BJ’s(BJRI) - 2024 Q4 - Annual Report

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The company is exposed to interest rate risk primarily through its revolving Credit Facility, which carries a floating interest rate, where a hypothetical 1% change would impact net income by approximately $0.5 million annually Interest Rate Risk Metrics | Metric | Value | | :----- | :---- | | Credit Facility Total Commitments | $215 million | | Outstanding Balance (as of Jan 2, 2024) | $68.0 million | | Interest Rate Type | Floating | | Impact of 1% Interest Rate Change on Net Income (Annual) | ~$0.5 million | Food and Commodity Price Risks The company faces volatility in food and commodity prices due to market supply/demand and government regulation, mitigating this risk through fixed-price purchase commitments and menu price adjustments without using financial instruments for hedging - The company's business is dependent on frequent and consistent deliveries of food, supplies, and other commodities, which are subject to price volatility due to market supply and demand factors and government regulation[6] - To manage commodity price risk, the company attempts to enter into fixed-price purchase commitments, typically up to one year, for some requirements[6] - The company believes it has flexibility to increase menu prices or vary menu items in response to food commodity price increases and does not use financial instruments to hedge commodity prices[6] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section directs readers to the Consolidated Financial Statements and other data, which are attached starting on page F-1 of the Annual Report on Form 10-K - Consolidated Financial Statements and supplementary data are located starting on page F-1 of the Annual Report on Form 10-K[7] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reported no changes in or disagreements with accountants on accounting and financial disclosure during the period - There were no changes in or disagreements with accountants on accounting and financial disclosure[7] ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of January 2, 2024, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were designed and effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely - As of January 2, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are designed and effective to provide reasonable assurance for timely and accurate reporting of information required under the Exchange Act[8] Changes in Internal Control Over Financial Reporting There were no changes in the company's internal control over financial reporting during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls - No material changes occurred in internal control over financial reporting during the fourth fiscal quarter[10] Management's Report on Internal Control Over Financial Reporting Management, including the CEO and CFO, evaluated the effectiveness of internal control over financial reporting as of January 2, 2024, based on the COSO framework, and concluded that it was effective, with KPMG LLP also independently assessing and reporting on these controls - Management concluded that internal control over financial reporting was effective as of January 2, 2024, based on the COSO (2013) framework[11] - KPMG LLP, the independent registered public accounting firm, independently assessed and reported on the effectiveness of the company's internal control over financial reporting[11] Report of Independent Registered Public Accounting Firm KPMG LLP, the independent auditor, issued an unqualified opinion on the effectiveness of BJ's Restaurants, Inc.'s internal control over financial reporting as of January 2, 2024, based on the COSO (2013) framework, and also issued an unqualified opinion on the consolidated financial statements - KPMG LLP expressed an unqualified opinion that BJ's Restaurants, Inc. maintained effective internal control over financial reporting as of January 2, 2024[14] - The audit of internal control over financial reporting was conducted in accordance with PCAOB standards, including understanding, assessing risk, and testing design and operating effectiveness[17] - Internal control over financial reporting is defined as a process providing reasonable assurance regarding financial reporting reliability and preparation of financial statements in accordance with GAAP[18] Inherent Limitations on Effectiveness of Controls Management acknowledges that control systems, regardless of design, can only provide reasonable, not absolute, assurance against errors and fraud due to inherent limitations such as faulty judgments, simple errors, circumvention, and management override - Control systems provide only reasonable, not absolute, assurance that objectives will be met[21] - Inherent limitations include faulty judgments, simple errors, circumvention by individual acts or collusion, and management override[21] - Projections of control effectiveness to future periods are subject to risks that controls may become inadequate or compliance may deteriorate[21] ITEM 9B. OTHER INFORMATION The company reported no other information for this item - No other information was reported under Item 9B[22] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS The company reported no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections[22] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The company has adopted a Code of Integrity, Ethics and Conduct applicable to all executives, directors, and team members, with further information on executive officers in Part I, Item 1, and other required information incorporated by reference from the upcoming Proxy Statement - The company has adopted a Code of Integrity, Ethics and Conduct for all executives, directors, and team members, available on its investor relations website[24] - Information on executive officers is included in Part I, Item 1, and other required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders, expected to be filed by 120 days after January 2, 2024[24] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders, expected to be filed no later than 120 days after January 2, 2024 - Executive compensation information is incorporated by reference from the Proxy Statement, to be filed by 120 days after January 2, 2024[25] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Information on security ownership of certain beneficial owners and management, and related shareholder matters, is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders, expected to be filed no later than 120 days after January 2, 2024 - Security ownership information is incorporated by reference from the Proxy Statement, to be filed by 120 days after January 2, 2024[26] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders, expected to be filed no later than 120 days after January 2, 2024, with additional information on equity compensation plans found in Part II, Item 5 - Information on related party transactions and director independence is incorporated by reference from the Proxy Statement, to be filed by 120 days after January 2, 2024[27] - Information on equity compensation plans is available in Part II, Item 5 – 'Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities – Stock-Based Compensation Plan Information'[27] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders, expected to be filed no later than 120 days after January 2, 2024 - Principal accounting fees and services information is incorporated by reference from the Proxy Statement, to be filed by 120 days after January 2, 2024[29] ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) CONSOLIDATED FINANCIAL STATEMENTS This section lists the consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K, specifically the Balance Sheets, Statements of Shareholders' Equity, Statements of Operations, and Statements of Cash Flows, along with the Report of Independent Registered Public Accounting Firm and Notes to Consolidated Financial Statements - The following consolidated financial statements are included in Part II, Item 8: Consolidated Balance Sheets, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Operations, Consolidated Statements of Cash Flows, Report of Independent Registered Public Accounting Firm, and Notes to the Consolidated Financial Statements[30][31] (2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules are omitted as they are either not applicable or the required information is already presented in the Consolidated Financial Statements or their accompanying notes - All financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto[31] (3) EXHIBITS This section provides a comprehensive list of exhibits filed with the Form 10-K, including organizational documents, equity incentive plans, employment agreements, credit agreements, and various certifications, many of which are incorporated by reference from previous SEC filings - The exhibits include Amended and Restated Articles of Incorporation and Bylaws, various forms of Equity Incentive Plans and related agreements (stock options, RSUs), and employment agreements for key executives[32][35] - Other exhibits include the Fourth Amended and Restated Credit Agreement, the 2011 Performance Incentive Plan, Common Stock Purchase Warrants, Registration Rights Agreements, List of Significant Subsidiaries, Consent of Independent Registered Public Accounting Firm, and Section 302 and 906 Certifications[32][35] - Many exhibits are incorporated by reference from prior Form 10-K, 10-Q, or 8-K filings[32][35] ITEM 16. FORM 10-K SUMMARY The company states that this item is not applicable - Item 16, Form 10-K Summary, is not applicable[37] SIGNATURES The report is duly signed on behalf of BJ's Restaurants, Inc. by its principal executive officer, Gregory S. Levin, and other key officers and directors, including the Chief Financial Officer, Chief Accounting Officer, and various directors, as of February 27, 2024 - The report is signed by Gregory S. Levin (CEO, President, and Director), Thomas A. Houdek (SVP and CFO), Jacob J. Guild (SVP and Chief Accounting Officer), and other directors[39] - All signatures are dated February 27, 2024[39] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm KPMG LLP provided an unqualified opinion on BJ's Restaurants, Inc.'s consolidated financial statements for the three-year period ended January 2, 2024, affirming fair presentation in accordance with U.S. GAAP, and highlighted the evaluation of long-lived assets for impairment as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the three-year period ended January 2, 2024, stating they present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[44] - The evaluation of long-lived assets for impairment was identified as a critical audit matter, requiring subjective auditor judgment to assess potential indicators such as restaurant-level cash flow, changes in asset use strategy, and negative industry/economic trends[49][50] - Audit procedures included evaluating internal controls, comparing restaurant-level cash flows to historical/projected results, considering other impacting events, reviewing board minutes for strategy changes, and assessing industry/economic trends[52] Consolidated Balance Sheets The Consolidated Balance Sheets show the company's financial position as of January 2, 2024, and January 3, 2023, with total assets increasing slightly to $1,058,454 thousand in 2024 from $1,045,922 thousand in 2023, driven by increases in property and equipment and deferred income taxes, while total liabilities decreased Consolidated Balance Sheet Summary | Metric (in thousands) | January 2, 2024 | January 3, 2023 | | :-------------------- | :-------------- | :-------------- | | Assets | | | | Total current assets | $83,021 | $82,258 | | Property and equipment, net | $525,190 | $507,116 | | Operating lease assets | $350,091 | $368,784 | | Deferred income taxes, net | $50,147 | $38,312 | | Total assets | $1,058,454 | $1,045,922 | | Liabilities | | | | Total current liabilities | $199,325 | $196,858 | | Long-term operating lease obligations | $414,114 | $432,676 | | Long-term debt | $68,000 | $60,000 | | Total liabilities | $692,693 | $700,407 | | Shareholders' Equity | | | | Total shareholders' equity | $365,761 | $345,515 | | Total liabilities and shareholders' equity | $1,058,454 | $1,045,922 | Consolidated Statements of Operations The Consolidated Statements of Operations show a significant improvement in profitability for fiscal 2023, with net income increasing to $19.66 million from $4.08 million in fiscal 2022, and a shift from operating loss to income, as revenues grew to $1.33 billion while total costs and expenses remained relatively stable as a percentage of revenue Consolidated Statements of Operations Summary | Metric (in thousands, except per share data) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :------------------------------------------- | :--------------- | :--------------- | :--------------- | | Revenues | $1,333,229 | $1,283,926 | $1,087,038 | | Total costs and expenses | $1,319,470 | $1,289,406 | $1,103,545 | | Income (loss) from operations | $13,759 | $(5,480) | $(16,507) | | Interest expense, net | $(4,915) | $(2,888) | $(5,002) | | Other income, net | $1,256 | $60 | $2,327 | | Income (loss) before income taxes | $10,100 | $(8,308) | $(19,182) | | Income tax benefit | $(9,560) | $(12,384) | $(15,576) | | Net income (loss) | $19,660 | $4,076 | $(3,606) | | Basic Net income (loss) per share | $0.84 | $0.17 | $(0.16) | | Diluted Net income (loss) per share | $0.82 | $0.17 | $(0.16) | - Net income significantly increased from $4.076 million in fiscal 2022 to $19.660 million in fiscal 2023[65] - The company moved from an operating loss of $(5.480) million in fiscal 2022 to an operating income of $13.759 million in fiscal 2023[65] Consolidated Statements of Shareholders' Equity The Consolidated Statements of Shareholders' Equity detail changes over the three fiscal years ended January 2, 2024, with total shareholders' equity increasing from $345,515 thousand in 2023 to $365,761 thousand in 2024, primarily driven by net income and stock-based compensation, partially offset by common stock repurchases Consolidated Statements of Shareholders' Equity Summary | Metric (in thousands) | December 29, 2020 | December 28, 2021 | January 3, 2023 | January 2, 2024 | | :-------------------- | :---------------- | :---------------- | :-------------- | :-------------- | | Total Shareholders' Equity (Balance) | $293,788 | $333,771 | $345,515 | $365,761 | | Net Income (Loss) | | $(3,606) | $4,076 | $19,660 | | Stock-based compensation | | $10,641 | $10,424 | $11,282 | | Repurchase, retirement and reclassification of common stock | | | $(2,385) | $(10,999) | | Exercise of stock options | $4,511 | | $875 | | | Issuance of common stock, net | $28,907 | | | | - Total shareholders' equity increased by $20.246 million from January 3, 2023, to January 2, 2024[67] - Common stock repurchases amounted to $10.999 million in fiscal 2023, an increase from $2.385 million in fiscal 2022[67] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a significant increase in net cash provided by operating activities in fiscal 2023 to $105.8 million, up from $51.1 million in fiscal 2022, with net cash used in investing activities increasing to $98.9 million, and financing activities resulting in a net cash outflow of $2.7 million, primarily due to increased common stock repurchases Consolidated Statements of Cash Flows Summary | Metric (in thousands) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :-------------------- | :--------------- | :--------------- | :--------------- | | Net cash provided by operating activities | $105,837 | $51,122 | $64,285 | | Net cash used in investing activities | $(98,911) | $(71,907) | $(42,168) | | Net cash (used in) provided by financing activities | $(2,729) | $7,131 | $(35,254) | | Net increase (decrease) in cash and cash equivalents | $4,197 | $(13,654) | $(13,137) | | Cash and cash equivalents, end of year | $29,070 | $24,873 | $38,527 | - Net cash provided by operating activities more than doubled from $51.122 million in fiscal 2022 to $105.837 million in fiscal 2023[62] - Cash paid for interest increased from $1.790 million in fiscal 2022 to $3.758 million in fiscal 2023[63] Notes to Consolidated Financial Statements 1. The Company and Summary of Significant Accounting Policies This section provides an overview of BJ's Restaurants, Inc., its business operations, and a summary of significant accounting policies, covering restaurant count, fiscal year structure, segment reporting, and policies for cash, credit risk, supplier risk, inventories, property, goodwill, long-lived assets, self-insurance, revenue recognition, cost of sales, sales taxes, advertising, income taxes, restaurant opening expenses, leases, net income per share, and stock-based compensation - As of January 2, 2024, BJ's Restaurants, Inc. owned and operated 216 restaurants in 30 states, opening five and closing five during fiscal 2023[74] - The company operates in one segment: casual dining company-owned restaurants in the United States[76] - The company relies on a leading foodservice distributor for most food products and another for fresh produce and proprietary craft beer distribution[79] - Long-lived assets are assessed for impairment when events or changes indicate carrying value may not be recoverable, using the undiscounted cash flow method, with a $3.4 million impairment charge recorded in fiscal 2023[111] - Self-insurance liability for general liability, workers' compensation, and employment practice liability is estimated based on actuarial information and management judgment, including for incurred but not yet reported (IBNR) claims[170] - Revenue from gift card sales is recorded as a liability and recognized upon redemption, with estimated breakage recognized as revenue in proportion to historical redemption patterns[176] - Stock-based compensation is measured at fair value on the grant date, using the Black-Scholes model for options, and expensed over the vesting period[179] 2. Revenue Recognition This section details revenue recognized from gift card liability and the guest loyalty program for fiscal years 2021-2023, showing fluctuations in both categories Revenue Recognized from Gift Card Liability and Guest Loyalty Program | Revenue Source (in thousands) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :---------------------------- | :--------------- | :--------------- | :--------------- | | Revenue recognized from gift card liability | $11,261 | $14,978 | $9,220 | | Revenue recognized from guest loyalty program | $7,166 | $7,510 | $8,816 | 3. Accounts and Other Receivables Accounts and other receivables decreased from $28.593 million in January 2023 to $19.469 million in January 2024, primarily due to reductions in income taxes receivable and refundable tax credits Accounts and Other Receivables Breakdown | Category (in thousands) | January 2, 2024 | January 3, 2023 | | :---------------------- | :-------------- | :-------------- | | Credit cards | $6,051 | $6,532 | | Third-party gift card sales | $3,618 | $4,611 | | Tenant improvement allowances | $2,175 | $4,060 | | Third-party delivery | $3,803 | $3,983 | | Income taxes | $1,287 | $4,377 | | Refundable tax credits | — | $3,911 | | Other | $2,535 | $1,119 | | Total | $19,469 | $28,593 | - Total accounts and other receivables decreased by $9.124 million from January 3, 2023, to January 2, 2024[174] 4. Property and Equipment Property and equipment, net, increased to $525.190 million as of January 2, 2024, from $507.116 million in the prior year, reflecting ongoing investments in building improvements, leasehold improvements, and equipment, partially offset by accumulated depreciation and amortization Property and Equipment, Net | Category (in thousands) | January 2, 2024 | January 3, 2023 | | :---------------------- | :-------------- | :-------------- | | Land | $2,507 | $2,507 | | Building improvements | $418,320 | $404,769 | | Leasehold improvements | $330,971 | $321,384 | | Furniture and fixtures | $168,086 | $170,450 | | Equipment | $393,430 | $369,222 | | Less accumulated depreciation and amortization | $(810,046) | $(792,061) | | Construction in progress | $21,922 | $30,845 | | Property and equipment, net | $525,190 | $507,116 | - Net property and equipment increased by $18.074 million from January 3, 2023, to January 2, 2024[180] 5. Accrued Expenses Accrued expenses increased to $101.295 million as of January 2, 2024, from $97.258 million in the prior year, primarily driven by increases in payroll-related and other taxes, partially offset by decreases in insurance-related and other accrued liabilities Accrued Expenses Breakdown | Category (in thousands) | January 2, 2024 | January 3, 2023 | | :---------------------- | :-------------- | :-------------- | | Payroll related | $27,239 | $23,006 | | Workers' compensation and general liability | $23,792 | $22,258 | | Deferred revenue from gift cards | $14,380 | $14,417 | | Deferred loyalty revenue | $2,510 | $3,129 | | Insurance related | $550 | $4,191 | | Sales taxes | $7,592 | $8,097 | | Other taxes | $9,548 | $3,555 | | Other current rent related | $2,477 | $2,384 | | Utilities | $2,697 | $2,850 | | Merchant cards | $2,184 | $2,376 | | Maintenance related | $1,949 | $1,330 | | Other | $6,377 | $9,665 | | Total | $101,295 | $97,258 | - Total accrued expenses increased by $4.037 million from January 3, 2023, to January 2, 2024[130] 6. Leases Total lease costs for fiscal 2023 were $63.132 million, consistent with the prior year, with a weighted-average remaining lease term of 11.0 years and a weighted-average discount rate of 5.8% as of January 2, 2024, and operating lease obligations totaling $451.503 million with significant payments due in the next five years Total Lease Costs | Lease Cost (in thousands) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :------------------------ | :--------------- | :--------------- | :--------------- | | Lease cost | $59,268 | $60,163 | $57,807 | | Variable lease cost | $3,864 | $3,445 | $1,739 | | Total lease costs | $63,132 | $63,608 | $59,546 | Lease Term and Discount Rate | Metric | January 2, 2024 | January 3, 2023 | | :---------------------------- | :-------------- | :-------------- | | Weighted-average remaining lease term | 11.0 Years | 11.5 Years | | Weighted-average discount rate | 5.8% | 5.7% | Operating Lease Obligation Maturities | Operating Lease Obligation Maturities (in thousands) | Total | Less Than 1 Year | 2-3 Years | 4-5 Years | After 5 Years | | :--------------------------------------------------- | :---- | :--------------- | :-------- | :-------- | :------------ | | Total lease payments | $557,278 | $62,569 | $121,210 | $111,833 | $261,666 | | Less: imputed interest | $(105,775) | | | | | | Present value of operating lease obligations | $451,503 | | | | | 7. Commitments and Contingencies The company is subject to various lawsuits and administrative proceedings in the ordinary course of business, for which it is largely self-insured with third-party coverage limits, maintaining $17.2 million in standby letters of credit for workers' compensation and having $28.1 million in purchase commitments as of January 2, 2024 - The company is self-insured for a portion of general liability, workers' compensation, and employment practice liability, with third-party coverage to limit total exposure[137] - As of January 2, 2024, irrevocable standby letters of credit outstanding for workers' compensation insurance arrangements totaled $17.2 million[181] - Purchase obligations, including inventory, equipment, and IT, were $28.1 million as of January 2, 2024, primarily due within three years[138] 8. Long-Term Debt The company's Credit Facility, amended in November 2021, provides $215 million in revolving loan commitments, maturing November 3, 2026, with $68.0 million outstanding as of January 4, 2024, bearing interest at a weighted average rate of approximately 6.7% in fiscal 2023, and the company was in compliance with all covenants - The Fourth Amended and Restated Credit Agreement provides $215 million in revolving loan commitments, maturing on November 3, 2026[182] Credit Facility Details | Metric | Value | | :-------------------------------- | :---- | | Outstanding Borrowings (Jan 4, 2024) | $68.0 million | | Outstanding Letters of Credit (Jan 4, 2024) | $17.2 million | | Available to Borrow (Jan 4, 2024) | $129.8 million | | Weighted Average Interest Rate (Fiscal 2023) | 6.7% | | Weighted Average Interest Rate (Fiscal 2022) | 3.7% | - The company was in compliance with all Credit Facility covenants as of January 2, 2024[182] 9. Fair Value Measurements The company applies ASC 820 for fair value measurements, categorizing inputs into a three-level hierarchy, where financial instruments like cash, receivables, payables, and accrued expenses approximate fair value due to short-term maturity, and the revolving credit facility's fair value also approximates its carrying value due to its variable rate (Level 2) - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[142] - The carrying amounts of cash and cash equivalents, accounts and other receivables, accounts payable, and accrued expenses approximate fair value due to their short-term maturity[141] - The fair value of the amended revolving credit facility approximated its carrying value as of January 2, 2024, and January 3, 2023, classified as Level 2[141] 10. Shareholders' Equity The company has authorized 5.0 million shares of preferred stock, none of which are issued or outstanding, with common stock shareholders entitled to one vote per share and receiving dividends when declared, though cash dividends were suspended in 2020, with only stock-based compensation related dividends paid in fiscal 2023 and 2022; the company repurchased $11.0 million of common stock in fiscal 2023 and increased its share repurchase program by $50 million in February 2024, bringing the total available to $61.1 million - No preferred stock was issued or outstanding as of January 2, 2024, or January 3, 2023[184] - Cash dividends were suspended in 2020; only dividends related to vested restricted stock grants under stock-based compensation plans were paid in fiscal 2023 and 2022[146] Common Stock Repurchase Program | Metric | Fiscal Year 2023 | | :-------------------------------- | :--------------- | | Common Stock Repurchased (shares) | ~428,000 | | Average Price Per Share | $25.71 | | Total Value of Repurchases | ~$11.0 million | | Remaining Authorization (Jan 2, 2024) | ~$11.1 million | | Board Approved Increase (Feb 2024) | $50 million | | Total Available under Program | ~$61.1 million | 11. Income Taxes The company reported an income tax benefit of $9.560 million in fiscal 2023, compared to $12.384 million in fiscal 2022, with an effective tax rate benefit for fiscal 2023 of 94.7%, primarily influenced by FICA tax tip credits, and a net deferred income tax asset of $50.147 million Income Tax Benefit Breakdown | Income Tax Benefit (in thousands) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :-------------------------------- | :--------------- | :--------------- | :--------------- | | Current Federal | $1,378 | $647 | $2,776 | | Current State | $897 | $379 | $323 | | Deferred Federal | $(11,344) | $(12,653) | $(16,872) | | Deferred State | $(491) | $(757) | $(1,803) | | Total Income Tax Benefit | $(9,560) | $(12,384) | $(15,576) | Effective Income Tax Rate Reconciliation | Effective Income Tax Rate Reconciliation | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :--------------------------------------- | :--------------- | :--------------- | :--------------- | | Income tax at statutory rates | 21.0% | (21.0)% | (21.0)% | | State income taxes, net of federal benefit | 5.8% | (10.4)% | (5.0)% | | Permanent differences | 7.7% | 17.3% | 0.9% | | Income tax credits | (117.9)% | (156.8)% | (58.9)% | | Return to provision | 0.9% | (4.3)% | 2.1% | | Prior year tax credit true-up | (6.4)% | 14.1% | — | | Benefit from net operating loss carryback | — | 1.8% | 2.8% | | Change in valuation allowance | (2.6)% | 6.8% | (1.1)% | | Other, net | (3.2)% | 3.4% | (1.0)% | | Total Effective Tax Rate | (94.7)% | (149.1)% | (81.2)% | Deferred Income Tax Components | Deferred Income Tax Components (in thousands) | January 2, 2024 | January 3, 2023 | | :-------------------------------------------- | :-------------- | :-------------- | | Gross deferred income tax asset | $215,208 | $206,892 | | Valuation allowance | $(889) | $(1,151) | | Deferred income tax asset, net of valuation allowance | $214,319 | $205,741 | | Deferred income tax liability | $(164,172) | $(167,429) | | Net deferred income tax asset | $50,147 | $38,312 | - The company had federal and California income tax credit carryforwards of approximately $67.5 million and $0.1 million, respectively, as of January 2, 2024, primarily from FICA tax tip credits, expiring starting in 2038[149] - State and city net operating loss carryforwards totaled $110.5 million, with the earliest material expiration in 2024[149] - Unrecognized tax benefits were approximately $1.0 million as of January 2, 2024, with no anticipated material change in the next twelve months[151] 12. Stock-Based Compensation Plans The company's Equity Incentive Plan allows for various equity awards, including stock options and restricted stock units (RSUs), which vest over three to five years, with total stock-based compensation recognized in fiscal 2023 at $11.282 million, and unrecognized compensation expense for stock options and RSUs at $2.0 million and $11.5 million, respectively, as of January 2, 2024 - The Equity Incentive Plan allows for incentive stock options, non-qualified stock options, restricted stock, and performance/time-based restricted stock units for team members, officers, directors, and consultants[152] Stock-Based Compensation Expense | Stock-Based Compensation (in thousands) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :-------------------------------------- | :--------------- | :--------------- | :--------------- | | Labor and benefits | $2,583 | $2,886 | $2,748 | | General and administrative | $8,319 | $7,212 | $7,583 | | Capitalized | $380 | $326 | $310 | | Total stock-based compensation | $11,282 | $10,424 | $10,641 | Stock Option Assumptions (Black-Scholes) | Stock Option Assumptions (Black-Scholes) | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :--------------------------------------- | :--------------- | :--------------- | :--------------- | | Expected volatility | 66.9% | 63.5% | 60.8% | | Risk-free interest rate | 3.6% | 1.8% | 0.6% | | Expected option life | 5 years | 5 years | 5 years | | Dividend yield | — | — | — | | Fair value of options granted | $18.24 | $17.15 | $23.22 | Stock Option Activity | Stock Option Activity (in thousands) | Outstanding at Jan 2, 2024 | Weighted Average Exercise Price | Exercisable at Jan 2, 2024 | Weighted Average Exercise Price | | :----------------------------------- | :------------------------- | :---------------------------- | :------------------------- | :---------------------------- | | Total Outstanding | 867 | $39.70 | 648 | $41.65 | - Total unrecognized stock-based compensation expense for non-vested stock options was approximately $2.0 million as of January 2, 2024, expected to be recognized over three years[161] Time-Based RSU Activity | Time-Based RSU Activity (in thousands) | Outstanding at Jan 2, 2024 | Weighted Average Fair Value | | :------------------------------------- | :------------------------- | :-------------------------- | | Total Outstanding | 822 | $31.46 | - Total unrecognized stock-based compensation expense for non-vested time-based RSUs was approximately $11.5 million as of January 2, 2024, expected to be recognized over five years[162] Performance-Based RSU Activity | Performance-Based RSU Activity (in thousands) | Outstanding at Jan 2, 2024 | Weighted Average Fair Value | | :-------------------------------------------- | :------------------------- | :-------------------------- | | Total Outstanding | 128 | $36.24 | - Total unrecognized stock-based compensation expense for non-vested performance-based RSUs was approximately $1.5 million as of January 2, 2024, expected to be recognized over three years[165] 13. Benefit Plans The company maintains a 401(k) plan for eligible team members, with a 33% match on the first 6% of deferred earnings, contributing $0.8 million in fiscal 2023, and also has a non-qualified deferred compensation plan (DCP) for executive officers, with no company contributions in fiscal 2023, where the DCP's investment in variable life insurance contracts and corresponding obligation were $10.4 million and $10.6 million, respectively, as of January 2, 2024 - The company contributed approximately $0.8 million to its 401(k) plan in fiscal 2023, matching 33% of the first 6% of deferred earnings[166] - The non-qualified deferred compensation plan (DCP) for executive officers had no company contributions in fiscal 2023[166] Deferred Compensation Plan Metrics | DCP Metric (in thousands) | January 2, 2024 | January 3, 2023 | | :------------------------ | :-------------- | :-------------- | | Investment in variable life insurance contracts | $10,400 | $10,100 | | Obligation to participating team members | $10,600 | $10,100 | 14. Related Party Transactions A consulting agreement with Act III Management, LLC, an affiliate of a beneficial stockholder, expired on December 31, 2022, and the company holds a 20% equity method investment, acquired in fiscal 2022 by contributing $5.0 million in internally developed software, recording a $0.2 million net loss related to this investment in fiscal 2023 - A consulting agreement with Act III Management, LLC, an affiliate of a beneficial stockholder, expired on December 31, 2022[167] - The company made a non-cash contribution of $5.0 million in internally developed software in fiscal 2022 for a 20% equity method investment[168] - A net loss of $0.2 million related to the equity method investment was recorded in fiscal 2023[168]