $ 2,709 Financing obligations 8,845 8,834 11,599 11,543 Less: current portion (333 ) (326 ) $ 11,266 $ 11,217 |
Shareholders' Equity (Tables)
Shareholders' Equity (Tables) | 3 Months Ended |
May. 01, 2016 | |
Shareholders' Equity [Abstract] | |
Schedule of Share-Based Compensation | Three Months Ended May 1, May 3, 2016 2015 (In thousands) Costs charged to earnings related to: Stock options $ 99 $ 323 Restricted stock units 1,469 1,674 Total costs $ 1,568 $ 1,997 Costs included in: Direct operating expenses $ 631 $ 1,028 General and administrative expenses 937 969 Total costs $ 1,568 $ 1,997 |
Schedule of Repurchase of Common Stock | Three Months Ended May 1, May 3, 2016 2015 Common Common Shares Stock Shares Stock (In thousands) Shares repurchased under share repurchase authorization 2,415 $ 39,645 391 $ 7,428 Shares surrendered in reimbursement for withholding taxes 30 450 11 197 2,445 $ 40,095 402 $ 7,625 |
Impairment Charges and Lease 29
Impairment Charges and Lease Termination Costs (Tables) | 3 Months Ended |
May. 01, 2016 | |
Impairment Charges and Lease Termination Costs [Abstract] | |
Schedule of Impairment Charges and Lease Termination Costs | Three Months Ended May 1, May 3, 2016 2015 (In thousands) Impairment of long-lived assets $ 500 $ - Lease termination costs: Provision for lease termination costs 203 4 Less - reversal of previously recorded accrued rent expense (250 ) - Total lease termination costs (47 ) 4 Total impairment charges and lease termination costs $ 453 $ 4 |
Schedule of Lease Termination Liability | Three Months Ended May 1, May 3, 2016 2015 (In thousands) Balance at beginning of period $ 278 $ 116 Provision for lease termination costs: Provisions associated with store closings, net of estimated sublease rentals 202 - Adjustments to previously recorded provisions resulting from settlements with lessors and adjustments of previous estimates (7 ) 1 Accretion of discount 8 3 Total provision 203 4 Payments on unexpired leases, including settlements with lessors (105 ) (35 ) Balance at end of period $ 376 $ 85 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
May. 01, 2016 | |
Fair Value Measurements [Abstract] | |
Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis | May 1, 2016 (1) Level 1 Level 2 Level 3 (In thousands) Assets: 401(k) mirror plan assets $ 2,517 $ - $ - January 31, 2016 (1) Level 1 Level 2 Level 3 (In thousands) Assets: 401(k) mirror plan assets $ 2,158 $ - $ - (1) There were no transfers of financial assets or liabilities among the levels within the fair value hierarchy during the three months ended May 1, 2016 or during the year ended January 31, 2016. |
Schedule of Non-Recurring Measurements | Three Months Ended May 1, 2016 Level 1 Level 2 Level 3 Total gain (loss) (In thousands) Long-lived assets $ - $ 2,457 $ - $ (500) Lease termination liabilities $ - $ 202 $ - $ 48 |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
May. 01, 2016 | |
Derivative Instruments [Abstract] | |
Schedule of Derivative Gain (Loss) | Amount of Derivative Gain or (Loss) Recognized in Income Three Months Ended May 1, May 3, Derivatives Not Designated as Hedging Instruments Location of Derivative Gain or (Loss) Recognized in Income 2016 2015 (In thousands) Agricultural commodity futures contracts Gains on commodity derivatives, net $ - $ (335 ) Gasoline commodity futures contracts Gains on commodity derivatives, net - 782 Total $ - $ 447 |
Accounting Policies (Schedule o
Accounting Policies (Schedule of Computation of Earnings Per Share) (Details) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Accounting Policies [Abstract] | ||
Net income | $ 9,416 | $ 10,666 |
Basic earnings per share - weighted average shares outstanding | 64,098 | 66,603 |
Diluted earnings per share - weighted average shares outstanding plus dilutive potential common shares | 65,407 | 68,573 |
Stock Options [Member] | ||
Effect of dilutive securities: | ||
Share-based payment arrangement | 1,171 | 1,643 |
Restricted Stock Units [Member] | ||
Effect of dilutive securities: | ||
Share-based payment arrangement | 138 | 327 |
Accounting Policies (Narrative)
Accounting Policies (Narrative) (Details) - USD ($) | May. 08, 2016 | May. 01, 2016 | May. 03, 2015 |
JAB/Cotton Merger [Member] | Subsequent Event [Member] | |||
Business Acquisition [Line Items] | |||
Share price | $ 21 | ||
Acquisition-related transaction costs | $ 454,000 | ||
Potential termination fee | $ 42,000,000 | ||
Stock options [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Antidilutive securities | 244,000 | 302,000 | |
Restricted Stock Units [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Antidilutive securities | 190,000 | 171,000 |
Segment Information (Details)
Segment Information (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Segment Reporting Information [Line Items] | ||
Revenues | $ 136,484 | $ 132,474 |
General and administrative expenses | (7,483) | (7,554) |
Depreciation and amortization expense | (4,056) | (3,993) |
Impairment charges and lease termination costs | (453) | (4) |
Pre-opening costs related to Company Stores | $ (607) | (323) |
Gains on commodity derivatives, net | 447 | |
Operating income | $ 15,894 | 17,275 |
Segments [Member] | ||
Segment Reporting Information [Line Items] | ||
Operating income | 25,046 | 25,304 |
Corporate [Member] | ||
Segment Reporting Information [Line Items] | ||
General and administrative expenses | (7,483) | (7,554) |
Depreciation and amortization expense | (609) | (595) |
Impairment charges and lease termination costs | (453) | (4) |
Pre-opening costs related to Company Stores | $ (607) | (323) |
Gains on commodity derivatives, net | 447 | |
Company Stores [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | $ 93,993 | 90,717 |
Depreciation and amortization expense | (3,270) | (3,169) |
Operating income | 5,963 | 7,357 |
Domestic Franchise [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | 4,137 | 3,709 |
Depreciation and amortization expense | (17) | (17) |
Operating income | 2,533 | 2,094 |
International Franchise [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | $ 6,855 | $ 6,728 |
Depreciation and amortization expense | ||
Operating income | $ 4,578 | $ 4,904 |
KK Supply Chain [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | 31,499 | 31,320 |
Depreciation and amortization expense | (160) | (212) |
Operating income | 11,972 | 10,949 |
KK Supply Chain [Member] | Segments [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | 64,049 | 63,517 |
KK Supply Chain [Member] | Intersegment Elimination [Member] | ||
Segment Reporting Information [Line Items] | ||
Revenues | $ (32,550) | $ (32,197) |
Receivables (Components of Rece
Receivables (Components of Receivables) (Details) - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Other receivables | $ 1,530 | $ 667 |
Current portion of notes receivable | 1,170 | 1,224 |
Receivables | 30,209 | 28,372 |
Less - allowance for doubtful accounts: | (346) | (284) |
Receivables, net | 29,863 | 28,088 |
Receivables from equity method franchisees | 468 | 338 |
Consumer Packaged Goods - Wholesale Customers [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Trade receivables | 11,311 | 10,808 |
Less - allowance for doubtful accounts: | (181) | (180) |
Unaffiliated Franchisees [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Trade receivables | 13,960 | 13,233 |
Less - allowance for doubtful accounts: | (165) | (104) |
Due from Third Party Distributors [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Trade receivables | $ 2,238 | $ 2,440 |
Receivables (Allowance for Doub
Receivables (Allowance for Doubtful Accounts) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Allowance For Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of period | $ 284 | |
Balance at end of period | 346 | |
Trade Accounts Receivable [Member] | ||
Allowance For Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of period | 284 | $ 495 |
Provision for doubtful accounts | 73 | (118) |
Net recoveries (chargeoffs) | (11) | (13) |
Balance at end of period | $ 346 | $ 364 |
Receivables (Schedule of Other
Receivables (Schedule of Other Notes Receivables) (Details) - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Receivables [Abstract] | ||
Note receivable from franchisees | $ 4,413 | $ 4,829 |
Less - portion due within one year included in receivables | (1,170) | (1,224) |
Non-current portion of notes receivable | $ 3,243 | $ 3,605 |
Receivables (Narrative) (Detail
Receivables (Narrative) (Details) - USD ($) $ in Millions | May. 01, 2016 | Jan. 31, 2016 |
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Unrecognized franchise revenue | $ 1.2 | $ 1.2 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Inventories [Abstract] | ||
Raw materials | $ 7,096 | $ 6,844 |
Work in progress | 126 | 126 |
Finished goods and purchased merchandise | 9,714 | 9,342 |
Inventories, Net, Total | $ 16,936 | $ 16,312 |
Investments in Franchisees (Fin
Investments in Franchisees (Financial Exposure Related to Franchisee Investments) (Details) - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Schedule of Equity Method Investments [Line Items] | ||
Investment and advances | $ 1,567 | $ 1,567 |
Reserves and allowances | $ (1,567) | $ (1,567) |
Investment and advances | ||
Receivables | $ 468 | $ 338 |
Reserves and allowances | ||
Receivables | $ 468 | $ 338 |
Kremeworks LLC [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Company Ownership Percentage | 25.00% | 25.00% |
Investment and advances | $ 900 | $ 900 |
Receivables | $ 411 | $ 300 |
Kremeworks Canada LP [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Company Ownership Percentage | 24.50% | 24.50% |
Investment and advances | $ 667 | $ 667 |
Receivables | $ 57 | $ 38 |
Investments in Franchisees (Nar
Investments in Franchisees (Narrative) (Details) | May. 01, 2016USD ($)franchises | Jan. 31, 2016USD ($) |
Schedule of Equity Method Investments [Line Items] | ||
Number of investments in franchisees | franchises | 2 | |
Kremeworks, LLC and Kremeworks Canada, LP [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Accrued but uncollected interest on advances | $ | $ 380,000 | $ 370,000 |
Credit Facility and Lease Obl42
Credit Facility and Lease Obligations (Schedule of Lease Obligations) (Details) - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Lease obligations: | ||
Lease obligations | $ 11,599 | $ 11,543 |
Less: current portion | (333) | (326) |
Lease obligations, less current portion | 11,266 | 11,217 |
Capital lease obligations [Member] | ||
Lease obligations: | ||
Lease obligations | 2,754 | 2,709 |
Assets Under Financing Obligations [Member] | ||
Lease obligations: | ||
Lease obligations | $ 8,845 | $ 8,834 |
Credit Facility and Lease Obl43
Credit Facility and Lease Obligations (2013 Revolving Credit Facility) (Details) $ in Millions | 3 Months Ended |
May. 01, 2016USD ($) | |
Credit Facility and Lease Obligations [Abstract] | |
Letters of credit outstanding | $ 10.3 |
2013 Revolving Credit Facility [Member] | |
Line of Credit Facility [Line Items] | |
Issuance date | Jul. 12, 2013 |
Debt maturity date | Jul. 12, 2018 |
Maximum borrowing capacity | $ 40 |
Available borrowing capacity | $ 29.7 |
Spread over variable rate | 1.25% |
Description of variable rate basis | greatest of the prime rate, the Federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00% |
Fee on unused portion | 0.15% |
Leverage ratio | 0.3 |
Fixed charge coverage ratio | 3.4 |
Default triggering event | $ 5 |
Covenant calculation, aggregate threshold for lease termination obligations | $ 5 |
2013 Revolving Credit Facility [Member] | Minimum [Member] | |
Line of Credit Facility [Line Items] | |
Fee on unused portion | 0.15% |
Fixed charge coverage ratio | 1.3 |
2013 Revolving Credit Facility [Member] | Minimum [Member] | LIBOR [Member] | |
Line of Credit Facility [Line Items] | |
Spread over variable rate | 1.25% |
2013 Revolving Credit Facility [Member] | Minimum [Member] | Base Rate [Member] | |
Line of Credit Facility [Line Items] | |
Spread over variable rate | 0.25% |
2013 Revolving Credit Facility [Member] | Maximum [Member] | |
Line of Credit Facility [Line Items] | |
Fee on unused portion | 0.35% |
Leverage ratio | 2.25 |
2013 Revolving Credit Facility [Member] | Maximum [Member] | LIBOR [Member] | |
Line of Credit Facility [Line Items] | |
Spread over variable rate | 2.15% |
2013 Revolving Credit Facility [Member] | Maximum [Member] | Base Rate [Member] | |
Line of Credit Facility [Line Items] | |
Spread over variable rate | 1.15% |
Commitments and Contingencies (
Commitments and Contingencies (Narratives) (Details) $ in Millions | 3 Months Ended |
May. 01, 2016USD ($) | |
Loss Contingencies [Line Items] | |
Letters of credit outstanding | $ 10.3 |
K2 Asia Litigation [Member] | |
Loss Contingencies [Line Items] | |
Loss Contingency, Actions Taken by Plaintiff | On April 7, 2009, a Cayman Islands corporation, K2 Asia Ventures, and its owners filed a lawsuit in Forsyth County, North Carolina Superior Court against us, our franchisee in the Philippines, and other persons associated with the franchisee. The suit alleges that we and the other defendants conspired to deprive the plaintiffs of claimed “exclusive rights” to negotiate franchise and development agreements with prospective franchisees in the Philippines, and seeks unspecified damages. We therefore do not know the amount or range of possible loss related to this matter. We believe that these allegations are false and continue to vigorously defend against the lawsuit. On July 26, 2013, the Superior Court dismissed the Philippines-based defendants for lack of personal jurisdiction, and the plaintiffs appealed that decision. On January 22, 2015, the North Carolina Supreme Court denied the plaintiffs’ request to review the case. We moved for summary judgment on May 7, 2015 and are awaiting a decision by the Superior Court. We do not believe it is probable that a loss has been incurred with respect to this matter, and accordingly no liability related to it has been reflected in the accompanying financial statements. |
Merger-Related Litigation [Member] | |
Loss Contingencies [Line Items] | |
Loss Contingency, Actions Taken by Plaintiff | On May 26, 2016, a purported shareholder of the Company, Ronnie Stillwell, filed a putative class action complaint challenging the Merger in Superior Court in the State of North Carolina. The complaint names as defendants JAB, Cotton, Merger Sub and the members of the Board and also names the Company as a nominal defendant. The complaint seeks, among other relief, an order enjoining the Merger, compensatory damages, and an award of attorney's fees and costs on the grounds that, among other things, the members of the Board allegedly breached their fiduciary duties in connection with entering into the Merger Agreement and adopting and approving the Merger. The complaint further alleges that JAB, Cotton and Merger Sub aided and abetted the alleged breaches of fiduciary duties. It is possible that this complaint will be amended to make additional claims and/or that additional lawsuits making similar or additional claims relating to the Merger will be brought. On May 26, 2016, legal advisors representing Melissa Weers, who is purportedly a shareholder of the Company, submitted a letter through the mail to the Board of the Company demanding legal action against the Board for a purported breach of fiduciary duty related to the Merger. The letter alleges, among other things, that the directors of the Company agreed to inadequate merger consideration and undervalued the Company. Additionally, the letter alleges that measures in the Merger Agreement created unreasonable protective devices to preclude competing offers. The letter further states Ms. Weer’s belief that the Board of the Company was neither independent nor disinterested in the Merger, preventing directors from fulfilling their fiduciary duties to the Company’s shareholders. In closing, the letter demands attention from the Board. The letter further asks the Board to authorize litigation against Cotton and its affiliated entities for aiding and abetting these supposed breaches. On June 8, 2016, the Company received a demand letter from legal advisors representing Stu Bonnin, who is also purportedly a shareholder of the Company. In addition to alleging a breach of fiduciary duty related to the Merger, the letter also alleges a breach by the members of the Board of their duties of care, candor and good faith by causing the Company to issue materially incomplete and misleading disclosures in the Company’s PREM14A Preliminary Proxy Statement filed on May 31, 2016. Specifically, the letter alleges that the disclosures were deficient and misleading because they did not include information as to the nature and timing of post-merger employment discussions. In closing, the letter demands that the Board take action to disclose the material information allegedly omitted from the Preliminary Proxy Statement. |
Shareholders' Equity (Allocatio
Shareholders' Equity (Allocation of Share-based Compensation) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation | $ 1,568 | $ 1,997 |
Direct Operating Expense [Member] | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation | 631 | 1,028 |
General and Administration Expenses [Member] | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation | 937 | 969 |
Stock Options [Member] | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation | 99 | 323 |
Restricted Stock Units [Member] | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation | $ 1,469 | $ 1,674 |
Shareholders' Equity (Repurchas
Shareholders' Equity (Repurchases of Common Stock) (Details) - USD ($) $ in Thousands | 3 Months Ended | 34 Months Ended | |
May. 01, 2016 | May. 03, 2015 | May. 01, 2016 | |
Shareholders' Equity [Abstract] | |||
Shares repurchased under share repurchase authorizations, shares | 2,415,000 | 391,000 | 8,612,395 |
Shares surrendered in reimbursement for withholding taxes, shares | 30,000 | 11,000 | |
Repurchases of common shares, shares | 2,445,000 | 402,000 | |
Shares repurchased under share repurchase authorizations | $ 39,645 | $ 7,428 | $ 151,200 |
Shares surrendered in reimbursement for withholding taxes | 450 | 197 | |
Repurchase of common shares | $ 40,095 | $ 7,625 |
Shareholders' Equity (Narrative
Shareholders' Equity (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 34 Months Ended | |
May. 01, 2016 | May. 03, 2015 | May. 01, 2016 | |
Equity Disclosure [Line Items] | |||
Authorization amount for repurchases of common stock | $ 255,000 | $ 255,000 | |
Shares repurchased under share repurchase authorizations, shares | 2,415,000 | 391,000 | 8,612,395 |
Shares repurchased under share repurchase authorization, average price per share | $ 17.56 | ||
Value of shares repurchased under share repurchase authorization | $ 39,645 | $ 7,428 | $ 151,200 |
Repurchases settled during the period | 34,200 | $ 5,900 | |
Amount remaining under repurchase authorization | $ 103,800 | $ 103,800 |
Impairment Charges and Lease 48
Impairment Charges and Lease Termination Costs (Schedule of Impairment Charges and Lease Termination Costs) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Impairment Charges and Lease Termination Costs [Abstract] | ||
Impairment of long-lived assets | $ 500 | |
Lease termination costs: | ||
Provision for lease termination costs | 203 | $ 4 |
Less - reversal of previously recorded accrued rent expense | (250) | |
Total lease termination costs | (47) | $ 4 |
Total impairment charges and lease termination costs | $ 453 | $ 4 |
Impairment Charges and Lease 49
Impairment Charges and Lease Termination Costs (Narrative) (Details) - USD ($) | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Loss Contingencies [Line Items] | ||
Impairment of long-lived assets | $ 500,000 | |
Current portion of lease termination costs | $ 376,000 |
Impairment Charges and Lease 50
Impairment Charges and Lease Termination Costs (Schedule of Lease Termination Liability) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Lease Termination Costs [Roll Forward] | ||
Balance at beginning of period | $ 278 | $ 116 |
Provision for lease termination costs: | ||
Provisions associated with store closings, net of estimated sublease rentals | 202 | |
Adjustments to previously recorded provisions resulting from settlements with lessors and adjustments of previous estimates | (7) | $ 1 |
Accretion of discount | 8 | 3 |
Total provision | 203 | 4 |
Payments on unexpired leases, including settlements with lessors | (105) | (35) |
Balance at end of period | $ 376 | $ 85 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | ||
May. 01, 2016 | May. 03, 2015 | Jan. 31, 2016 | |
Income Taxes Disclosure [Line Items] | |||
Effective income tax rate | 39.30% | 38.10% | |
Valuation allowance | $ 1.4 | $ 1.4 |
Fair Value Measurements (Assets
Fair Value Measurements (Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) - Recurring [Member] - USD ($) $ in Thousands | May. 01, 2016 | Jan. 31, 2016 |
Level 1 [Member] | ||
Assets: | ||
401(k) mirror plan assets | $ 2,517 | $ 2,158 |
Level 2 [Member] | ||
Assets: | ||
401(k) mirror plan assets | ||
Level 3 [Member] | ||
Assets: | ||
401(k) mirror plan assets |
Fair Value Measurements (Asse53
Fair Value Measurements (Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Reversal of previously recorded accrued rent expense | $ 250 | |
Carrying Value [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-lived assets | 3,000 | |
Fair Value, Measurements, Nonrecurring [Member] | Total Gain (Loss) [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-lived assets | (500) | |
Lease termination liabilities | $ 48 | |
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-lived assets | ||
Lease termination liabilities | ||
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-lived assets | $ 2,457 | |
Lease termination liabilities | $ 202 | |
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-lived assets | ||
Lease termination liabilities |
Derivative Instruments (Effect
Derivative Instruments (Effect of Derivative Instuments by Income Statement Location) (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May. 01, 2016 | May. 03, 2015 | |
Derivative Instruments, Gain (Loss) [Line Items] | ||
Amount of Derivative Gain or (Loss) Recognized in Income | $ 447 | |
Not Designated as Hedging Instrument [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Gain (loss) recognized in income | 447 | |
Gains and Losses on Commodity Derivatives, Net [Member] | Agricultural Commodity Futures Contracts [Member] | Not Designated as Hedging Instrument [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Gain (loss) recognized in income | (335) | |
Gains and Losses on Commodity Derivatives, Net [Member] | Gasoline Commodity Futures Contracts [Member] | Not Designated as Hedging Instrument [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Gain (loss) recognized in income | $ 782 |
Acquisitions (Details)
Acquisitions (Details) - USD ($) | Apr. 23, 2015 | May. 01, 2016 | May. 03, 2015 | Feb. 01, 2015 | Jan. 31, 2016 |
Business Acquisition [Line Items] | |||||
Payments to acquire businesses, net of cash acquired | $ 185,000 | $ 312,000 | |||
CPG Rights [Member] | Franchise Rights [Member] | |||||
Business Acquisition [Line Items] | |||||
Reacquired franchise rights | $ 185,000 | $ 1,600,000 | |||
Little Rock Acquisition [Member] | |||||
Business Acquisition [Line Items] | |||||
Net sales | $ 2,700,000 | ||||
Payments to acquire businesses, net of cash acquired | $ 312,000 | ||||
Property and equipment | 252,000 | ||||
Inventory | 27,000 | ||||
Reacquired franchise rights | 137,000 | ||||
Unfavorable lease liability | $ 104,000 |
Subsequent Events (Details)
Subsequent Events (Details) - Subsequent Event [Member] - Jacksonville, Florida Stores [Member] $ in Millions | May. 02, 2016USD ($)stores |
Subsequent Event [Line Items] | |
Number of stores sold | stores | 4 |
Proceeds from refranchising | $ 1.5 |
Purchase consideration dependent on the future performance | 1.3 |
Carrying amount of assets sold | $ 2.5 |