| Basis of Presentation | Basis of Presentation Basis of Presentation Wingstop Inc., through its primary operating subsidiary, Wingstop Restaurants Inc. (“WRI”), collectively referred to as “Wingstop” or the “Company,” is in the business of franchising and operating Wingstop restaurants. As of September 29, 2018 , 1,059 franchised restaurants were in operation domestically, and 130 international franchised restaurants were in operation across nine countries. As of September 29, 2018 , the Company owned and operated 26 restaurants. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Balance sheet amounts are as of September 29, 2018 and December 30, 2017 and operating results are for the thirteen and thirty-nine weeks ended September 29, 2018 and September 30, 2017 . In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 . The Company uses a 52/53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2018 and 2017 have 52 weeks. The Company has reclassified certain prior period amounts due to the adoption of ASU 2014-09 and ASU 2016-18, as defined below. Advertising Fund The Company administers the Wingstop Restaurants Advertising Fund (“Ad Fund”), which is used for various forms of advertising for the Wingstop brand. Advertising fund contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations, which are largely offsetting and therefore do not significantly impact our reported net income. Advertising expenses incurred by company-owned restaurants are included within cost of sales in the Consolidated Statements of Operations. Administrative support services and compensation expenses of employees that provide services directly to the Ad Fund, are included in selling, general and administrative expenses (“SG&A”) in the Consolidated Statements of Operations. The Ad Fund contribution collected from Wingstop restaurant franchisees and company-owned and operated restaurants during the thirty-nine weeks ended September 29, 2018 and September 30, 2017 was equal to 3% of gross sales. For the thirty-nine weeks ended September 29, 2018 and September 30, 2017 , the Company contributed $2.8 million and $4.8 million , respectively, for the purpose of supplementing the national advertising campaign, which amounts were included in Advertising expenses in the Consolidated Statements of Operations. The Company consolidates and reports all assets and liabilities of the Ad Fund as restricted assets of the Ad Fund and liabilities of the Ad Fund within current assets and current liabilities, respectively, in the Consolidated Balance Sheets. The assets and liabilities of the Ad Fund consist primarily of cash, receivables, accrued expenses, other liabilities, and any cumulative surplus related to the Ad Fund. Pursuant to the Company’s franchise agreements, use of Ad Fund contributions is restricted to advertising, public relations, merchandising, similar activities, and administrative expenses to increase sales and further enhance the public reputation of the Wingstop brand. The aforementioned administrative expenses may also include personnel expenses and allocated costs incurred by the Company that are directly associated with administering the Ad Fund, as outlined in the provisions of the applicable franchise agreements. Total cash balances related to the Ad Fund as of September 29, 2018 and December 30, 2017 were $6.8 million and $2.3 million , respectively. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”) . ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal year 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. This new guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company expects to adopt this new guidance in fiscal year 2019 without restating comparative periods. The discounted minimum remaining rental payments will be the starting point for determining the right-of-use asset and lease liability. The Company expects that adoption of the new guidance will have a material impact on the consolidated balance sheets due to the recognition of the right-of-use asset and lease liability related to our current operating leases. Though the majority of the assessment is complete, the Company continues to evaluate the impact the adoption of this new guidance will have on the Company’s consolidated financial statements, as well as the impact on accounting policies and related disclosures. Additionally, the Company is in the process of implementing new accounting systems, business processes, and internal controls related to lease accounting to assist in the application of the new guidance. In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) (“ASU 2018-05”) . ASU 2018-05 provides guidance on accounting for the income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Act”), which impacts U.S. corporate tax rates, business-related exclusions, and deductions and credits. The Act also has tax consequences for many companies that operate internationally. The Company recognized the income tax effects of the Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of Accounting Standards Codification (“ASC”) Topic 740, "Income Taxes," in the reporting period in which the Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The Company will continue to analyze additional information and guidance related to the Act as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. The final impacts may differ from the recorded amounts as of September 29, 2018 , and we will continue to refine such amounts within the measurement period provided by Staff Accounting Bulletin No. 118. We expect to complete our analysis no later than the fourth quarter of 2018. Recently Adopted Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which superseded nearly all existing revenue recognition guidance. The new guidance provided a single framework in which revenue is required to be recognized to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal year 2018, using the full retrospective transition method, which resulted in adjusting each prior reporting period presented and a cumulative effect adjustment, which was recorded as of the first day of 2016. The adoption changed the timing of recognition of initial franchise fees, development fees, territory fees for our international business and renewal and transfer fees, as well as the reporting of Ad Fund contributions and related expenditures. See Note 11 to our consolidated financial statements, Revenue from Contracts with Customers , for further discussion. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which requires that restricted cash and cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and a retrospective transition method is required. The Company adopted this new guidance effective the first day of fiscal year 2018, using the full retrospective transition method, which resulted in adjusting the Statement of Cash Flows for each prior period presented. The following table presents the effect of the adoption of ASU 2014-09 on our consolidated balance sheets as of December 30, 2017 (in thousands): As reported Adjustments for adoption of ASU 2014-09 As Adjusted Assets Current assets Cash and cash equivalents $ 4,063 $ — $ 4,063 Accounts receivable, net 4,567 — 4,567 Prepaid expenses and other current assets 4,334 — 4,334 Advertising fund assets, restricted 2,944 — 2,944 Total current assets 15,908 — 15,908 Property and equipment, net 5,826 — 5,826 Goodwill 46,557 — 46,557 Trademarks 32,700 — 32,700 Customer relationships, net 15,567 — 15,567 Other non-current assets 3,278 — 3,278 Total assets $ 119,836 $ — $ 119,836 Liabilities and stockholders' deficit Current liabilities Accounts payable $ 1,752 $ — $ 1,752 Other current liabilities 10,683 246 10,929 Current portion of debt 3,500 — 3,500 Advertising fund liabilities 2,944 — 2,944 Total current liabilities 18,879 246 19,125 Long-term debt, net 129,841 — 129,841 Deferred revenues, net of current 8,427 12,799 21,226 Deferred income tax liabilities, net 8,799 (2,879 ) 5,920 Other non-current liabilities 2,142 — 2,142 Total liabilities 168,088 10,166 178,254 Commitments and contingencies (see Note 7) Stockholders' deficit Common stock 291 — 291 Additional paid-in-capital 262 — 262 Accumulated deficit (48,805 ) (10,166 ) (58,971 ) Total stockholders' deficit (48,252 ) (10,166 ) (58,418 ) Total liabilities and stockholders' deficit $ 119,836 $ — $ 119,836 The following table presents the effect of the adoption of ASU 2014-09 on our consolidated statements of operations for the thirteen weeks ended September 30, 2017 (in thousands, except per share amounts): Adjustments for adoption of ASU 2014-09 As reported Franchise Fees Advertising As Adjusted Revenue: Royalty revenue, franchise fees and other $ 16,354 $ (482 ) $ — $ 15,872 Advertising fees and related income — — 7,579 7,579 Company-owned restaurant sales 9,672 — — 9,672 Total revenue 26,026 (482 ) 7,579 33,123 Costs and expenses: Cost of sales (1) 7,823 — — 7,823 Advertising expenses — — 7,665 7,665 Selling, general and administrative 8,144 — (86 ) 8,058 Depreciation and amortization 881 — — 881 Total costs and expenses 16,848 — 7,579 24,427 Operating income 9,178 (482 ) — 8,696 Interest expense, net 1,302 — — 1,302 Income before income tax expense 7,876 (482 ) — 7,394 Income tax expense 2,864 (174 ) — 2,690 Net income $ 5,012 $ (308 ) $ — $ 4,704 Earnings per share Basic $ 0.17 $ (0.01 ) $ — $ 0.16 Diluted $ 0.17 $ (0.01 ) $ — $ 0.16 (1) Cost of sales excludes depreciation and amortization, which are presented separately, and includes advertising expenses incurred at company-owned restaurants. The following table presents the effect of the adoption of ASU 2014-09 on our consolidated statements of operations for the thirty-nine weeks ended September 30, 2017 (in thousands, except per share amounts): Adjustments for adoption of ASU 2014-09 As reported Franchise Fees Advertising As Adjusted Revenue: Royalty revenue, franchise fees and other $ 50,204 $ (1,469 ) $ — $ 48,735 Advertising fees and related income — — 22,313 22,313 Company-owned restaurant sales 27,063 — — 27,063 Total revenue 77,267 (1,469 ) 22,313 98,111 Costs and expenses: Cost of sales (1) 21,290 — — 21,290 Advertising expenses — — 24,522 24,522 Selling, general and administrative 26,694 — (2,209 ) 24,485 Depreciation and amortization 2,407 — — 2,407 Total costs and expenses 50,391 — 22,313 72,704 Operating income 26,876 (1,469 ) — 25,407 Interest expense, net 3,908 — — 3,908 Income before income tax expense 22,968 (1,469 ) — 21,499 Income tax expense 6,161 (530 ) — 5,631 Net income $ 16,807 $ (939 ) $ — $ 15,868 Earnings per share Basic $ 0.58 $ (0.03 ) $ — $ 0.55 Diluted $ 0.57 $ (0.03 ) $ — $ 0.54 (1) Cost of sales excludes depreciation and amortization, which are presented separately, and includes advertising expenses incurred at company-owned restaurants. The following table presents the effect of the adoption of ASU 2014-09 and ASU 2016-18 on our consolidated statements of cash flows for the thirty-nine weeks ended September 30, 2017 (in thousands): As reported Adjustments for adoption of ASU 2014-09 Adjustments for adoption of ASU 2016-18 As adjusted Operating activities Net income $ 16,807 $ (939 ) $ — $ 15,868 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,407 — — 2,407 Deferred income taxes (265 ) (532 ) — (797 ) Stock-based compensation expense 894 — — 894 Amortization of debt issuance costs 219 — — 219 Changes in operating assets and liabilities: Accounts receivable (1,442 ) — — (1,442 ) Prepaid expenses and other assets (951 ) — — (951 ) Advertising fund assets and liabilities, net — — 1,887 1,887 Accounts payable and other current liabilities (331 ) — — (331 ) Deferred revenue 769 1,471 — 2,240 Other non-current liabilities (127 ) — — (127 ) Cash provided by operating activities 17,980 — 1,887 19,867 Investing activities Purchases of property and equipment (1,834 ) — — (1,834 ) Acquisition of restaurant from franchisee (3,949 ) — — (3,949 ) Cash used in investing activities (5,783 ) — — (5,783 ) Financing activities Proceeds from exercise of stock options 1,301 — — 1,301 Borrowings of long-term debt 3,500 — — 3,500 Repayments of long-term debt (14,125 ) — — (14,125 ) Dividends paid (2,034 ) — — (2,034 ) Cash used in financing activities (11,358 ) — — (11,358 ) Net change in cash, cash equivalents, and restricted cash 839 — 1,887 2,726 Cash, cash equivalents, and restricted cash at beginning of period 3,750 1,943 5,693 Cash, cash equivalents, and restricted cash at end of period $ 4,589 $ 3,830 $ 8,419 |
