| Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 2, 2018 ("2017 Form 10-K"). The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2018 is a fifty-two week period ending January 1, 2019 . Fiscal year 2017 is the fifty-two week period ended January 2, 2018 . In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. For fiscal year 2018 , the Company’s accompanying financial statements reflect the twelve weeks ended September 11, 2018 . For fiscal year 2017 , the Company’s accompanying financial statements reflect the twelve weeks ended September 12, 2017 . Effective January 3, 2018 (the first day of fiscal year 2018), the Company adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed below in Note 2, using the modified retrospective method of transition. Current year results have been prepared in accordance with the new standards. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year. Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances. Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842) . This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The new guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with certain practical expedients available. The Company plans to adopt the requirements of the new lease standard effective January 2, 2019, the first day of fiscal year 2019, and apply a modified retrospective adoption method. The Company anticipates taking advantage of the practical expedient options which allow an entity to not reassess whether any existing or expired contracts contain leases, not reassess lease classifications for existing or expired leases, and an entity does not need to reassess initial direct costs for any existing leases, and we are further evaluating other optional practical expedients and policy elections. The Company is in the process of implementing changes to its systems and processes in conjunction with its review of existing lease agreements. The cumulative effect of adoption will be recorded to retained earnings in the period of adoption. Based on a preliminary assessment, the Company expects that substantially all of its operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a material increase in the assets and liabilities on the Company's consolidated balance sheets. The Company is continuing its evaluation, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures. The Company will adopt ASU No. 2016-02 during the first quarter of fiscal 2019. Recently Adopted Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides a comprehensive new revenue recognition model that requires a company to recognize revenue in an amount that reflects the consideration it expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU No. 2014-09, also known as FASB Accounting Standards Codification ("ASC") Topic 606 ("Topic 606") supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition ("Topic 605"). On January 3, 2018 (the first day of fiscal year 2018), the Company adopted the requirements of Topic 606, utilizing the modified retrospective method of transition. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition, as detailed below. Topic 606 does not materially impact the recognition of company restaurant sales or franchise royalty income from franchisees included in franchise revenue. Franchise Fees The adoption of Topic 606 changed the timing of the recognition of initial franchise fees, including franchise and development fees, and renewal fees, both included in franchise revenue in the consolidated statements of comprehensive income. Under Topic 605, initial franchise fees were recognized when all material obligations had been performed and conditions had been satisfied, typically when operations of a new franchise restaurant had commenced, and renewal fees were recognized when a renewal agreement became effective. Topic 606 requires franchise and renewal fees to be deferred and recognized over the term of the related franchise agreement for the respective restaurant. Franchise agreements typically have a term of 20 years. The impact of the deferral of initial franchise and renewal fees received in a given year may be offset by the recognition of revenue from fees retrospectively deferred from prior years. Upon adoption, the Company recorded approximately $0.7 million as a cumulative effect adjustment to opening retained earnings comprised of $1.0 million of deferred franchise fees included in other non-current liabilities on the consolidated balance sheet as of January 3, 2018 (the first day of fiscal year 2018) related to franchise and renewal fees previously recognized since the business combination with Levy Acquisition Corp. on June 30, 2015, partially offset by an adjustment of $0.3 million to deferred taxes related to the $1.0 million of deferred franchise fees. During the twelve and thirty-six weeks ended September 11, 2018 , the Company recognized approximately $12,000 and $40,000 , respectively, in franchise revenue related to the amortization of the deferred franchise fees recognized at January 2, 2018 as a result of the adoption of Topic 606. Deferred franchise fees are recognized straight-line over the term of the underlying agreement and the amount expected to be recognized in franchise revenue for amounts in deferred franchise fees as of September 11, 2018 is as follows (in thousands): FY 2018 $ 21 FY 2019 69 FY 2020 67 FY 2021 65 FY 2022 65 Thereafter 805 Total Deferred Franchise Fees $ 1,092 Advertising The adoption of the new guidance changed the reporting of advertising contributions from franchisees and the related advertising expenses, which were not previously included in the consolidated statements of comprehensive income. Topic 606 requires these franchise advertising contributions and expenses to be reported on a gross basis in the consolidated statements of comprehensive income, which impacted our total revenues and expenses. However, the franchise advertising contributions and expenses are expected to be largely offsetting and therefore does not have a significant impact on reported net income. The current year impact to revenue for franchise advertising contributions and to expenses for franchise advertising expenses for the twelve and thirty-six weeks ended September 11, 2018 was an increase of $3.1 million and $9.2 million , respectively, for both revenue and expenses as a result of applying Topic 606. Other Revenue Transactions Certain other franchise expenses have previously been recorded net of the related fees received from franchisees. Under Topic 606, the Company is now including these revenues and expenditures on a gross basis within the consolidated statements of comprehensive income. While this change materially impacted the gross amount of reported franchise revenue and related expenses on the consolidated statements of comprehensive income, the impact is an offsetting increase to both revenue and expense such that there is not a significant, if any, impact on operating income and net income. The current year impact to revenues for the twelve and thirty-six weeks ended September 11, 2018 was an increase of approximately $0.2 million and $0.5 million , respectively, as a result of applying Topic 606, with an offsetting increase in expenses. Comparison to Amounts if Previous Standards Had Been in Effect The following tables reflect the impact of the adoption of Topic 606 on the Company's consolidated balance sheet as of September 11, 2018 and on the Company's consolidated statements of comprehensive income and cash flows from operating activities for the thirty-six weeks ended September 11, 2018 and the amounts as if Topic 605 was in effect ("Amounts Under Previous Standards") (in thousands): September 11, 2018 As Reported Adjustments for Prior Revenue Recognition Standards Amounts Under Previous Standards Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 20,172 $ — $ 20,172 Other accrued liabilities 40,706 — 40,706 Current portion of capital lease obligations and deemed landlord financing liabilities 1,109 — 1,109 Total current liabilities 61,987 — 61,987 Long-term debt, capital lease obligations and deemed landlord financing liabilities, excluding current portion, net 169,174 — 169,174 Deferred income taxes 69,137 296 69,433 Other non-current liabilities 31,945 (1,092 ) 30,853 Total liabilities 332,243 (796 ) 331,447 Shareholders’ equity: Preferred stock — — — Common stock 4 — 4 Additional paid-in capital 343,412 — 343,412 Accumulated other comprehensive income 357 — 357 Retained earnings 79,503 796 80,299 Total shareholders’ equity 423,276 796 424,072 Total liabilities and shareholders’ equity $ 755,519 $ — $ 755,519 12 Weeks Ended September 11, 2018 36 Weeks Ended September 11, 2018 As Reported Adjustments for Prior Revenue Recognition Standards Amounts Under Previous Standards As Reported Adjustments for Prior Revenue Recognition Standards Amounts Under Previous Standards Revenue: Company restaurant sales $ 109,559 $ — $ 109,559 $ 324,468 $ — $ 324,468 Franchise revenue 4,308 (176 ) 4,132 12,249 (423 ) 11,826 Franchise advertising contributions 3,155 (3,155 ) — 9,227 (9,227 ) — Franchise sublease income 808 — 808 2,253 — 2,253 Total revenue 117,830 (3,331 ) 114,499 348,197 (9,650 ) 338,547 Operating expenses: Restaurant operating expenses: Food and paper costs 29,601 — 29,601 88,656 — 88,656 Labor and related expenses 35,301 — 35,301 105,541 — 105,541 Occupancy and other operating expenses 22,844 — 22,844 67,457 — 67,457 General and administrative 9,606 (201 ) 9,405 30,356 (545 ) 29,811 Franchise advertising expenses 3,155 (3,155 ) — 9,227 (9,227 ) — Depreciation and amortization 5,855 — 5,855 17,616 — 17,616 Occupancy and other - franchise subleases 762 — 762 2,051 — 2,051 Pre-opening costs 259 — 259 900 — 900 Impairment of long-lived assets — — — 1,661 — 1,661 Restaurant closure charges, net 672 — 672 635 — 635 Loss on disposal of assets, net 580 — 580 760 — 760 Total operating expenses 108,635 (3,356 ) 105,279 324,860 (9,772 ) 315,088 Income from operations 9,195 25 9,220 23,337 122 23,459 Other expense, net Interest expense 2,062 — 2,062 5,984 — 5,984 Other income (523 ) — — (523 ) — (523 ) Total other expense, net 1,539 — 2,062 5,461 — 5,461 Income from operations before provision for income taxes 7,656 25 7,158 17,876 122 17,998 Provision for income taxes 1,782 7 1,789 4,563 33 4,596 Net income 5,874 18 5,369 13,313 89 13,402 Other comprehensive income: Change in fair value of interest rate cap, net of tax 23 — 23 312 — 312 Reclassification of interest rate cap amortization included in net income 15 — 15 31 — 31 Total other comprehensive income 38 — 38 343 — 343 Comprehensive income $ 5,912 $ 18 $ 5,407 $ 13,656 $ 89 $ 13,745 Earnings per share: Basic $ 0.15 $ (0.01 ) $ 0.14 $ 0.35 $ — $ 0.35 Diluted $ 0.15 $ (0.01 ) $ 0.14 $ 0.34 $ — $ 0.34 36 Weeks Ended September 11, 2018 As Reported Adjustments for Prior Revenue Recognition Standards Amounts Under Previous Standards Operating activities Net income $ 13,313 $ 89 $ 13,402 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,616 — 17,616 Amortization of favorable and unfavorable lease assets and liabilities, net (602 ) — (602 ) Amortization of deferred financing costs and debt discount 297 — 297 Stock-based compensation 4,079 — 4,079 Impairment of long-lived assets 1,661 — 1,661 Deferred income taxes 698 33 731 Loss on disposal of assets, net 760 — 760 Restaurant closure charges 604 — 604 Changes in operating assets and liabilities: Accounts and other receivables, net 263 — 263 Inventories 116 — 116 Prepaid expenses and other current assets 1,993 — 1,993 Other assets 9 — 9 Accounts payable 649 — 649 Other accrued liabilities 1,732 — 1,732 Other non-current liabilities 1,120 (122 ) 998 Net cash provided by operating activities $ 44,308 $ — $ 44,308 Summary of Significant Accounting Policies Except for the accounting policies for revenue recognition discussed below that were updated as a result of adopting ASU No. 2014-09, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended January 2, 2018, filed with the SEC on March 15, 2018, that have had a material impact on our condensed consolidated financial statements and related notes. Revenue Recognition Company restaurant sales from the operation of company-operated restaurants are recognized when food and service is delivered to customers. Franchise revenue is comprised of (i) development fees, (ii) franchise fees, (iii) on-going royalties, (iv) renewal fees and (v) other franchise revenue. Development and franchise fees, portions of which are collected in advance and are non-refundable, received pursuant to individual development agreements, grant the right to develop franchise-operated restaurants in future periods in specific geographic areas. Both development fees and franchise fees are deferred and recognized as revenue over the term of the franchise agreement and renewal fees are deferred and recognized over the term of the renewal agreement. Development fees and franchise fees are also generally recognized as revenue upon the termination of the development agreement with the franchisee. Royalties from franchise-operated restaurants are based on a percentage of franchise restaurant sales and are recognized in the period the related franchise-operated restaurant sales occur. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities. Franchise sublease income is comprised of rental income associated with properties leased or subleased to franchisees and is recognized as revenue on an accrual basis. Advertising Costs Franchisees pay a monthly fee to the Company typically equal to 4% of their restaurants’ net sales as contributions for advertising and promotional services that the Company provides and are included in revenue in franchise advertising contributions on the consolidated statements of comprehensive income. Company-operated restaurants contribute to the advertising fund on the same basis as franchise-operated restaurants. Production costs for radio and television advertising are expensed when the commercials are initially aired. Costs of distribution of advertising are charged to expense on the date the advertising is aired or distributed. The portion of these costs related to company-operated restaurants, as well as other marketing-related expenses for advertising are included in occupancy and other operating expenses in the consolidated statements of comprehensive income. The portion of these costs related to franchise-operated restaurants for advertising are included in franchise advertising expenses on the consolidated statements of comprehensive income. |
