FINANCIAL HIGHLIGHTS
FISCAL YEAR
2010
2009
2008
2007
2006
(1)
($’s in 000’s, except per share data, and average weekly sales)
STATEMENT OF OPERATIONS DATA
Revenue
Asset impairment and estimated lease termination
(2)
and other closing costs
Income from operations
Income tax (expense) benefit
Net income
Basic net income per common share
BALANCE SHEET DATA
Diluted net income per common share
(at year end)
Cash and cash equivalents
Total assets
Long-term debt less current maturities
OTHER DATA
Total shareholders’ equity
(4)
Restaurant Sales:
Company-owned
Franchise-operated
Number of restaurants open at year end:
Company-owned restaurants
Franchise-operated restaurants
Total restaurants
Company-owned comparable
(5)
sales increase (decrease)
$ 148,268 $ 136,018 $ 140,382 $ 125,873 $ 116,621
$ (74)
$
$ 11,983 $
$ (3,796) $
$ 7,218 $
$ 0.84
$
$ 0.82
$
(3)
(3)
(218)
$
10,514 $
(2,989) $
5,701 $
0.63 $
0.62 $
(6,912) $
2,030 $
119 $
389 $
0.04 $
0.04 $
(596) $
10,436 $
(3,100) $
6,070 $
0.61 $
0.59 $
$ 2,654 $
$ 76,129 $
$ 23,497
$
$ 32,904 $
2,996 $
68,381 $
17,990
$
32,944 $
1,687 $
73,401 $
29,252 $
26,184 $
1,538 $
73,942 $
11,693 $
30,400 $
(1,136)
9,243
(2,737)
4,954
0.47
0.46
1,455
65,859
13,025
36,171
$ 131,154 $ 117,934 $ 122,016 $ 107,820 $ 100,026
$ 340,454 $ 358,696 $ 355,946 $ 320,750 $ 282,160
52
130
182
45
132
177
(6)
47
123
170
44
120
164
41
104
145
0.7%
(6.3)%
(2.0)%
2.1%
2.9%
Average weekly sales:
$ 49,187 $ 48,197 $ 50,685 $ 50,385 $ 47,894
Company-owned restaurants
Franchise-operated restaurants
$ 52,631 $ 53,016 $ 56,535 $ 56,729 $ 58,334
(1) Fiscal 2009 consisted of 53 weeks. Fiscal 2010, 2008, 2007, and 2006 all consisted of 52 weeks.
(2) Fiscal 2009 primarily reflects closing costs for two company-owned restaurants. Fiscal 2008 reflects impairment charges for eight restaurants. Five of these have closed
and three are still operating. Fiscal 2007 reflects impairment charges associated with one restaurant that was subsequently closed. Fiscal 2006 reflects impairment
charges associated with one restaurant and land held for sale: one which was subsequently sold, the other which was subsequently closed.
(3) Reflects gain on acquisition of New York and New Jersey restaurants in March 2010, of $0.15 per share.
(4) Long-term debt includes our line of credit beginning in fiscal 2008. Prior to fiscal 2008, the line of credit was included in current liabilities.
(5) Our comparable store sales base includes company-owned restaurants that are open year round and have been open more than 24 months.
(6) For purposes of computing comparable store sales, this computation assumes fiscal 2009 was a 52-week year.
REVENUE
NUMBER OF RESTAURANTS
182
177
3.0%
2.9%
$148.3
$140.4
$136.0
$125.9
$160
$150
$140
$130
$120
$116.6
$110
$100
$90
190
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
170
164
145
104
120
123
132
130
41
44
47
45
52
2.0%
1.0%
0.0%
(1.0)%
(2.0)%
(3.0)%
(4.0)%
(5.0)%
(6.0)%
(7.0)%
COMPANY-OWNED
COMPARABLE SALES
2.1%
0.7%
(2.0)%
(6.3)%
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
Company-Owned Franchise-Operated
To my FeLLow SHAreHoLderS,
2010 is over, and in my opinion, we smoked it!
We delivered on the initiatives, and achieved the
financial objectives, that we set out to do.
• We delivered positive comparable sales for 2010 of
0.7% for company-owned restaurants and significantly
improved comparable sales of (0.8)% for franchise-
operated restaurants, and, we saw increases in all sales
levers: Dine-In, To Go and Catering;
• We continued to invest in restaurants, in people and
in systems, yet we maintained control of expenses;
• We continued to strengthen our balance sheet;
• We opened nine new franchise-operated restaurants
and one company-owned restaurant;
• We completed our fifth 1.0 million share buyback; and
• We grew earnings per share.
But most of all, we maintained our intense focus on the
An exceptional customer experience.
things that, we believe, bring guests back:
again improved guest satisfaction scores and achieved
the highest percentage, ever for our brand, for overall
A relevant and evolving menu.
satisfaction;
In 2010, we
2010 was distinguished
by new and innovative menu items and “limited time
offer” entrées, sandwich and appetizer offerings, that
continue to leverage the definition of barbeque as a
Unique Promotional events,
noun, a verb and a culture;
such as our second “Dave’s
Day” anniversary celebration, which honors our founder,
and represents an exceptional value to existing
customers, as well as an introduction to the brand, to
Innovative training programs.
new customers;
Helping our team
members add additional value for guests using “sauce
tours” that highlight Famous Dave’s regional barbeque
sauces. We also developed our “Guest Experience” for
launch in 2011, which is a focus on our culture and
creation of systems, tools and training, designed to
enhance the service experience at all of our restaurants;
Continued investments
and finally,
through selective, and cost-effective, capital
improvements and major remodeling projects.
in our existing restaurants
At the heart of these efforts is our unwavering devotion
to the Famous Dave’s brand. While business
conditions appear to be improving, it’s clear that
consumers are re-entering the market with a carefully
considered purposefulness, choosing brands that they
trust. That trust is absolutely central to the Famous
“like having good friends over for a
Dave’s brand promise to provide authentic, genuine,
quality, legendary pit BBQ, and to deliver an experience
in our restaurants that brings to mind friends, family and
backyard barbeque”.
community –
recap of 2010
While fiscal 2010 was not without its challenges, we
were successful on many fronts. Assisted by a growth
incentive program for our franchise community, we met
our development goals, opening nine new franchise
restaurants and one new company location. We completed
the purchase, and integration, of seven formerly franchised
restaurants in New York and New Jersey, allowing us to
maintain our base of restaurants and ensuring a strong
presence in this region to support future growth. With an
increased focus on menu development, we created a
robust pipeline of offerings that will take us into the future.
We increased our use of social media channels such as
Facebook and Twitter, reaching a 100,000 member
milestone on Facebook, and signing up our one millionth
“PIG Club” member for our loyalty program. Lastly, as a
result of an intensified focus on profitable sales growth and
vigilance on cost control, we extended our track record of
profitability and strong cash flow.
Looking Forward to
a “sauce-um” 2011:
Growth, Concept
Evolution, and Focus
on Core Systems
and Processes
Growth.
We will continue our growth in 2011 and
expect to open ten to twelve new restaurants, including
one company-owned restaurant. Additionally, we have
several remodeling projects planned for 2011 that
demonstrate our continued commitment to invest in our
restaurant base. We will continue to increase our
geographical presence with new area development
agreements, and growth coming from both new and
existing franchise partners. We will continue to grow
earnings per share through increased revenue and
prudent cost control.
Concept Evolution.
Famous Dave’s has embarked on a
long-term strategy to leverage the definition of barbeque
to the grill, and our recent menu launch is the culmination
of a product development program which began more
than a year ago. We are excited about the variety of new
items and categories, including our new “citrus-grill”
family of entrees, each with fewer than 600 calories, as
well as new appetizers, sandwiches and burgers. We
will continue to evolve our restaurant format to ensure
that the layout, trade dress, music, décor, ambiance, and
overall experience, resonates with our guests. We will
continue to look for opportunities to be a valued member
Focus on Core Systems, Processes and Infrastructure.
of the community as well as a strong corporate citizen.
In 2011, Famous Dave’s will focus on developing,
optimizing and enhancing key systems and processes,
including a comprehensive operations’ scorecard,
enhanced training programs, and an introduction of our
guest experience initiative, to name a few. Additionally,
we will roll out online ordering for To Go at all our
company-owned locations, launch an improved website
and introduce a broad social media strategy.
We, like other concepts, have come through a difficult
period over the past several years. I am confident,
however, that we have emerged stronger, more efficient,
and with a greater sense of clarity and purpose. We
recognize that we are in a highly competitive environment,
Famous, as we call it
and that each and every day, we have to be excellent –
- in every aspect. I believe that
we have a board of directors, operators, a support
organization and a franchise system capable of meeting
this worthy challenge.
I can never give enough thanks to our operations and
support team members for their efforts, our franchisees
for their trust and commitment to the brand, our vendor
community for their partnership, our board of directors for
their guidance, and our shareholders for their confidence.
Most of all, I want to thank our guests, for their continued
passion and loyalty.
Famously yours,
President and Chief Executive Officer
Christopher O’Donnell
CHAIrmAN’S LeTTer
Better Times; Better Results
Since our founding 16 years ago, Famous Dave’s has
dedicated itself to delivering on a brand promise —
authentic, legendary pit barbeque which brings to
mind a backyard gathering with good friends.
2010 was a good year for our company. We began to
experience the effects of an improving economy and of
the continued progress we’ve made in the way we
operate, as evidenced by improved guest satisfaction
scores, a new innovative menu and a stronger financial
structure.
This process began long before the economic downturn
in 2008, but its cumulative benefits manifested them-
selves this past year. Improved operations, purchasing,
marketing programs, guest experience, to name a few—
they all played a role in a year that was solidly profitable
and a clear reflection of our long-term strategic plan.
At the center of this strategy are two key initiatives:
Continuously improving our guests’ experience, and
Absolute Best in BBQ, Ever!
continued growth, all while remaining true to being the
company-owned restaurant. Our comparable sales are
on the upswing, which should add to our top line growth,
our cash flow and our profitability. And your board of
directors has authorized the company’s sixth one million
share stock buyback, a program that rewards our share-
holder base for their continued loyalty and confidence.
After several difficult years—for us as well as the rest
of the industry—we look forward to better times ahead.
While we anticipate challenges, we are confident that
we have focused our attention and efforts wisely, have
utilized our resources intelligently, and have a solid and
capable management team to execute, all with an eye
clearly focused on the future.
We have a niche product like none other – bold flavors,
unique spices, and cravable. The food is what originally
brought me here, and the passion – the ability to grow
something bigger and share what we have with the world
is what keeps me. My belief in this company, however,
transcends beyond the board room, as I am also a faithful
guest, a raving fan and a loyal shareholder. Please be
assured that your board and management team are
committed to building a sustainable company and
providing you with an attractive investment opportunity.
We believe we’re well positioned to grow. We look for-
ward to another year in which we will continue to expand
our base of franchise locations while also adding a new
On behalf of your Board of Directors, I thank our share-
holders, franchise partners and team members for your
support.
Chairman of the Board
K. Jeffrey Dahlberg
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 2, 2011
Commission File No. 0-21625
FAMOUS DAVE’S of AMERICA, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-1782300
(I.R.S. Employer
Identification No.)
12701 Whitewater Drive, Suite 200
Minnetonka, MN 55343
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code (952) 294-1300
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value
Title of each class
Name of each exchange on which registered
Common Stock, $0.01 par value
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Exchange Act of
1934(the Act) Yes
No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes__ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non- Accelerated Filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No X
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $62.7 million as of
July 2, 2010 (the last business day of the registrant’s most recently completed second quarter), assuming solely for the
purpose of this calculation that all directors, officers, and more than 10% shareholders of the registrant are affiliates. The
determination of affiliate status for this purpose is not necessarily conclusive for any other purpose.
As of March 11, 2011, 8,079,173 shares of the registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for our Annual Meeting of Shareholders (the "2010 Proxy Statement")
are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III. The 2010 Proxy Statement
will be filed within 120 days after the end of the registrant’s fiscal year ended January 2, 2011.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
[Removed and Reserved]
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Market for Registrant's Common Equity and Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A.
Item 9B.
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
SIGNATURES
2
Page
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15
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19
22
22
22
25
26
42
42
42
42
43
44
44
44
45
45
46
PART I
ITEM 1. BUSINESS
General Development of Business
Famous Dave's of America, Inc. (“Famous Dave’s”, “Company” or “we”) was incorporated as a Minnesota
corporation in March 1994 and opened its first restaurant in Minneapolis, Minnesota in June 1995. As of January 2,
2011, there were 182 Famous Dave’s restaurants operating in 37 states, including 52 company-owned restaurants and
130 franchise-operated restaurants. An additional 80 franchise restaurants were committed to be developed through
signed area development agreements at January 2, 2011.
The Company committed to a plan to “Smoke It” in 2010, resulting in the achievement of the following: The
Company realized a comparable sales increase for all company-owned restaurants of 0.7% compared to a comparable
sales decrease of 6.3% in fiscal 2009, and saw increases in all three key sales levers: Dine-In, To Go and Catering.
Franchise-operated restaurants saw improvement in their comparable sales, ending the year with a comparable sales
decrease of 0.8% compared to a decrease of 8.5% in fiscal 2009. Additionally, we opened one new company-owned
restaurant with record-setting volume, and nine new franchise-operated restaurants, and we signed agreements for eight
new units with three new franchise partners.
On the marketing front, we featured unique promotions, including a Louisiana Seafood feature, our second
Dave’s Day, and Wing Wars – in which we highlighted bone-in and bone-less wings, and also introduced two new
sauces. Additionally, we had a very popular limited time offering called Ribzilla– a bone-in beef short rib with a Dr.
Pepper glaze. We also developed innovative and foundational training programs, such as those that support our “Guest
Experience” initiative – an initiative that allows us to leverage our barbeque culture and create an atmosphere in our
restaurants where guests feel like good friends being invited over for a backyard barbeque.
We recently completed a 1.0 million share stock buyback and announced Board authorization for a new 1.0
million share buyback.
We were pleased with the integration and normalization of the seven New York and New Jersey restaurants that
were acquired in the first quarter of fiscal 2010. While not accretive to 2010’s earnings, these restaurants performed
slightly better than originally anticipated. The overall satisfaction scores at these locations have greatly improved over
the past year, indicating that the investments made in management, staffing and service, as well as in capital
improvements, have resonated with our guests.
Lastly, as a result of all the above, we also grew earnings per share year over year, from $0.62 per diluted share
in fiscal 2009 to $0.82 in fiscal 2010, with fiscal 2010 earnings, reflecting a $0.15 one-time non cash net gain,
primarily related to the acquisition of the New York and New Jersey restaurants.
In 2011, the Company plans to focus on three key initiatives:
• Growth
• Concept evolution, and
• Enhancing core systems, processes and infrastructure
Growth
We expect to open ten to twelve new restaurants including one company-owned restaurant in fiscal 2011. We
will also continue to invest in our base of restaurants and have several significant remodeling projects planned, that
combine both exterior and interior remodeling efforts. Finally, we will continue to pursue the expansion of our
geographical footprint by entering into new area development and franchise agreements, with both new and existing
partners, as they take advantage of our modified growth incentive plan. This plan offers new and existing franchisees
reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise
restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011.
Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the
3
third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and
beyond would be at the 5% royalty rate.
Concept evolution
It is important that Famous Dave’s remains relevant, and as such, we will continue to evolve our concept as part
of a long-term strategy to remain top of mind with guests. This is evident in our new menu, but also includes
modifications to the layout of our restaurants, enhancements in our trade dress, music, décor, and ambiance. Also, we
will continue to be actively engaged in our local communities through catering and supporting and sponsoring local
charitable and community events on a regular basis.
Enhancing core systems, processes and infrastructure
As part of this initiative, we will launch a comprehensive operations’ scorecard and training tool that we call
“FD Powers” that will help us measure our operational effectiveness across our entire system. This scorecard will be
used to evaluate, monitor and improve operations in areas such as guest satisfaction, health and safety standards,
community involvement, and local store marketing effectiveness, among other operating metrics. Additionally, in
2011, we are excited to roll out an initiative for To-Go orders at all of our company-owned locations that will provide
the convenience of an on-line option to our guests. Also, we will launch a new and improved website with full
integration of our social media channels that will allow us to build brand awareness and loyalty through our on-line
community and have continuous dialog with our cyber fans.
As a culmination of all of these efforts mentioned above, we believe we will continue to grow earnings per share
in 2011.
Financial Information about Segments
Since our inception, our revenue, operating income and assets have been attributable to the single industry
segment of the foodservice industry. Our revenue and operating income for each of the last three fiscal years, and our
assets for each of the last two fiscal years, are set forth elsewhere in this Form 10-K under Item 8, Financial Statements
and Supplementary Data.
Narrative Description of Business
Famous Dave’s restaurants, a majority of which offer full table service, feature hickory-smoked off-the-grill
entrée favorites. We seek to differentiate ourselves by providing high-quality food in distinctive and comfortable
environments with signature décor and signage. As of January 2, 2011, 47 of our company-owned restaurants were
full-service and five were counter-service. Generally, our prototypical design includes the following elements: a
designated bar, a signature exterior smokestack, a separate entrance for our category-leading “TO GO” business and a
patio (where available). This design enables us to capitalize on a consistent trade-dress and readily identifiable look
and feel for our future locations. We have a 5,000 square foot package that can be built as a free standing building, a
4,000 square foot model that most likely would be constructed as an end cap of a building, and a 2,400 square foot
design which would be constructed as a counter service location in an existing building. In 2010, we and several of our
franchisees successfully converted restaurants from existing casual dining chains. In Philadelphia, Pennsylvania and
Orange, California, two franchise partners built counter service style restaurants, utilizing one of our smaller foot print
prototypes. We did not open any restaurants in 2009, however, the restaurants that we opened in 2006, 2007, and 2008
were approximately 6,000 square feet, and had approximately 175 seats, with an additional 50 seats in the bar, and 32
additional seats on the patio. In addition to this restaurant design, which we currently offer, we have a variety of other
development options. Additionally, as previously mentioned, we offer lower cost conversion packages that provide our
franchisees with flexibility to build in cost effective formats, which includes opportunities to convert existing
restaurants into a Famous Dave’s restaurant. Due to the flexibility and scalability of our concept, there are a variety of
development opportunities available now and in the future.
4
We pride ourselves on the following:
High Quality Food – Each restaurant features a distinctive selection of authentic hickory-smoked off-the-grill
barbecue favorites, such as flame-grilled St. Louis-style and baby back ribs, Texas beef brisket, Georgia chopped pork,
country-roasted chicken, and generous signature sandwiches and salads. Additionally in 2011, we added our Citrus
Grill family of entrée’s featuring shrimp, salmon, steak tenderloins, and naked ribs, served with grilled pineapple and a
side of broccoli, at less than 600 calories. Also, enticing side items, such as honey-buttered corn bread, potato salad,
coleslaw, Shack FriesTM and Wilbur BeansTM, accompany the broad entrée selection. Homemade desserts, including
Famous Dave's Bread Pudding, Hot Fudge Kahlua Brownies, and Key Lime Pie, are a specialty. To complement our
entrée and appetizer items and to suit different customer tastes, we offer five regional tableside barbeque sauces: Rich
& Sassy®, Texas PitTM, Georgia MustardTM, Devil’s Spit®, and Sweet and ZestyTM. These sauces, in addition to a
variety of seasonings, rubs, marinades, and other items are also distributed in retail grocery stores throughout the
country under licensing agreements. Additionally, we typically introduce specialty barbeque sauces with our limited
time offerings.
We believe that high quality food, “scratch cooking” and the fact that we smoke our meats daily at each of our
restaurants are principal points of differentiation between us and other casual dining competitors and are a significant
contributing factor to repeat business. We also feel that our focus on barbecue being a noun, a verb and a culture
allows for product innovation without diluting our brand. As a noun, barbeque refers to the art of the smoke and sauce.
As a verb, barbeque refers to the act of grilling. As a culture, barbeque refers to the competitive spirit. We see no
geographic impediments to scaling our concept and brand.
Distinctive Environment - Décor and Music – Our original décor theme was a nostalgic roadhouse shack
(“Shack”), as defined by the abundant use of rustic antiques and items of Americana. In late 1997, we introduced the
“Lodge” format which featured décor reminiscent of a comfortable “Northwoods” hunting lodge with a full-service
dining room and small bar. In addition, we developed a larger “Blues Club” format that featured authentic Chicago
Blues Club décor and live music seven nights a week. We have evolved our format to that of a full-service concept
with several prototypical design that incorporates the best attributes of the past restaurants while providing a consistent
brand image for the future. Of our 52 restaurants as of January 2, 2011, 47 were full-service restaurants, with 26 as the
“Lodge” format, 6 as the “Shack” format, 1, located in the Minneapolis market, is a “Blues Club” format and 14 as
company-owned prototypical restaurants. The remaining 5 are counter-service restaurants. We will continue to evaluate
converting counter-service restaurants to full-service restaurants where there is determined to be a sufficient return on
our investment.
Broad-Based Appeal – We believe that our concept has broad appeal because it attracts customers of all ages,
the menu offers a variety of items, and our distinctive sauces allow our guests to customize their experience, appealing
to many tastes. We believe that our distinctive barbecue concept, combined with our high-quality food, makes Famous
Dave's appeal to families, children, teenagers and adults of all ages and socio-economic backgrounds.
Operating Strategy
We believe that our ability to achieve sustainable profitable growth is dependent upon us delivering high-quality
experiences in terms of both food and hospitality to every guest, every day, and to enhance brand awareness in our
markets. Key elements of our strategy include the following:
Operational Excellence – During fiscal 2010, we continued to focus on operational excellence and integrity, and
on creating a consistently enjoyable guest experience, both in terms of food and hospitality, across our system. We
define operational excellence as an uncompromising attention to the details of our recipes, preparation and cooking
procedures, handling procedures, rotation, sanitation, cleanliness and safety. Operational excellence also means an
unyielding commitment to provide our guests with precision service during every visit. In our restaurants, we strive to
emphasize value and speed of service by employing a streamlined operating system based on a focused menu and
simplified food preparation techniques.
Our menu focuses on a number of popular smoked, barbeque, grilled meat, entrée items and delicious side dishes
which are prepared using easy-to-operate kitchen equipment and processes that use prepared proprietary seasonings,
sauces and mixes. This streamlined food preparation system helps lower the cost of operation by requiring fewer staff,
5
lower training costs, and eliminates the need for highly compensated chefs. In order to enhance our appeal, expand our
audience, and feature our cravable products, we promote Limited-Time Offerings (LTOs) which often provide higher
margins than our regular menu items. We believe that constant and exciting new product introductions, offered for a
limited period of time, encourage trial visits, build repeat traffic and increase exposure to our regular menu.
Additionally, in order to increase customer frequency, we have assembled a research and development product pipeline
designed to generate four to six product introductions annually.
During 2010, we offered our guests several promotions and LTOs, which were well received. During early 2010
and in support of the Lenten season, we had a Louisiana Seafood feature which included catfish and shrimp entrees
including a skewer of shrimp offered as an add-on to any entrée to help protect the check average. During the spring we
highlighted our “80 Proof” promotion which featured several entrée’s with our “80 proof BBQ sauce,” as well as,
appetizers, desserts and adult beverages, featuring Jack Daniel’s® Tennessee Whiskey.
In the summer of 2010, we had our “US of BBQ” offering, which featured San Antonio Tri-Tip, Texas beef
brisket, Georgia chopped pork, and St. Louis-style ribs. Also, we celebrated our 2nd annual “Dave’s Day” where guests
named Dave, David, or Davey could receive a free entrée up to $15.00 and if a guest’s middle name was Dave, David,
or Davey, they could receive ½ off any entrée up to $7.50. Additionally, this summer we brought back the popular
“Buck a Bone” promotion where a guest could buy up to six St. Louis style spare ribs for a $1.00 each with the
purchase of an entrée.
This past fall we featured two promotions, “Wing Wars” and “Ribzilla” which featured bone in and boneless
chicken wings and our Dr. Pepper Glazed Beef Short Rib, respectively. Collectively, these LTOs successfully raised
check averages during the year. As we look to 2011, we have a full pipeline of new and innovative limited time
offerings.
Human Resources and Training - We fully understand a key ingredient to our success as an employer and of
our concept lies with our ability to hire, train, motivate and retain qualified team members at all levels of our
organization. We continually place a great deal of importance on being an exceptional working environment for all of
our team members through our Human Resource and Training/Organizational Development resources and programs,
which are key to improving performance in our restaurants. Our core goal is to have Raving Internal Fans which
emphasizes our commitment to doing the right thing for the organization while ensuring we have the right people in the
right roles with the right resources and tools.
We are a performance-based organization committed to recognizing and rewarding performance at all levels of
the organization. Our performance management process includes performance calibration at the organizational level as
a means of providing measureable, comparative team member contributions relative to peer contribution, taking into
account both specific core competencies and goals, as well as, our core values, Famous PRIDE (Passion, Respect,
Innovation, Diversity, Excellence). It is designed to provide a complete picture of performance that is consistent across
the organization. We offer a total rewards compensation program that is benchmarked closely against the industry and
includes health and welfare coverage, 401(k) and non-qualified deferred compensation with a company match, base
pay and incentive pay programs developed to maintain our competitive position within the market.
We strive to instill enthusiasm and dedication in our team members and continually solicit feedback regarding
our organization. We have continued to use programs such as Guide with PRIDE, our team member suggestion
program, and have now introduced our Talking PRIDE Engagement Survey this year. Through our Talking PRIDE
Engagement Survey results, we will establish baseline action planning that will continually be benchmarked as we
work to enhance our team member and Guest Experience. In addition, we have an online employee ethics compliance
tool, which includes a bi-lingual anonymous call center, and a sophisticated issue tracking and reporting platform
across all Famous Dave’s corporate locations.
In addition, we have numerous programs designed to recognize and reward our team members for outstanding
performance. These programs include the Famous PRIDE Award and our Spirit of the Flame Award. Our Famous
PRIDE award encourages those within the company to submit nominations for fellow team members that live and
breathe Famous PRIDE, and five individuals receive this honor each year. Our Spirit of the Flame award encourages
those within the organization to nominate and recognize one winner from our Company, and one winner from our
Franchise Community. The individuals receiving this award are selected based on their demonstration of continuous
6
exemplary FAMOUS behavior and outstanding contributions resulting in a significant and positive impact to Famous
Dave’s brand and business. Our Ring of Fire Program allows us to reward and recognize the MOST FAMOUS of the
FAMOUS in both company and franchise operations. This program rewards those operating practices that will help us
grow strong as a system. Exceptional operational performance is defined by consistently adhering to Famous Dave’s
programs and systems and also by having a high regard for guests, team members, the community and the Famous
Dave’s culture.
These initiatives are crucial towards our ability to maintain turnover levels that are below industry averages. Our
management turnover for fiscal 2010 was approximately 18.5% and hourly turnover was below 50%. During fiscal
2010, our Human Resource and Training organization focused on the selection and retention of talent through programs
in overall talent management, safety and risk reduction, and continued enhancements in our organizational structures
for all positions in the business.
In the Training and Development arena, we offer a variety of ongoing on-the-job and classroom training
programs for hourly team members; Restaurant Managers; and Multi-Unit Managers levels in an effort to create
defined career paths for our team members. Our FD101 University provides our newer managers with foundational
training for restaurant operations, including ServSafe Food and Alcohol Certification; followed by our Famous Dave’s
Management Certification program which provides a library of workshop offerings for our operators including the
guest experience, and orientation to training. We introduced many tools to assist system-wide manager and team
development including Investment Training for locations with targeted development/improvement needs. We also offer
training programs for our Support Center team members and Franchise Partners. As we continue to develop resources
and add tools to support our system, in 2011, we will be introducing a new multi-unit manager workshop as well as
piloting an e-learning platform in our organization to enable us to continue expanding the reach of our programs
through an electronically-based learning system with interactive modules and online testing and administration.
Our system-wide Franchise Partner and operations annual workshop was held in early March 2011 and featured
business sessions on Marketing, Social Media, Guest Experience, Team Member Orientation and Training, and Product
Innovation. Participants include all company-owned restaurant General Managers, Area Directors, and Director’s of
Operations, as well as many Franchise Partners, Franchise General Managers and Franchise Multi-Unit Operators.
Restaurant Operations
Our ability to manage multiple restaurants in geographically diverse locations is central to our overall success. In
each market, we place specific emphasis on the positions of Area Director and General Manager, and seek talented
individuals that bring a diverse set of skills, knowledge, and experience to the Company. We strive to maintain quality
and consistency in each of our restaurants through the careful training and supervision of team members and the
establishment of, and adherence to, high standards relating to performance, food and beverage preparation, and
maintenance of facilities.
All General Managers must complete a seven-week training program, during which they are instructed in areas
such as food quality and preparation, customer service, hospitality, and team member relations. We have prepared
operations’ manuals relating to food and beverage quality and service standards. New team members participate in
training under the close supervision of our Management. Each General Manager reports to an Area Director, who
manages from five to seven restaurants, depending on the region. Our Area Directors have all served as General
Managers, either for Famous Dave's or for other restaurants, and are responsible for ensuring that operational standards
are consistently applied in our restaurants, communication of company focus and priorities, and supporting the
development of restaurant management teams. In addition to the training that the General Managers are required to
complete as noted above, our Area Directors receive additional training through Area Director Workshops that focus
specifically on managing multiple locations, planning, time management, staff and management development skills.
We also have two Directors of Operations. Each of these individuals is responsible for approximately half of the
company-owned restaurants, which allows us to have our operations’ leadership closer to the day-in and day-out
business of our restaurants. The Directors of Operations assist in the professional development of our Area Directors
and General Managers. They are also instrumental in driving our vision of operational integrity and contributing to the
improvement of results achieved at our restaurants, including building sales, developing personnel and growing profits.
These Directors report to the Vice President of Company Operations.
7
Staffing levels at each restaurant vary according to the time of day and size of the restaurant. However, in
general, each restaurant has approximately 40 to 60 team members.
Off-Premise Occasions - Focus on Convenience – In addition to our lively and entertaining dine-in experience,
we provide our guests with maximum convenience by offering expedient take-out service and catering. We believe that
Famous Dave's entrées and side dishes are viewed by guests as traditional American "picnic foods" that maintain their
quality and travel particularly well, making them an attractive choice to replace a home-cooked meal. Also, the high
quality, reasonable cost and avoidance of preparation time make take-out of our product particularly attractive. Our
off-premise sales provide us with revenue opportunities beyond our in-house seating capacity and we continue to seek
ways to leverage these segments of our business. During fiscal 2010, our industry-leading off-premise sales, were
essentially flat to prior year at approximately 31.0% of net restaurant sales, compared to 31.1% for fiscal 2009.
Catering grew modestly in 2010, as catering accounted for approximately 9.5% of net sales for fiscal 2010, as
compared to 9.1% in 2009. We see catering as an opportunity for new consumers to sample our product who would
not otherwise have had the opportunity to visit our restaurants, and each restaurant has a dedicated vehicle to fully
support our catering initiatives.
“TO GO,” which accounted for approximately 21.5% of net restaurant sales for fiscal 2010 and declined slightly
from 22.0% of net restaurant sales in 2009 due to the continued pressure faced by many consumers, remains an integral
part of our overall business plan. Our restaurants have been designed specifically to accommodate a significant level of
“TO GO” sales, including a separate “TO GO” entrance with prominent and distinct signage, and for added
convenience, we separately staff the “TO GO” counter. This option enables Famous Dave’s to capture a greater
portion of the “take-out” market and allows consumers to “trade within our brand,” when dining in is not always an
option. We pursue efforts to increase awareness of “TO GO” in all company-owned and franchise-operated restaurants
by featuring signage and merchandising both inside and outside the restaurants. Based on our successful test during
fiscal 2010 in the Minneapolis market, and to increase “TO GO” sales overall, we will be rolling out an on-line
ordering system to all company-owned restaurants, during fiscal 2011.
Customer Satisfaction – We believe that we achieve a significant level of repeat business by providing high-
quality food, efficient friendly service, and warm caring hospitality in an entertaining environment at moderate prices.
We strive to maintain quality and consistency in each of our restaurants through the purposeful hiring, training and
supervision of personnel and the establishment of, and adherence to, high standards of performance, food preparation
and facility maintenance. We have also built family-friendly strategies into each restaurant’s food, service and design
by providing children's menus, smaller-sized entrees at reduced prices and changing tables in restrooms. We diligently
monitor the guest experience through the use of an interactive voice response (IVR) guest feedback system to ensure
that our system is producing desired results. Through this IVR system, we obtain an OSAT score, which measures
overall guest satisfaction using a rating scale of one to five. The company rating is based on the number of responses
that give the highest rating of five. During 2010, we saw record levels in guest satisfaction scores through these
monitoring programs.
Value Proposition and Guest Frequency – We offer high quality food and a distinctive atmosphere at
competitive prices to encourage frequent patronage. Lunch and dinner entrees range from $5.99 to $22.99 resulting in
a per person average of $14.82 during fiscal 2010. During fiscal 2010, lunch checks averaged $12.81 and dinner
checks averaged $16.10. We believe that value priced offerings and new product introductions, offered for a limited
period of time, will help drive new, as well as infrequent guests into our restaurants for additional meal occasions. We
offer an ‘All American Feast’ which serves 5-6 guests at an excellent value. At various times during the year, we
featured a “$10 off on orders of $30 or more” that we ran as a coupon offering, and as an email blast. Results were
positive, with an increase in traffic as compared to the periods prior to the promotion and an average check well above
the $30 requirement. Our limited time offerings throughout the year were system-wide with all company-owned
restaurants and approximately 80% of our franchise locations participated. We supported the promotions with radio
and TV advertising.
Marketing and Promotion
We believe that Famous Dave’s is the category-defining brand in barbecue. Specializing in a unique and
distinctive brand of grilled, smoked, and southern style food, our menu specialty helps set the brand apart from the rest
8
of the crowded field in casual dining. During fiscal 2011, we will continue to leverage our brand position. We have a
system-wide public relations and marketing fund. All company-owned, and those franchise-operated restaurants with
agreements signed after December 17, 2003, are required to contribute a percentage of net sales to this fund. During
fiscal 2010, company-owned restaurants spent approximately 3.2% of net restaurant sales on marketing and
advertising, with 0.5% dedicated to the development of advertising and promotional materials and programs designed
to create brand awareness in the markets within which we operate. During 2011, the contributions to the National Ad
Fund will be increased to 0.75% system-wide. In 2011, we anticipate advertising expense will be approximately 3.5%,
as a percent of net sales, including the contribution to the National Ad Fund.
The marketing team, working with outside consultants and other resources, is responsible for the advertising,
promotion, creative development, branding and media-buying for Famous Dave’s. In addition to the traditional
marketing and publicity methods, Famous Dave’s uses marketing efforts that include television, internet, radio, email
Club, direct mail, website marketing promotion and outdoor billboards. During 2010, we reached 1.0 million PIG Club
(Pretty Important Guest Loyalty Club) members and 100,000 fans on Facebook. In 2011, we will enhance our new
media strategies and tactics to include: social media marketing and viral (‘word-of-mouth’) marketing; basically, we
are involving our customers in telling our story via testimonials. Famous Dave’s brand has an active presence on
Facebook, YouTube and Twitter, engaging fans in conversation. Also, we will continue to integrate our founder
‘Famous’ Dave Anderson into our advertising campaigns as he continues to tell our brand’s unique story.
Advertising is not the only vehicle we use to build awareness of the Famous Dave’s brand. Annually, our “Rib
Team” competes in many events and festivals nationwide. This team travels the country, participating in contests and
festivals to introduce people to our brand of barbeque and build brand awareness in a segment largely defined by
independents. Since inception, Famous Dave’s has received over 500 awards. Our notable awards in 2010 included
BEST BUTT – CEDAR RAPIDS, IA and “People’s Choice Best Barbecue” at the National Barbecue Battle in
Washington, DC. Other awards included:
“Best BBQ” Reader’s Choice – Minneapolis City Pages ‘Best Of’ issue – Minneapolis MN
“#1 Favorite Pork Provocateur” – Minneapolis/St Paul Magazine Reader’s Poll” – Minneapolis MN
“Best Ribs” Reader’s Choice – The Press of Atlantic City – Mays Landing NJ
Our franchisees also continue to rack up awards all over the country. In 2010, these included:
“First Place – Ribs, Pork, Brisket” – ‘Smokin’ on the Strip Barbecue Cook-off’ – Branson MO
“Best BBQ, Presentation, and Taste” – ‘BBQ, Bands and Brew – BBQ Competition’ – Ft Myers FL
“Best BBQ” – Las Vegas Review Journal – Reader’s Choice – Las Vegas NV
“Best BBQ, Best Booth” – ‘Taste of Tacoma’ – Tacoma WA
“Best of South Jersey” Reader’s Choice – Courier-Post – Cherry Hill NJ
Additionally, Famous Dave’s was named the “Top BBQ Restaurant Franchise” from Entrepreneur Magazine.
The strategic focus in 2011 for marketing and promotion remains the same – to be the category–defining brand
in BBQ, create more competitive distinction, and continue to strengthen the perception of value in the consumer’s
mind. We plan to include approximately five new limited time offerings in 2011 to introduce our customers to new
flavor profiles, innovative products and provide value and margin opportunity. Also, a number of new initiatives are
planned around enhancing the menu, the guest experience, events marketing and social media. Building on a
successful promotion last year, Famous Dave’s will again be celebrating ‘Dave’s Day’ in the third quarter of 2011 and
will be launching new initiatives to build “Famous” culture and contribute to the community.
Location Strategy
We believe that the barbeque segment of the casual dining niche of the restaurant industry continues to offer
strong growth opportunities, and we see no impediments to our growth on a geographical basis. Our geographical
concentration as of January 2, 2011 was 44% Midwest, 20% South, 26% West and 10% Northeast. We were located in
37 states as of January 2, 2011.
We prepare an overall market development strategy for each market. The creation of this market strategy starts
9
with identifying trade areas that align demographically with the guest profile. The trade areas are then assessed for
viability and vitality and prioritized as initial, second tier, or future development. Since markets are dynamic, the
market strategy includes a continual and ongoing assessment of all existing restaurant locations. If financially feasible,
a restaurant may be relocated as the retail or residential focus of a trade area shifts.
We have a real estate site selection model to assess the site quality and trade area quality of new locations. This
process involves extensive consumer research in our existing restaurants captured in a guest profile, which is updated
on an annual basis. Each location is evaluated based on three primary sales drivers, which include: sales potential from
the residential base (home quality), employment base (work quality), and retail activity (retail quality). Locations are
also evaluated on their site characteristics which include seven categories of key site attributes, including but not
limited to, access, visibility, and parking.
As part of our development strategy, we will seek conversion opportunities for future restaurants in order to
streamline the development process and to minimize the up-front investment. We will also evaluate the use of our new
5,000, 4,000 and 2,400 square foot prototypes where it makes sense. We intend to finance development through the
use of cash on hand, cash flow generated from operations, and through availability on our revolving line of credit.
Company-Owned Restaurant Expansion – We are planning to open one company-owned restaurant in 2011,
and in the future, we will continue to build in our existing markets in high profile, heavy traffic retail locations as part
of our future operating strategy to continue to build brand awareness. Our plan is to focus on sustainable, controlled
growth, primarily in markets where multiple restaurants can be opened, thereby expanding consumer awareness, and
creating opportunities for operating, distribution, and marketing efficiencies.
Franchise-Operated Restaurant Expansion – We anticipate opening 10 to 11 new franchise restaurants during
2011. Our goal is to continue to improve the economics of our current restaurant prototypes, while providing more
cost-effective development options for our franchisees. As of January 2, 2011, we had commitments for 80 units in the
form of signed franchise area development agreements that are expected to open over approximately the next seven
years. Our franchise system is a significant part of our brand’s success. As such, another one of our goals is to be a
valued franchisor; to enhance communication and recognition of best practices throughout the system and to continue
to expand our franchisee network. During 2011, to incentivize growth, any of our franchisees who open during the first
three quarters will receive a reduced royalty rate from the date of opening through the balance of Famous Dave’s 2011
fiscal year.
Generally, we find franchise candidates with prior franchise casual-dining restaurant experience in the markets
for which they will be granted. In the past, area development agreements generally ranged from 3 to 15 restaurants,
however, due to economic and market conditions, we are willing to discuss smaller unit agreements as well. We are
also looking at individual franchise restaurants in the right markets where it makes sense.
Purchasing
We strive to obtain consistent quality items at competitive prices from reliable sources. In order to maximize
operational efficiencies and to provide the freshest ingredients for our food products, each restaurant’s management
team determines the daily quantities of food items needed and orders such quantities to be delivered to their restaurant.
The products, produced by major manufacturers designated by us, are shipped directly to the restaurants through
foodservice distributors.
Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being
proteins. Pork represents approximately 31% of our total purchases, while chicken is approximately 13%, beef, which
includes hamburger and brisket, is approximately 10%, and seafood is approximately 2%.
Our Purchasing contracts, our food and beverage costs and trends associated with each are discussed under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
10
Information Technology
Famous Dave’s recognizes the importance of leveraging information and technology to support and extend our
competitive position in the restaurant industry. We continue to invest in capabilities that provide secure and efficient
operations, maximize the guest experience, and provide the ability to analyze data that describes our operations.
We have implemented a suite of restaurant and support center systems which support operations by providing
transactional functions (ordering, card processing, etc.) and reporting at both the unit and support center level.
Interfaces between Point-of-Sale (POS), labor management, inventory management, menu management, key suppliers,
team member screening/hiring and financial systems all contribute to the following operator and corporate visibility:
• Average guest check broken down by location, by server, by day part, and by revenue center;
• Daily reports of revenue and labor (both current and forecasted);
• Weekly reports of selected controllable restaurant expenses;
• Monthly reporting of detailed revenue and expenses; and
•
Ideal vs. actual usage variance reporting for critical restaurant-level materials;
This visibility enables every level of the Famous Dave’s organization to manage the key controllable costs
within our industry, including food and labor costs.
Below are the significant information technology initiatives completed in fiscal 2010:
•
Implementation of a Human Resource Information System (HRIS) which provides a more efficient HR
management tool by facilitating strategic analysis and mitigating risk with the consolidation of all information
into a single system.
• Selection of a web-based ordering solution based on results of a pilot market test that assessed the impact on
sales and guest experience. Initial focus is on online ordering with future capabilities for mobile ordering.
• Continued expansion of web technology to build guest community and to drive marketing efforts including,
but not limited to, an increased presence in the social media arena with a strategy and brand presence on
Facebook, YouTube, and Twitter.
Implementation of financial utilities to comply with XBRL reporting requirements and to optimize the process
for creating and supporting the data. Upgrade of messaging infrastructure positioning us to take advantage of
the latest communication capabilities and providing a platform for increased collaboration.
•
• Continued implementation of virtual machines resulting in a significant reduction in hardware maintenance.
In 2011, the department will leverage technology to support the needs of the Company through several initiatives
listed below:
• Expansion of the food cost/supply chain back-office solution to include predictive features for ordering and
product preparation that will enhance the effectiveness of efforts to manage cost.
• Leverage additional capabilities available in the Human Resource Information System (HRIS) to drive further
efficiencies and self-service processes.
• Roll-out of web-based ordering solution providing ease of ordering for our guests’ and an additional sales
channel with future capabilities for mobile and Facebook ordering.
• Selection and implementation of a budgeting, forecasting, and strategic planning solution that will expand
upon current capabilities, increase efficiencies, and integrate with the evolution of other systems.
• Continued enhancement of business intelligence and reporting capabilities to facilitate identification and
communication of key business metrics to make more timely decisions.
• Replace end-of-life data storage infrastructure providing increased capacity for cost saving and multi-media
initiatives along with decreased maintenance effort.
• Continued evaluation of options to provide technology support and strategic systems to franchise partners.
• Creation of a marketing portal to facilitate the ordering, distribution and customization of marketing materials
for localization and for the franchise community.
11
Trademarks
Our Company has registered various trademarks, makes use of various unregistered marks, and intends to
vigorously defend these marks. “Famous Dave’s” and the Famous Dave’s logo are registered trademarks of Famous
Dave's of America, Inc. The Company highly values its trademarks, trade names and service marks and will defend
against any improper use of its marks to the fullest extent allowable by law.
Franchise Program
We have offered franchises of our concept since July 1998 and currently file our franchise disclosure document
in all 50 states. Our growth and success depends in part upon our ability to attract, contract with and retain qualified
franchisees. It also depends upon the ability of those franchisees to successfully operate their restaurants with our
standards of quality and promote and develop Famous Dave’s brand awareness.
Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include
certain operating standards, each franchisee operates his/her restaurants independently. Various laws limit our ability
to influence the day-to-day operation of our franchise restaurants. We cannot assure you that franchisees will be able to
successfully operate Famous Dave’s restaurants in a manner consistent with our standards for operational excellence,
service and food quality.
At January 2, 2011, we had 42 ownership groups operating 130 Famous Dave’s franchise restaurants. Signed
area development agreements, representing commitments to open an additional 80 franchise restaurants, were in place
as of January 2, 2011. There can be no assurance that these franchisees will fulfill their commitments or fulfill them
within the anticipated timeframe. We continue to grow the franchise program for our restaurants and anticipate 10 to
11 additional franchise restaurants will open during fiscal 2011.
12
As of January 2, 2011, we had franchise-operated restaurants in the following locations:
State
Arkansas
Arizona
California
Colorado
Delaware
Florida
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maine
Massachusetts
Michigan
Minnesota
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Dakota
Oregon
Ohio
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Washington
Wisconsin
Total
Number of Franchise-Operated
Restaurants
2
6
14
6
2
3
1
2
3
3
3
4
1
1
1
8
9
3
4
6
4
1
1
3
2
1
3
4
1
5
3
3
6
11
130
Our Franchise Operations Department is made up of a Vice President of Franchise Operations, who guides the
efforts of Directors of Franchise Operations, supported by Territory Directors. The Directors of Franchise Operations
have responsibility for supporting our franchisees geographically throughout the country. Our Directors of Franchise
Operations play a critical role for us as well as for our franchise community. Directors of Franchise Operations manage
the relationship between the franchisee and the franchisor and provide an understanding of the roles, responsibilities,
differences, and accountabilities of that relationship. They are active participants towards enhancing performance, as
they partner in strategic and operational planning sessions with our franchise partners and review the individual
13
strategies and tactics for obtaining superior performance for the franchisee. The Directors of Franchise Operations
share best practices throughout the system and work to create a one-system mentality that benefits everyone. In
addition, they ensure compliance with obligations under our area development and franchise agreements. Franchisees
are encouraged to utilize all available assistance from the Directors of Franchise Operations and the Support Center but
are not required to do so.
We make periodic inspections of our franchise-operated restaurants to ensure that the franchisee is complying
with the same quality of service, operational excellence and food specifications that are found at our company-owned
restaurants. We generally provide support as it relates to all aspects of the franchise operations including, but not
limited to, store openings, operating performance, and human resource strategic planning.
Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty
payments. Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in
consideration for the services we perform in preparation of executing each area development agreement. Substantially
all of these services which include, but are not limited to, conducting market and trade area analysis, a meeting with
Famous Dave’s Executive Team, and performing potential franchisee background investigation, all of which are
completed prior to our execution of the area development agreement and receipt of the corresponding area development
fee. As a result, we recognize this fee in full upon receipt. Our initial, non-refundable, franchise fee is typically
$30,000 to $40,000 per restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed,
reflecting the commission earned and expenses incurred related to the sale. The remaining $25,000 to $35,000 is
included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our
obligations. The franchise agreement represents a separate and distinct earnings process from the area development
agreements. Franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales, which
has historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales.
We continue to be proactive in supporting our franchisees. During a time when financing is difficult to obtain, we
decided to suspend franchisees’ development schedule requirements for both 2009 and 2010. However, as a growth
incentive, and similar to 2009, franchisees that chose to open in 2010 got a reduced royalty rate for a 12 month
timeframe from date of opening.
Because of the continuing difficult economic environment and scarcity of capital for development, we modified
and extended this growth incentive program for fiscal 2011. The modification offers new and existing franchisees
reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise
restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011.
Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the
third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and
beyond would be at the 5% royalty rate.
The franchisee’s investment depends primarily upon restaurant size. This investment includes the area
development fee, initial franchise fee, real estate and leasehold improvements, fixtures and equipment, POS systems,
business licenses, deposits, initial food inventory, small wares, décor and training fees as well as working capital. In
2011, franchisees will be required to contribute 0.75% of net sales to a national public relations and marketing fund
dedicated to building system-wide brand awareness.
Seasonality
Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of
seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first
and fourth quarters of our fiscal year, due to possible adverse weather which can disrupt guest and team member
transportation to our restaurants.
Government Regulation
Our Company is subject to extensive state and local government regulation by various governmental agencies,
including state and local licensing, zoning, land use, construction and environmental regulations and various
regulations relating to the sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public
health, safety and fire standards. Our restaurants are subject to periodic inspections by governmental agencies to
ensure conformity with such regulations. Any difficulty or failure to obtain required licensing or other regulatory
14
approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew a license,
could interrupt operations at an existing restaurant, any of which would adversely affect our operations. Restaurant
operating costs are also affected by other government actions that are beyond our control, including increases in the
minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs, property and
casualty insurance, and unemployment and other taxes. We are also subject to "dram-shop" statutes, which generally
provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person.
As a franchisor, we are subject to federal regulation and certain state laws that govern the offer and sale of
franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations
on non-competition provisions and the termination or non-renewal of a franchise. Bills have been introduced in
Congress from time to time that would provide for federal regulation of substantive aspects of the franchisor-franchisee
relationship. As proposed, such legislation would limit, among other things, the duration and scope of non-competition
provisions, the ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to
designate sources of supply.
The 1990 Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public
accommodations and employment. We could be required to incur costs to modify our restaurants in order to provide
service to, or make reasonable accommodations for, disabled persons. Our restaurants are currently designed to be
accessible to the disabled, and we believe we are in substantial compliance with all current applicable regulations
relating to this Act.
Team Members
As of January 2, 2011, we employed approximately 3,175 team members of which approximately 340 were full-
time. None of our team members are covered by a collective bargaining agreement. We consider our relationships
with our team members to be good.
ITEM 1A. RISK FACTORS
Famous Dave’s makes written and oral statements from time to time, including statements contained in this
Annual Report on Form 10-K regarding its business and prospects, such as projections of future performance,
statements of management’s plans and objectives, forecasts of market trends and other matters that are forward-looking
statements within the meaning of Sections 27A of the Securities Exchange Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “anticipates,” “are
expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “intends,” “target,”
“goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements which may appear in
documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations
made by our officers or other representatives to analysts, shareholders, investors, news organizations, and others, and
discussions with our management and other Company representatives. For such statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Our future results, including results related to forward-looking statements, involve a number of risks and
uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved.
Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is
made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data,
communications and other information from suppliers, government agencies and other sources that may be subject to
revision. Except as otherwise required by applicable law, we do not undertake any obligation to update or keep current
either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or
(ii) the important factors that could cause our future results to differ materially from historical results or trends, results
anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be
made by us or on our behalf.
In addition to other matters identified or described by us from time to time in filings with the SEC, including the
risks described below and elsewhere in this Annual Report on Form 10-K, there are several important factors that could
cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or
results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf.
15
The Recent Disruptions in the Overall Economy and the Financial Markets May Adversely Impact Our
Business and Results of Operations and May Impact Our Ability to Comply with our Credit Facility’s
Financial Covenants.
The restaurant industry can be affected by macro economic factors, including changes in national, regional, and
local economic conditions, employment levels and consumer spending patterns. The recent disruptions in the overall
economy and financial markets have weakened consumer confidence in the economy considerably, and consequently,
have reduced the amount of consumers’ dining out occasions, which has been harmful to our results of operations, and
has negatively impacted our financial position. In addition, the impact of the current economic downturn has resulted
in a deceleration of the number and timing of restaurant openings and, depending on its duration and severity, could
adversely affect our ability to comply with financial covenants under our credit facility on a continuing basis. There can
be no assurances that government responses to the disruptions in the financial markets and overall economy will restore
consumer confidence, stabilize the markets or increase liquidity and the availability of credit. As of January 2, 2011, we
were in compliance with all of the financial covenants under our credit facility.
In the event we fail to comply with these or other financial covenants in the future and are unable to obtain
similar waivers, our lender will have the right to demand repayment of all outstanding amounts, which totaled $13.0
million at January 2, 2011, and to terminate the existing credit facility. If we were unable to repay outstanding amounts,
either using current cash reserves, a replacement facility or another source of capital, our lender would have the right to
foreclose on our personal property, which serves as collateral for the credit facility. Replacement financing may be
unavailable to us on similar terms or at all, especially if current credit market conditions persist. Termination of our
existing credit facility without adequate replacement, either through a similar facility or other sources of capital, would
have a material and adverse impact on our ability to continue our business operations.
Our Future Revenue and Operating Income Are Dependent on Consumer Preference and Our Ability to
Successfully Execute Our Plan.
Our Company’s future revenue and operating income will depend upon various factors, including continued and
additional market acceptance of the Famous Dave's brand, the quality of our restaurant operations, our ability to grow
our brand, our ability to successfully expand into new and existing markets, our ability to successfully execute our
franchise program, our ability to raise additional financing as needed, discretionary consumer spending, the overall
success of the venues where Famous Dave’s restaurants are or will be located, economic conditions affecting
disposable consumer income, general economic conditions and the continued popularity of the Famous Dave’s concept.
An adverse change in any or all of these conditions would have a negative effect on our operations and the market
value of our common stock.
It’s our plan to open one new company-owned restaurant in 2011, and we are anticipating the opening of 10 to
11 new franchise restaurants. There is no guarantee that any of the company-owned or franchise-operated restaurants
will open when planned, or at all, due to the risks associated with pre-construction delays in the development of new
restaurants, such as governmental approvals, the availability of sites, and the availability of capital, many of which are
beyond our control. There can be no assurance that we will successfully implement our growth plan for our company-
owned and franchise-operated restaurants. In addition, we also face all of the risks, expenses and difficulties frequently
encountered in the development of an expanding business.
Competition May Reduce Our Revenue and Operating Income.
Competition in the restaurant industry is intense. The restaurant industry is affected by changes in consumer
preferences, as well as by national, regional and local economic conditions, and demographic trends. Discretionary
spending priorities, traffic patterns, tourist travel, weather conditions, team member availability and the type, number
and location of competing restaurants, among other factors, will also directly affect the performance of our restaurants.
Changes in any of these factors in the markets where we currently operate our restaurants could adversely affect the
results of our operations.
Increased competition by existing or future competitors may reduce our sales. Our restaurants compete with
moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value. In
addition to existing barbeque restaurants, we face competition from steakhouses and other restaurants featuring protein-
rich foods. We also compete with other restaurants and retail establishments for quality sites. Competition in the
16
restaurant industry is affected by changes in consumer taste, economic and real estate conditions, demographic trends,
traffic patterns, the cost and availability of qualified labor, product availability and local competitive factors.
Many of our competitors have substantially greater financial, marketing and other resources than we do.
Regional and national restaurant companies continue to expand their operations into our current and anticipated market
areas. We believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer
high quality food and hospitality in a distinctive and comfortable environment. If we are unable to respond to, or unable
to respond in a timely manner, the various competitive factors affecting the restaurant industry, our revenue and
operating income could be adversely affected.
Our Failure to Execute Our Franchise Program May Negatively Impact Our Revenue and Operating Income.
Our growth and success depends in part upon increasing the number of our franchised restaurants, through
execution of area development and franchise agreements with new and existing franchisees in new and existing
markets. Our ability to successfully franchise additional restaurants will depend on various factors, including our ability
to attract, contract with and retain quality franchisees, the availability of suitable sites, the negotiation of acceptable
leases or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction
schedules, the financial and other capabilities of our franchisees, our ability to manage this anticipated expansion, and
general economic and business conditions. Many of the foregoing factors are beyond the control of the Company or
our franchisees.
Our growth and success also depends upon the ability of our franchisees to operate their restaurants successfully
to our standards and promote the Famous Dave’s brand. Although we have established criteria to evaluate prospective
franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her
restaurant independently. Various laws limit our ability to influence the day-to-day operation of our franchise
restaurants. We cannot assure you that our franchisees will be able to successfully operate Famous Dave’s restaurants
in a manner consistent with our concepts and standards, which could reduce their sales and correspondingly, our
franchise royalties, and could adversely affect our operating income and our ability to leverage the Famous Dave’s
brand. In addition, there can be no assurance that our franchisees will have access to financial resources necessary to
open the restaurants required by their respective area development agreements.
The Inability to Develop and Construct Our Restaurants Within Projected Budgets and Time Periods Could
Adversely Affect Our Business and Financial Condition.
Many factors may affect the costs associated with the development and construction of our restaurants, including
landlord delays, weather interference, unforeseen engineering problems, environmental problems, construction or
zoning problems, local government regulations, modifications in design to the size and scope of the project, and other
unanticipated increases in costs, any of which could give rise to delays or cost overruns. We have realized pre-
construction permitting and zoning delays that are outside of our control. If we are not able to develop additional
restaurants within anticipated budgets or time periods, our business, financial condition, results of operations and cash
flows could be adversely affected.
The Restaurant Industry is Subject to Extensive Government Regulation That Could Negatively Impact Our
Business.
The restaurant industry is subject to extensive state and local government regulation by various government
agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various
regulations relating to the preparation and sale of food and alcoholic beverages, sanitation, disposal of refuse and waste
products, public health, safety and fire standards, minimum wage requirements, workers’ compensation and citizenship
requirements. Due to the fact that we offer and sell franchises, we are also subject to federal regulation and certain state
laws which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on
franchise agreements, including limitations on non-competition provisions and termination or non-renewal of a
franchise. We may also be subject in certain states to "dram-shop" statutes, which provide a person injured by an
intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to
the intoxicated person.
17
Any change in the current status of such regulations, including an increase in team member benefits costs, any
and all insurance rates, or other costs associated with team members, could substantially increase our compliance and
labor costs. Because we pay many of our restaurant-level team members rates based on either the federal or the state
minimum wage, increases in the minimum wage would lead to increased labor costs. In addition, our operating results
would be adversely affected in the event we fail to maintain our food and liquor licenses. Furthermore, restaurant
operating costs are affected by increases in unemployment tax rates and similar costs over which we have no control.
Recent health care legislation enacted by the Federal Government mandates menu labeling of certain nutritional
aspects of restaurant menu items such as caloric, sugar, sodium, and fat content. Altering our recipes in response to
such legislation could increase our costs and/or change the flavor profile of our menu offerings which could have an
adverse impact on our results of operations. Additionally, minimum employee health care coverage mandated by state
or federal legislation could have an adverse effect on our results of operations and financial condition.
We Are Subject to the Risks Associated With the Food Services Industry, Including the Risk That Incidents of
Food-borne Illnesses or Food Tampering Could Damage Our Reputation and Reduce Our Restaurant Sales.
Our industry is susceptible to the risk of food-borne illnesses. As with any restaurant operation, however, we
cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses.
Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness
incidents could be caused by third-party food suppliers and distributors outside of our control and/or multiple locations
being affected rather than a single restaurant. New illnesses resistant to any precautions may develop in the future, or
diseases with long incubation periods could arise that could give rise to claims or allegations on a retroactive basis.
Reports in the media of one or more instances of food-borne illness in one of our corporate-owned restaurants, one of
our franchise-operated restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales,
force the closure of some of our restaurants and conceivably have a national impact if highly publicized. This risk
exists even if it were later determined that the illness had been wrongly attributed to the restaurant. Furthermore, other
illnesses could adversely affect the supply of some of our food products and significantly increase our costs. A decrease
in guest traffic as a result of these health concerns or negative publicity could materially harm our business, results of
operations and financial condition.
Our Ability to Exploit Our Brand Depends on Our Ability to Protect Our Intellectual Property, and If Any
Third Parties Make Unauthorized Use Of Our Intellectual Property, Our Competitive Position and Business
Could Suffer.
We believe that our trademarks and other intellectual proprietary rights are important to our success and our
competitive position. Accordingly, we have registered various trademarks and make use of various unregistered marks.
However, the actions we have taken or may take in the future to establish and protect our trademarks and other
intellectual proprietary rights may be inadequate to prevent others from imitating our products and concept or claiming
violations of their trademarks and proprietary rights by us. Although we intend to defend against any improper use of
our marks to the fullest extent allowable by law, litigation related to such defense, regardless of the merit or resolution,
may be costly and time consuming and divert the efforts and attention of our management.
Our Financial Performance is Affected By Our Ability to Contract with Reliable Suppliers At Competitive
Prices.
In order to maximize operating efficiencies, we have entered into arrangements with food manufacturers and
distributors pursuant to which we obtain approximately 85% of the products used by the Company, including, but not
limited to, pork, poultry, beef, and seafood. We believe that our relationships with our food manufacturers and
distributors are excellent. We anticipate no interruption in the supply of product delivered by these companies;
however, we have arrangements with several secondary suppliers in the case of a supply disruption. Although we may
be able to obtain competitive products and prices from alternative suppliers, an interruption in the supply of products
delivered by our food suppliers could adversely affect our operations in the short term. Due to the rising market price
environment, our food costs may increase without the desire and/or ability to pass that price increase to our customers.
While we do contract for utilities in all available states, the costs of these energy-related items will fluctuate due
to factors that may not be predictable, such as the economy, current political/international relations and weather
18
conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will
increase beyond our current projections and adversely affect our operations.
We Could Be Adversely Impacted if Our Information Technology and Computer Systems Do Not Perform
Properly or if We Fail to Protect Our Customers’ Credit Card Information or Our Employees’ Personal Data.
We rely heavily on information technology to conduct our business, and any material failure, interruption of
service, or compromised data security could adversely affect our operations. While we take it very seriously and
expend significant resources to ensure that our information technology operates securely and effectively, any security
breaches could result in disruptions to operations or unauthorized disclosure of confidential information. Additionally,
if our guests’ credit card or other personal information or our team members’ personal data are compromised our
operations could be adversely affected, our reputation could be harmed, and we could be subjected to litigation or the
imposition of penalties.
Pursuant to its Authority to Designate and Issue Shares of Our Stock as it Deems Appropriate, Our Board of
Directors May Assign Rights and Privileges to Currently Undesignated Shares Which Could Adversely Affect
the Rights of Existing Shareholders.
Our authorized capital consists of 100,000,000 shares of capital stock. Our Board of Directors, without any
action by the shareholders, may designate and issue shares in such classes or series (including classes or series of
preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including
dividends, liquidation and voting rights. As of March 11, 2011, we had 8,079,173 shares of common stock outstanding.
The rights of holders of preferred stock and other classes of common stock that may be issued could be superior
to the rights granted to the current holders of our common stock. Our Board's ability to designate and issue such
undesignated shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of
additional shares having preferential rights could adversely affect the voting power and other rights of holders of
common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The development cost of our restaurants varies depending primarily on the size and style of the restaurant,
whether the property is purchased or leased, and whether it is a conversion of an existing building or a newly
constructed restaurant. We have a 5,000 square foot package that can be built as a free standing building, a 4,000
square foot model that most likely would be constructed as an end cap of a building and a 2,400 square foot design
which would be constructed as a counter service location in an existing building. Additionally, we offer lower cost
conversion packages that provide our franchisees with the flexibility to build in cost effective formats, such as,
opportunities to convert existing restaurants into a Famous Dave’s restaurant. In fiscal 2010, the company opened a
6,400 square foot restaurant that was a conversion of another restaurant concept. The restaurants we opened in 2006,
2007, 2008 were approximately 6,000 square feet, and had approximately 175 seats, with an additional 50 seats in the
bar, and 32 additional seats on the patio where available. In 2010, the company and several franchisees’ successfully
converted restaurants from existing casual dining concepts. Due to the flexibility and scalability of our concept, there
are a variety of development opportunities available now and in the future. In 2011, we expect to open a company-
owned restaurant in Falls Church, Virginia, which is a conversion of another restaurant concept, and 10 to 11 new
franchise-operated restaurants.
Our leased restaurant facilities are occupied under agreements with remaining terms ranging from 1 to 37 years,
including renewal options. Such leases generally provide for fixed rental payments plus operating expenses associated
with the properties. Several leases also require the payment of percentage rent based on net sales.
Our executive offices are currently located in approximately 23,900 square feet in Minnetonka, Minnesota, under
a lease that expires in August 2013, with two five-year renewal options. The minimum annual rent commitment
19
remaining over the base lease term is approximately $3.5 million, net of sublease income. In 2010, in an effort to
reduce general and administrative expense, we entered into a sublease for 2,100 square feet, in our executive office
building, through the remainder of the base lease term. We believe that our properties will be suitable for our needs
and adequate for operations for the foreseeable future.
20
The following table sets forth certain information about our existing company-owned restaurant locations, as of
Interior
Seats
105
380
146
125
130
90
100
140
49
150
150
130
140
180
185
270
219
180
219
222
135
233
150
200
184
165
180
170
158
158
180
186
205
217
200
160
219
219
219
219
219
219
184
192
181
237
237
276
255
253
176
199
Owned or
Leased
Leased
Leased
Leased(1)
Leased
Leased(1)
Leased(1)
Leased
Owned(2)
Owned(2)
Leased
Leased
Leased
Leased
Owned(2)
Owned(2)
Leased
Leased
Leased
Leased
Leased
Owned(2)
Leased
Leased
Leased
Leased
Leased
Owned(2)
Leased
Owned(2)
Leased
Owned(2)
Owned(2)
Leased
Leased
Leased
Owned(2)
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Date
Opened/Acquired
June 1996
September 1996
April 1997
June 1997
July 1997
July 1997
October 1997
December 1997
December 1997
April 1998
April 1998
September 1998
October 1998
October 1998
December 1999
January 2000
January 2000
January 2000
January 2000
February 2000
March 2000
July 2000
August 2000
December 2000
May 2001
August 2001
December 2001
May 2002
June 2002
June 2002
September 2002
June 2003
January 2006
January 2006
June 2006
December 2006
September 2007
November 2007
November 2007
December 2007
February 2008
September 2008
October 2008
October 2008
March 2010
March 2010
March 2010
March 2010
March 2010
March 2010
March 2010
August 2010
January 2, 2011, sorted by opening date:
Location
1 Roseville, MN (3)
2 Calhoun Square (Minneapolis, MN)
3 Maple Grove, MN
4 Highland Park (St. Paul, MN)(3)
5 Stillwater, MN
6 Apple Valley, MN(3)
7 Forest Lake, MN(3)
8 Minnetonka, MN
9 Plymouth, MN(3)
10 West Des Moines, IA
11 Des Moines, IA
12 Cedar Falls, IA
13 Bloomington, MN
14 Woodbury, MN
15 Lincoln, NE
16 Columbia, MD
17 Annapolis, MD
18 Frederick, MD
19 Woodbridge, VA
20 Vernon Hills, IL
21 Addison, IL
22 Lombard, IL
23 North Riverside, IL
24 Sterling, VA
25 Oakton, VA
26 Laurel, MD
27 Richmond I (Richmond, VA)
28 Gaithersburg, MD
29 Richmond II (Richmond, VA)
30 Orland Park, IL
31 Tulsa, OK
32 Virginia Commons, VA
33 Chantilly, VA
34 Florence, KY
35 Waldorf, MD
36 Coon Rapids, MN
37 Fredericksburg, VA
38 Owings Mills, MD
39 Bolingbrook, IL
40 Oswego, IL
41 Alexandria, VA
42 Algonquin, IL
43 Greenwood, IN
44 Salisbury, MD
45 Brick, NJ
46 May's Landing, NJ
47 Smithtown, NY
48 Westbury, NY
49 New Brunswick, NJ
50 Mountainside, NJ
51 Metuchen, NJ
52 Bel Air, MD
All seat count and square footage amounts are approximate.
Square
Footage
4,800
10,500
6,100
5,200
5,200
3,800
4,500
5,500
2,100
5,700
5,800
5,400
5,400
5,900
6,200
7,200
6,800
5,600
6,000
6,660
5,000
6,500
4,700
5,800
4,400
5,200
5,400
5,000
5,200
5,400
4,700
5,600
6,400
5,900
6,600
6,300
6,500
6,700
6,600
6,600
6,600
6,000
5,700
5,400
5,200
6,400
6,400
6,400
7,200
8,800
6,200
6,360
(1)Restaurant is collateral in a financing lease.
(2)Restaurant land and building are owned by the Company.
(3)Counter service restaurant
21
ITEM 3. LEGAL PROCEEDINGS
From time-to-time, we are involved in various legal actions arising in the ordinary course of business. In the
opinion of our management, the ultimate dispositions of these matters will not have a material adverse effect on our
consolidated financial position and results of operations. Currently, there are no significant legal matters pending.
ITEM 4. [REMOVED AND RESERVED]
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has traded on the NASDAQ Stock Market since July 24, 1997 under the symbol DAVE.
Currently, our common stock trades on the NASDAQ Global Market. The following table summarizes the high and
low sale prices per share of our common stock for the periods indicated, as reported on the NASDAQ Global Market.
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2010
2009
High
Low
High
Low
$
$
$
$
8.30
9.69
9.64
11.44
$
$
$
$
6.00
7.77
7.50
8.90
$
$
$
$
4.41
7.00
7.25
7.08
$
$
$
$
2.00
3.02
5.20
5.30
Holders
As of March 7, 2011, we had approximately 439 shareholders of record and approximately 5,064 beneficial
shareholders.
Dividends
Our Board of Directors has not declared any dividends on our common stock since our inception, and does not
intend to pay out any cash dividends on our common stock in the foreseeable future. We presently intend to retain all
earnings, if any, to provide for our growth and capital needs. The payment of cash dividends in the future, if any, will
be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital
requirements, loan agreement restrictions, our financial condition and other factors deemed relevant by our Board of
Directors.
Stock Performance Graph
Below is a line-graph presentation that compares the cumulative, five-year return to the Company’s shareholders
(based on appreciation of the market price of the Company’s common stock) on an indexed basis with (i) a broad
equity market index and (ii) an appropriate published industry or line-of-business index, or Peer Group Index
constructed by the Company. The following presentation compares the Company’s common stock price for the period
from January 1, 2006 through January 2, 2011, to the S&P 500 Stock Index and to a Peer Group Index.
The Company has elected to use the S&P Small Cap Restaurant Index in compiling its stock performance graph
because it believes the S&P Small Cap Restaurant Index represents a comparison to competitors with similar market
capitalization to the Company.
The presentation assumes that the value of an investment in each of the Company's common stock, the S&P 500
Index and S&P Small Cap Restaurants was $100 on January 1, 2006, and that any dividends paid were reinvested in the
same security.
22
Purchases of Equity Securities by the Issuer
On August 6, 2008, our Board of Directors approved a stock repurchase program that authorized the
repurchase of up to 1.0 million shares of our common stock in both the open market or through privately
negotiated transactions. During fiscal 2010, we repurchased 892,988 shares under this program for approximately
$6.9 million at an average market price per share of $7.76, excluding commissions. Including the amounts just
mentioned, we repurchased all 1.0 million shares under this authorization, for approximately $7.8 million at an
average market price per share of $7.79, excluding commissions.
On November 4, 2010, our Board of Directors approved a further stock repurchase program that authorized
the repurchase of up to an additional 1.0 million shares of our common stock in both the open market or through
privately negotiated transactions. As of January 2, 2011 we had repurchased 174,100 shares under this program
for approximately $1.8 million at an average market price of $10.33, excluding commissions.
23
The following table includes information about our share repurchases for the fiscal year ended January 2,
2011:
Maximum
Number
(or Approximate
Dollar Value) of
Shares
(or Units)
that May Yet be
Purchased
Under the Plans
or Programs
Total Number
of Shares
(or Units)
Purchased as
Part of Publically
Announced Plans
or Programs
62,100 (2)
79,212 (2)
288,486 (2)
---
159,700 (2)
64,450 (2)
---
65,379 (2)
173,661 (2)
---
26,900 (4)
147,200 (4)
830,888 (3)
751,676 (3)
463,190 (3)
463,190 (3)
303,490 (3)
239,040 (3)
239,040 (3)
173,661 (3)
---
---
973,100 (5)
825,900 (5)
Total
Number
of Shares
(or Units)
Purchased
Average
Price
Paid per
Share(1)
(or Unit)
62,100 (2)
$ 6.28
79,212 (2)
$ 6.48
288,486 (2)
$ 7.20
---
$ ---
159,700 (2)
$ 8.68
64,450 (2)
$ 8.60
---
$ ---
65,379 (2)
$ 8.21
173,661 (2)
$ 8.49
---
$ ---
26,900 (4)
$ 9.66
147,200 (4)
$ 10.45
Period
Month #1 (January 4, 2010 – January 31, 2010)
Month #2 (February 1, 2010 – February 28, 2010)
Month #3 (March 1, 2010 – April 4, 2010)
Month #4 (April 5, 2010 – May 2, 2010)
Month #5 (May 3, 2010 – May 30, 2010)
Month #6 (May 31, 2010 – July 4, 2010)
Month #7 (July 5, 2010 – August 1, 2010)
Month #8 (August 2, 2010 – August 29, 2010)
Month #9 (August 30, 2010 – October 3, 2010)
Month #10 (October 4, 2010 – October 31, 2010)
Month #11 (November 1, 2010 – November 28, 2010)
Month #12 (November 29, 2010 – January 2, 2011)
(1)Excluding commissions.
(2)Shares purchased under the 1.0 million share publicly announced repurchase plan adopted August 6, 2008.
(3)Reflects the maximum number of shares that may be purchased in the future under the publicly announced share repurchase plan adopted August 6, 2008.
(4)Shares purchased under the 1.0 million share publically announced repurchase plan adopted November 4, 2010.
(5)Reflects the maximum number of shares that may be purchased in the future under the publicly announced share repurchase plan adopted November 4, 2010.
24
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction with the consolidated financial
statements and notes included elsewhere in this Form 10-K, and in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.
The selected financial data as of and for the fiscal years ended January 2, 2011 (fiscal 2010), January 3, 2010
(fiscal year 2009), December 28, 2008 (fiscal year 2008), and December 30, 2007 (fiscal year 2007), and December 31,
2006 (fiscal year 2006) have been derived from our consolidated financial statements as audited by Grant Thornton
LLP, independent registered public accounting firm.
FISCAL YEAR
($’s in 000’s, except per share data and average weekly sales)
2010
2009 (1)
2008
2007
2006
FINANCIAL HIGHLIGHTS
$0.47
$0.46
$9,243
$4,954
($2,737)
($1,136)
$116,621
($74)
$119
$389
$0.63
$0.62
$0.04
$0.61
$0.04
$0.59
($218)
$5,701
$2,654
$2,996
($596)
$2,030
$6,070
$1,687
$11,983
$10,514
$76,129
($2,989)
($3,796)
$10,436
($6,912)
($3,100)
$136,018
$148,268
$140,382
$125,873
$7,218
$0.84(3)
$0.82(3)
STATEMENTS OF OPERATIONS DATA
Revenue
Asset impairment and estimated lease termination and
other closing costs(2)
Income from operations
Income tax (expense) benefit
Net income
Basic net income per common share
Diluted net income per common share
BALANCE SHEET DATA (at year end)
Cash and cash equivalents
Total assets
Long-term debt less current maturities(4)
Total shareholders’ equity
OTHER DATA
Restaurant Sales:
Company-owned
Franchise-operated
Number of restaurants open at year end:
Company-owned restaurants
Franchise-operated restaurants
Total restaurants
Company-owned comparable store
Sales increase (decrease) (5)
Average weekly sales:
Company-owned restaurants
Franchise-operated restaurants
(1)Fiscal 2009 consisted of 53 weeks. Fiscal 2010, 2008, 2007, and 2006 all consisted of 52 weeks.
(2)Fiscal 2009 primarily reflects closing costs for two company-owned restaurants. Fiscal 2008 reflects impairment charges for eight restaurants. Five of these have
closed and three are still operating. Fiscal 2007 reflects impairment charges associated with one restaurant that was subsequently closed. Fiscal 2006 reflects
impairment charges associated with one restaurant and land held for sale: one which was subsequently sold, the other which was subsequently closed.
(6.3)%(6)
$122,016
$107,820
$355,946
$320,750
$358,696
$117,934
$340,454
$131,154
$50,685
$50,385
$56,727
$73,401
$73,942
$29,252
$56,535
$11,693
$26,184
$30,400
(2.0)%
$49,187
$48,197
$53,016
$68,381
$17,990
$32,994
$23,497
$32,904
$52,631
$1,538
0.7%
2.1%
170
164
120
123
182
130
132
177
47
44
$100,026
$282,160
$47,894
$58,334
$65,859
$13,025
$36,171
$1,455
2.9%
104
145
41
52
45
(3)Reflects gain on acquisition of New York and New Jersey restaurants in March of 2010, of $0.15 per share.
(4)Long-term debt includes our line of credit in fiscal 2009 and fiscal 2008. Prior to fiscal 2008, the line of credit was included in current liabilities.
(5)Our comparable store sales base includes company-owned restaurants that are open year round and have been open more than 24 months.
(6)For purposes of computing comparable store sales, this computation assumes fiscal 2009 was a 52-week year.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Annual Report on Form 10-K include “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are based on
information currently available to us as of the date of this Annual Report, and we assume no obligation to update any
forward-looking statements except as otherwise required by applicable law. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any
future results, performance or achievements expressed or implied by such forward-looking statements. Such factors
may include, among others, those factors listed in Item 1A of and elsewhere in this Annual Report and our other filings
with the Securities and Exchange Commission. The following discussion should be read in conjunction with “Selected
Financial Data” above (Item 6 of this Annual Report) and our financial statements and related footnotes appearing
elsewhere in this Annual Report.
OVERVIEW
Famous Dave's of America, Inc. was incorporated as a Minnesota corporation in March 1994 and opened its first
restaurant in Minneapolis in June 1995. As of January 2, 2011, there were 182 Famous Dave’s restaurants operating in
37 states, including 52 company-owned restaurants and 130 franchise-operated restaurants. An additional 80 franchise
restaurants were in various stages of development as of January 2, 2011. Fiscal 2011, which ends on January 1, 2012,
will consist of 52 weeks.
Fiscal Year
Our fiscal year ends on the Sunday nearest December 31st of each year. Our fiscal year is generally 52 weeks;
however it periodically consists of 53 weeks. The fiscal year ended January 2, 2011 (fiscal 2010) consisted of 52
weeks, the fiscal year ended January 3, 2010 (fiscal 2009) consisted of 53 weeks, and the fiscal year ended December
28, 2008 (fiscal 2008) consisted of 52 weeks.
Basis of Presentation – The financial results presented and discussed herein reflect our results and the results of
our wholly-owned and majority-owned consolidated subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Application of Critical Accounting Policies and Estimates – The following discussion and analysis of the
Company’s financial condition and results of operations is based upon its financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and judgments that affect the reported amount of assets,
liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and
judgments. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.
Management bases its estimates and judgments on historical experience, observance of trends in the industry,
information provided by customers and other outside sources and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. Management believes the following critical accounting policies reflect its
more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.
Our Company’s significant accounting policies are described in Note 1 to the consolidated financial statements
included herein.
We have discussed the development and selection of the following critical accounting estimates with the Audit
Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to such estimates
in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recognition of Franchise-Related Revenue – Initial franchise revenue is recognized when we have performed
substantially all of our obligations as franchisor. Franchise royalties are recognized when earned as promulgated by
Financial Accounting Standards Board (FASB) Accounting Standards Codification for Franchisors.
26
Our revenue consists of restaurant sales, franchise-related revenue, and licensing and other revenue. Our
franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments.
Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in
consideration for the services we perform in preparation of executing each area development agreement. Substantially
all of these services, which include, but are not limited to, conducting market and trade area analysis, a meeting with
Famous Dave’s Executive Team, and performing potential franchise background investigations, are completed prior to
our execution of the area development agreement and receipt of the corresponding area development fee. As a result,
we recognize this fee in full upon receipt. Our initial, non-refundable, franchise fee is typically $30,000 to $40,000 per
restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission
earned and expenses incurred related to the sale. The remaining non-refundable fee of $25,000 to $35,000 is included
in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations,
which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). The franchise
agreement represents a separate and distinct earnings process from the area development agreements. Franchisees are
also required to pay us a monthly royalty equal to a percentage of their net sales, which has historically varied from 4%
to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales. During 2009 and 2010, we offered
a reduced royalty rate for twelve months from date of opening for franchisees that opened restaurants during 2010 and
2009.
Because of the continuing difficult economic environment and scarcity of capital for development, we modified
and extended this growth incentive program for fiscal 2011. The modification offers new and existing franchisees
reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise
restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011.
Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the
third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and
beyond would be at the 5% royalty rate.
Asset Impairment and Estimated Lease Termination and Other Closing Costs – In accordance with FASB
Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying
amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-
restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying
amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available
including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and
other factors. If these assumptions change in the future, we may be required to take additional impairment charges for
the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual
results could vary significantly from such estimates. Restaurant sites that are operating but have been previously
impaired are reported at the lower of their carrying amount or fair value less estimated costs to sell.
Lease Accounting – In accordance with FASB Accounting Standards Codification for Leases, we recognize
lease expense for our operating leases over the entire lease term including lease renewal options where the renewal is
reasonably assured and the build-out period takes place prior to the restaurant opening or lease commencement date.
We account for construction allowances by recording a receivable when its collectability is considered probable,
depreciating the leasehold improvements over the lesser of their useful lives or the full term of the lease, including
renewal options and build-out periods, amortizing the construction allowance as a credit to rent expense over the full
term of the lease, including renewal options and build-out periods, and relieving the receivable once the cash is
obtained from the landlord for the construction allowance. We record rent expense during the build-out period and
classify this expense as pre-opening expenses in our consolidated statements of operations.
Accounts Receivable, Net – We provide an allowance for uncollectible accounts on accounts receivable based on
historical losses and existing economic conditions, when relevant. We provide for a general bad debt reserve for
franchise receivables due to increases in days’ sales outstanding and deterioration in general economic market
conditions. This general reserve is based on the aging of receivables meeting specified criteria and is adjusted each
quarter based on past due receivable balances. Additionally, we have periodically established a specific reserve on
certain receivables as necessary. Any changes to the reserve are recorded in general and administrative expenses. The
allowance for uncollectible accounts was approximately $80,000 and $67,000 at January 2, 2011 and January 3, 2010,
27
respectively. Accounts receivable are written off when they become uncollectible, and payments subsequently received
on such receivables are credited to allowance for doubtful accounts. Accounts receivable balances written off have not
exceeded allowances provided. We believe all accounts receivable in excess of the allowance are fully collectible. If
accounts receivable in excess of provided allowances are determined uncollectible, they are charged to expense in the
period that determination is made. Outstanding past due accounts receivable are subject to a monthly interest charge on
unpaid balances which is recorded as interest income in our consolidated statements of operations. In assessing
recoverability of these receivables, we make judgments regarding the financial condition of the franchisees based
primarily on past and current payment trends, as well as other variables, including annual financial information, which
the franchisees are required to submit to us.
Income Taxes – We provide for income taxes based on our estimate of federal and state income tax liabilities.
These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for
items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable
for tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available
to us at the time that we prepare the income tax provision. We generally file our annual income tax returns several
months after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments,
generally years after the tax returns are filed. These returns could be subject to material adjustments or differing
interpretations of the tax laws. Accrual for uncertain tax positions are accounted for under FASB Accounting
Standards Codification of Income Taxes. Additionally, uncertain positions may be re-measured as warranted by
changes in facts or law. Accounting for uncertain tax positions requires significant judgment including estimating the
amount, timing, and likelihood of ultimate settlement. Although the Company believes that its estimates are
reasonable, actual results could differ from these estimates.
Results of Operations
Revenue – Our revenue consists of four components: company-owned restaurant sales, franchise-related revenue
from royalties and franchise fees, licensing revenue from the retail sale of our sauces and rubs, and other revenue from
the opening assistance we provide to franchise partners. We record restaurant sales at the time food and beverages are
served. Our revenue recognition policies for franchising are discussed under “Recognition of Franchise-Related
Revenue” above. Our franchise-related revenue consists of area development fees, initial franchise fees and continuing
royalty payments. We record sales of merchandise items at the time items are delivered to the customer.
We have a licensing agreement for our retail products, with renewal options of five years, subject to the
licensee’s attainment of identified minimum product sales levels. Based on achievement of the required minimum
product sales, the agreement will be in force until April 2015 at which time these levels will be re-evaluated.
Periodically, we provide additional services, beyond the general franchise agreement, to our franchise
operations, such as new restaurant training and décor installation services. The cost of these services is billed to the
respective franchisee, is recorded as other income when the service is provided, and is generally payable on a net 30-
day terms.
Costs and Expenses – Restaurant costs and expenses include food and beverage costs, operating payroll, team
member benefits, restaurant level supervision, occupancy costs, repair and maintenance costs, supplies, advertising and
promotion, and restaurant depreciation and amortization. Certain of these costs and expenses are variable and will
increase or decrease with sales volume. The primary fixed costs are corporate and restaurant management salaries and
occupancy costs. Our experience is that when a new restaurant opens, it incurs higher than normal levels of labor and
food costs until operations stabilize, usually during the first 12-14 weeks of operation. As restaurant Management and
team members gain experience following a restaurant’s opening, labor scheduling, food cost management and
operating expense control are improved to levels similar to those at our more established restaurants.
General and Administrative Expenses – General and administrative expenses include all corporate and
administrative functions that provide an infrastructure to support existing operations and support future growth.
Salaries, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent, and general insurance
are major items in this category. We record expenses for Managers in Training (“MITs”) in this category for
approximately six weeks prior to a restaurant opening. We also provide franchise services, the revenue of which are
included in other revenue and the expenses of which are included in general and administrative expenses.
28
The following table presents items in our consolidated statements of operations as a percentage of total revenue
or net restaurant sales, as indicated, for the following fiscal years (4):
Food and beverage costs(1)
Labor and benefits(1)
Operating expenses(1)
Depreciation & amortization (restaurant level)(1)
Depreciation & amortization (corporate level)(2)
General and administrative(2)
Pre-opening expenses and net loss
on disposal of property(1)
Asset impairment and estimated lease
termination and other closing costs(1)
Gain on acquisition, net of acquisition costs(1)(3)
Total costs and expenses(2)
Income from operations(2)
2010
2009
2008
29.5%
31.5%
27.5%
3.8%
0.4%
10.9%
0.2%
0.1%
(1.6)%
91.9%
8.1%
30.1%
31.4%
26.7%
3.9%
0.4%
11.8%
---
0.2%
0.1%
92.3%
7.7%
30.8%
31.3%
26.6%
4.1%
0.4%
11.8%
0.9%
5.7%
---
98.6%
1.4%
(1)As a percentage of restaurant sales, net
(2)As a percentage of total revenue
(3)Acquisition costs incurred in 2009 were prior to the completion of an acquisition in fiscal 2010.
(4)Data regarding our restaurant operations as presented in the table, includes sales, costs and expenses associated with our Rib Team,
which had a net loss of $6,000 and net income of $4,000 and $5,000, respectively, in fiscal years 2010, 2009 and 2008. Our Rib Team
travels around the country introducing people to our brand of barbeque and building brand awareness.
Fiscal Year 2010 Compared to Fiscal Year 2009
Total Revenue
Total revenue of approximately $148.3 million for fiscal 2010 increased approximately $12.3 million, or 9.0%,
from total revenue of $136.0 million in the comparable quarter in fiscal 2009. Fiscal 2010 consisted of 52 weeks, while
fiscal 2009 consisted of 53 weeks.
Restaurant Sales, net
Restaurant sales for fiscal 2010 were approximately $131.2 million, compared to approximately $117.9 million
for fiscal 2009 reflecting an 11.2% increase. Total restaurant sales growth reflected the addition of the seven New York
and New Jersey restaurants, the new company-owned restaurant that opened in Bel Air, Maryland, and a comparable
sales increase of 0.7% which included a weighted average pricing impact of 1.2%. These sales increases were partially
offset by the impact of the 53rd week in fiscal 2009, equal to approximately $2.4 million. Of the 0.7% comparable sales
increase, dine-in sales were flat to the prior year, while To-Go accounted for 0.3%, and catering comprised 0.4% of the
increase. Off-premise sales were 31.0% of total sales, with catering at 9.5% and To-Go at 21.5%. This compares to
2009’s off-premise sales of 31.1%.
Franchise-Related Revenue
Franchise-related revenue consists of royalty revenue and franchise fees, which includes initial franchise fees
and area development fees. Franchise-related revenue was approximately $16.2 million for fiscal 2010, compared to
$17.1 million for 2009. The decline in franchise royalties reflects a comparable franchise sales decrease of 0.8%, the
loss of approximately $333,000 of royalties from the 53rd week of fiscal 2009 and a net decrease of two franchise
restaurants year over year. Nine new franchise restaurants opened in fiscal 2010, four restaurants closed, and seven
restaurants became company-owned locations. Fiscal 2010 included 6,458 franchise operating weeks, compared to
6,758 franchise operating weeks in fiscal 2009. There were 130 franchise-operated restaurants open at January 2, 2011,
compared to 132 at January 3, 2010.
29
Licensing and Other Revenue
Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and
seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. Licensing
royalty revenue was approximately $595,000 for fiscal 2010 as compared to $523,000 for fiscal 2009. During fiscal
2011, as a result of continued growth in our restaurant base and expanded markets, we expect to see licensing revenue
increase slightly compared to fiscal 2010 levels.
Other revenue for fiscal 2010 was approximately $272,000 compared to approximately $449,000 for the
comparable period of fiscal 2009 due to fewer franchise-operated restaurants that opened during fiscal 2010 compared
to fiscal 2009. The amount of other revenue is expected to be flat in fiscal 2011, versus the prior year, based on a
similar number of franchise openings planned for fiscal 2011.
Same Store Net Sales
It is our policy to include in our same store net sales base, restaurants that are open year round and have been
open at least 24 months. Same store net sales for company-owned restaurants open at least 24 months ended January 2,
2011 increased 0.7%, compared to fiscal 2009’s decrease of 6.3%. For the January 2, 2011 and January 3, 2010, there
were 40 and 37 restaurants, respectively, included in the company-owned 24 month comparable sales base.
Same store net sales on a 24 month basis for franchise-operated restaurants for fiscal 2010 and fiscal 2009
decreased 0.8% and 8.5%, respectively. For fiscal 2010 and fiscal 2009, there were 94 and 90 restaurants, respectively,
included in the franchise-operated 24 month comparable sales base. Neither franchise-operated comparable sales nor
company-owned comparable sales include the results of the seven franchise restaurants acquired in March of 2010.
These restaurants will enter the company-owned comparable sales base in March 2011 as it will only take 12 months to
stabilize operations of these restaurants.
Average Weekly Net Sales and Operating Weeks
The following table shows company-owned and franchise-operated average weekly net sales and company-
owned and franchise-operated operating weeks for fiscal 2010 and fiscal 2009:
Company-Owned
Full-Service
Counter-Service
Franchise-Operated
Food and Beverage Costs
Fiscal Years Ended
January 2,
2011
January 3,
2010
$
$
$
$
49,187
50,760
34,697
52,631
$
$
$
$
48,197
49,840
35,413
53,016
Food and beverage costs for fiscal 2010 were approximately $38.8 million or 29.5% of net restaurant sales
compared to approximately $35.5 million or 30.1% of net restaurant sales for the comparable period of fiscal 2009. As
a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were approximately 9.0% for
both fiscal 2010 and 2009.
The decrease in food and beverage costs from fiscal 2009 to fiscal 2010, was primarily due to favorable contract
pricing for a majority of our key proteins such as pork and hamburger; continued visibility and optimization from our
food cost management system, and the successful transition to a new distributor. These decreases were partially offset
by increased costs for two of our other core proteins, chicken and brisket.
Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being
proteins. Pork represents approximately 31.0% of our total purchases, while chicken is approximately 13.0%, beef,
which includes hamburger and brisket, is approximately 10.0%, and seafood is approximately 2.0%.
30
Our pork contract is locked in for fiscal 2011, which should result in an approximate 2.3% increase over 2010’s
pricing. We will watch the pork market closely to determine if there are opportunities to blend and extend pricing later
in the year, should we see significant changes on the horizon with regard to the pricing environment for 2012. A
majority of our chicken contracts are firm through September of 2011, at a price increase of approximately 5.3% over
fiscal 2010. We have transitioned to a new raw brisket product to obtain a better yield and to minimize the amount of
prep labor; however, due to higher commodity prices for this product, we will see a net cost increase of 4.2% over
fiscal 2010. In the future, as commodity prices decrease, this product should allow the company to realize additional
savings compared to our former brisket product. Currently, our brisket contract is firm through July of 2011. As we
look at the balance of 2011, we will watch the market closely and execute short-term contracts until we can lock in an
acceptable long-term price. For hamburger, we currently anticipate an average price increase of 9.0%, compared to
2010, which is on contract through June 2011. We are continually evaluating the market to determine the best time to
lock in pricing for the rest of 2011, and are willing to ride the spot market until we can lock in what we believe is our
best price. Our salmon and shrimp contracts are locked in through June of 2011, and our catfish is locked in through
April of 2011, all at a blended price decrease of approximately 1.1% from fiscal 2010’s pricing. Due to the limited
availability of catfish, however, we are currently evaluating our options regarding the future use of this product.
With all indications continuing to point to rising commodity prices, we plan on mitigating these price increases
with the following initiatives:
•
In the fourth quarter of fiscal 2010, we initiated a 1.0% price increase on selected menu items. Additionally,
we initiated an additional 1.0% price increase, primarily related to our beverage menu, during the new menu
roll out in January of 2011. We will determine whether we will effect further price increases later in 2011.
• We will seek opportunities for regional produce contracting.
• We will perform a comprehensive review of the way we source, ship, and purchase our poultry products.
• We will focus on continued optimization of our distribution network to reduce freight costs.
• We will continue to evaluate and manage our prep-time labor and product quality for our non-core and side
items, to determine if it is best to completely prepare certain items in-house or partially pre-prep them at our
suppliers.
• We will prioritize continued strategic management of limited time offerings and their potential to positively
impact on our menu mix and margin.
As a result of all of the initiatives mentioned above, and although challenging, we are striving for an approximate
40 – 45 basis point decrease in our food and beverage costs as a percent of sales year over year.
Labor and Benefits Costs
Labor and benefits for fiscal 2010 were approximately $41.4 million or 31.5% of net restaurant sales, compared
to approximately $37.0 million or 31.4% of net restaurant sales for fiscal 2009. This percentage increase reflects
higher direct labor costs, incurred to normalize operations at the new company-owned restaurant, as well as the seven
acquired restaurants. The company also realized higher employee benefit costs year over year. These increases were
partially offset by savings from operating below our full manager matrix.
For 2011, we expect labor and benefits costs as a percentage of sales, to be 5 to 10 basis points higher than fiscal
2010’s percentage, primarily due to operating at our full manager matrix.
Operating Expenses
Operating expenses for fiscal 2010 were approximately $36.1 million or 27.5% of net restaurant sales, compared
to approximately $31.5 million or 26.7% of net restaurant sales for fiscal 2009. This year over year increase was
primarily related to occupancy and other fixed operating costs from our New York and New Jersey restaurants. This
increase was partially offset by advertising cost savings in 2010. For fiscal 2010, advertising, as a percent of sales, was
approximately 3.2% compared to 3.4% for the prior year, primarily due to savings in media placement fees.
For 2011, the Company has increased the national ad fund contribution system-wide, to 0.75% from 0.5%, and
we expect that for fiscal 2011, advertising expense will be approximately 3.5% of net sales, including the contribution
to the National Ad Fund.
31
We are projecting operating expenses as a percentage of net sales for fiscal 2011 to be approximately 35 – 40
basis points higher than 2010’s percentage. Of this increase, 30 basis points relates to the increase in advertising costs.
While we do not anticipate a major change in our advertising strategy, we will look for ways to optimize the dollars
spent without compromising our advertising objectives. Additionally, although, we are contracted for gas and electric
where possible, we anticipate increased utility costs in fiscal 2011.
Depreciation and Amortization
Depreciation and amortization expense for fiscal 2010 and 2009 was approximately $5.5 million and $5.2
million, respectively, and was 3.7% and 3.8%, respectively, of total revenue. For 2011, we expect depreciation as a
percent of total revenue to be flat to 5 basis points lower, as compared to 2010, due to revenue leverage.
Pre-opening Expenses
Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a
restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will
vary based on lease terms. During fiscal 2010 we had $300,000 of pre-opening expenses which included pre-opening
rent and other pre-opening expenses for our new company-owned location in Bel Air, Maryland. We did not open any
company owned restaurants in 2009, and thus did not have any pre-opening expenses. We will be opening one
company-owned restaurant in the third quarter of 2011. Additionally, we anticipate some pre-opening expenses for an
undetermined company-owned restaurant opening in early 2012. Pre-opening costs are therefore estimated at
approximately $340,000 for fiscal 2011, including pre-opening rent.
General and Administrative Expenses
General and administrative expenses for fiscal 2010 were approximately $16.2 million or 10.9% of total revenue
compared to approximately $16.0 million or 11.8% of total revenue for fiscal 2009. This percentage decrease is
primarily due to revenue leverage. General and administrative expenses as a percent of total revenue, excluding stock-
based compensation and board of directors’ cash compensation, were 10.0% for fiscal 2010 and 11.2% for fiscal 2009.
For fiscal 2010, stock-based compensation and board of director cash compensation expense was approximately
$1.3 million compared with $832,000 in fiscal 2009. The increase in this expense category is primarily due to a higher
stock price year over year. We anticipate stock-based compensation and board of directors’ cash compensation to be
approximately $1.7 million for fiscal 2011, as follows (in thousands):
Performance
Shares
$ 1,105
Restricted
Stock Units
$ 136
Board of
Directors
Shares
$ 64
Board of
Directors Cash
Compensation
$ 400
Total
$ 1,705
Over the past two years, we have prudently watched our expenses and will continue to do so. However, early in
2010, as we looked to 2011 and beyond, we also knew that we needed to reinvest in our organization for continued
growth, both for our restaurants and for our franchise system. During 2010, we added the necessary people and
systems to support this growth and 2011 will contain the full year impact of these investments. Accordingly, for 2011,
we expect general and administrative expenses as a percentage of revenue, with full accrual for bonus achievement, to
be approximately 20 - 25 basis points higher than 2010’s percentage.
Asset Impairment and Estimated Lease Termination and Other Closing Costs
In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate
restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured
by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be
generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the
amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated based on the
best information available including estimated future cash flows, expected growth rates in comparable restaurant sales,
remaining lease terms and other factors. If these assumptions change in the future, we may be required to take
32
additional impairment charges for the related assets. Considerable management judgment is necessary to estimate
future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are
operating, but have been previously impaired, are reported at the lower of their carrying amount or fair value less
estimated costs to sell. Here is a summary of these events and situations for fiscal 2010 and fiscal 2009.
2010 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurants
Various
Palatine
Atlanta
Various
Total for 2010
Reason
Amount
Costs for closed restaurants(1)
Lease reserve(2)
Gain on lease terminations(3)
Other
$
$
68
88
(84)
2
74
(1)The Company incurred costs for closed restaurants which primarily related to its Palatine, IL restaurant which was closed in 2010.
(2)The lease reserve was recorded in accordance with FASB Accounting Standards Codification for Exit and Disposal Cost Obligations, and equals
the net present value of the remaining lease obligations for the Palatine, Illinois restaurant, net of expected sublease income, equal to zero.
(3)During the year, the Company negotiated lease buyouts for its Marietta, GA location. Total termination fees were approximately $506,000 less
lease reserve of approximately $591,000 for a net gain of approximately $84,000.
2009 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurants
Various
Various
Software
Various
Total for 2009
Reason
Costs for closed restaurants(1)
Gain on lease terminations(2)
Asset impairment(3)
Other
Amount
240
(162)
129
11
218
$
$
(1)The Company incurred costs for the following closed restaurants: Snellville, Georgia, Alpharetta, Georgia, and Marietta, Georgia, which all
closed in 2008. Additionally, there were costs for West St. Paul, Minnesota and Naperville, Illinois which were closed in 2009.
(2)During the year, the Company negotiated lease buyouts for two Georgia locations, for a restaurant that closed in fiscal year 2006, and negotiated
a lease termination settlement for a restaurant site where construction had never commenced. Total termination fees were approximately
$1,313,000 less lease reserves of approximately $1,475,000 for a net gain of approximately $162,000.
(3)In accordance with FASB Accounting Standards Codification for Property, Plant and Equipment, the asset impairment charge, which was
recorded in the third quarter of fiscal 2009, was related to a software product that was replaced with an alternative solution prior to
implementation.
Gain on Acquisition, Net of Acquisition Costs
On March 3, 2010, the Company purchased the assets of seven of nine Famous Dave’s restaurants located in
New York and New Jersey previously owned and operated by a Famous Dave's franchisee, North Country BBQ
Ventures, Inc. These assets were purchased under Section 363 of Chapter 11 of the U.S. Bankruptcy Code and the
acquisition was approved by the United States Bankruptcy Court for the District of New Jersey. The Company did not
assume any liabilities except for the outstanding gift cards that the Company chose to honor. Famous Dave’s of
America, Inc. continues to operate the restaurants. For the two restaurants that were not acquired, one was
subsequently closed and the other was purchased out of bankruptcy by another buyer who assumed the existing
franchise agreement.
33
The purchase price for the seven restaurants of approximately $7.4 million was offset by approximately
$649,000 of pre- and post-petition notes receivable of the Company due and payable from the seller, resulting in a net
cash payment of $6.8 million, which was funded by a term loan from Wells Fargo Bank, N.A. (See Financial
Condition, Liquidity, and Capital Resources section for the specific terms and conditions for this term loan.) This
acquisition was accounted for using the acquisition method of accounting in accordance with FASB Accounting
Standards Codification for Business Combinations. The net assets acquired were recorded based on their fair values at
the acquisition date as follows (in thousands):
Inventory
Property, equipment, and leasehold improvements
Other assets(1)
Gift card liability
Lease interest liabilities
Asset disposal costs
Fair value of the net assets acquired
$
$
125
7,262
2,843 (2)
(312)
(138) (2)
(2)
9,778
(1)Other assets are comprised of approximately $1.4 million of liquor licenses, $1.4 million of lease interest assets and $16,000 of security
deposits for various operating leases.
(2)Lease interest assets and lease interest liabilities will be amortized ratably to occupancy costs which is reflected in operating expenses in the
Company’s consolidated statements of operations.
The excess of the aggregate fair value of the assets acquired over the purchase price was allocated to gain on
acquisition of approximately $2.3 million and is reflected in the consolidated statements of operations for the fiscal
year ended January 2, 2011. The Company incurred approximately $386,000 of costs associated with the acquisition,
$79,000 of which were incurred in fiscal 2009, and $307,000 of which were incurred in fiscal 2010. The fiscal 2010
acquisition-related costs are reflected as a net adjustment to the gain on the acquisition in the consolidated statements of
operations for the year ended January 2, 2011.
Loss on Early Extinguishment of Debt
During 2009, we elected to repay five notes prior to their expiration, related to two of our Minnesota restaurants
and three of our Virginia restaurants. These notes had annual interest rates ranging from 8.10% to 10.53% and were
originally due between February 2020 and October 2023. A total of approximately $7.1 million was paid to retire these
notes early. Included in the debt retirement payment was a pre-payment penalty of approximately $350,000 reflected
as a loss on early extinguishment of debt in our consolidated statements of operations. We recorded a non-cash charge
of approximately $159,000 to write-off associated deferred financing fees as a result of the early repayment, also
reflected as early extinguishment of debt in our consolidated statement of operations.
Interest Expense
Interest expense was approximately $1.1 million or 0.8% of total revenue for fiscal 2010 and approximately $1.4
million or 1.1% of total revenue for fiscal 2009. For fiscal 2010, interest expense decreased year over year due to the
early payoff of five high-rate, long-term notes in 2009 partially offset by the addition of the $6.8 million term loan for
the acquisition of the New York and New Jersey restaurants in early fiscal 2010. For 2011, we expect interest expense
to be essentially flat as a percentage of revenue, due to leverage year over year, partially offset by expected moderate
increases in interest rates.
Interest Income
Interest income was approximately $171,000 and $129,000 for fiscal 2010 and fiscal 2009, respectively. Interest
income reflects interest received on short-term cash and cash equivalent balances and on outstanding notes and
accounts receivable balances.
34
Provision for Income Taxes
For fiscal 2010, our tax provision was approximately $3.8 million, or 34.5% of income before income taxes,
compared to the prior year comparable period of approximately $3.0 million, or 34.4% of income before income taxes.
The slight increase in the effective tax rate for fiscal 2010 is partially due to the impact of certain tax adjustments
proposed during the federal audit of the 2008 and 2009 tax years. We estimate an effective tax rate of approximately
34.4% for fiscal 2011.
Basic and Diluted Net Income Per Common Share
Net income for fiscal 2010 was approximately $7.2 million, or $0.84 per basic share and $0.82 per diluted share,
on approximately 8,620,000 weighted average basic shares outstanding and approximately 8,784,000 weighted average
diluted shares outstanding, respectively. Net income for fiscal 2009 was approximately $5.7 million, or $0.63 per basic
share and $0.62 per diluted share, on approximately 9,114,000 weighted average basic shares outstanding and
approximately 9,211,000 weighted average diluted shares outstanding, respectively.
Fiscal Year 2009 Compared to Fiscal Year 2008
Total Revenue – Total revenue of approximately $136.0 million for fiscal 2009 decreased approximately $4.4
million or 3.1% from total revenue of approximately $140.4 million for fiscal 2008. Fiscal 2009 consisted of 53 weeks,
while fiscal 2008 consisted of 52 weeks.
Restaurant Sales – Restaurant sales were approximately $117.9 million for fiscal 2009 and approximately
$122.0 million for fiscal 2008. Fiscal 2009 sales results included a restaurant sales decline of 3.3%, which primarily
reflected a comparable sales decrease of 6.3%, partially offset by a weighted average price increase of 2.3%. The 2009
comparable sales decline reflected continued sales pressure in all three of our sales levers: dine-in, To-Go, and catering,
resulting primarily from changes in consumer spending in the casual dining industry initiated largely by the recession.
Of the 6.3% fiscal 2009 comparable sales decline, dine-in represented 3.4%, To-Go accounted for 1.5%, and catering
comprised 1.4%. During fiscal 2009, our category leadership in off-premise sales declined due to the sluggishness in
the economy, as businesses and consumers continued to be conscious of the discretionary dollars they spend. Catering
and “TO GO” accounted for approximately 31.1% of sales in fiscal 2009, compared with approximately 32.4% of sales
in fiscal 2008.
Franchise-Related Revenue – Franchise-related revenue consisted of royalty revenue and franchise fees, which
included initial franchise fees and area development fees. Franchise-related revenue for fiscal 2009 was approximately
$17.1 million, a 2.3% decrease when compared to franchise-related revenue of approximately $17.5 million for the
same period in fiscal 2008. Royalties, which are based on a percent of franchise-operated restaurants’ net sales,
decreased 0.7% during fiscal 2009. This decrease reflected the full year impact of higher sales levels of franchise
restaurants that opened in fiscal 2008, in addition to the net nine new franchise restaurants opened during fiscal 2009,
offset by a comparable sales decrease of 8.5%. Fiscal 2009 included 6,758 franchise operating weeks, compared to
6,296 franchise operating weeks in fiscal 2008. There were 132 franchise-operated restaurants open at January 3, 2010,
compared to 123 at December 28, 2008.
Licensing and Other Revenue – Licensing revenue included royalties from a retail line of business, including
sauces, rubs, marinades, seasonings, and other items. Other revenue included opening assistance and training we
provide to our franchise partners. For fiscal 2009, the licensing royalty income was approximately $523,000 compared
to approximately $408,000 for fiscal 2008. Other revenue for fiscal 2009 was approximately $448,000, compared to
approximately $440,000 in fiscal 2008.
Same Store Net Sales – It is our policy to include in our same store net sales base, restaurants that are open year
round and have been open for at least 24 months. At the end of fiscal 2009 and fiscal 2008, there were 37 and 35
restaurants, respectively, included in this base. Same store net sales for fiscal 2009 decreased approximately 6.3%,
compared to fiscal 2008’s decrease of approximately 2.0%. The decrease in same store net sales reflected slower
traffic in all three of our sales drivers: dine-in, to-go, and catering.
35
Same store net sales for franchise-operated restaurants decreased approximately 8.5% in 2009. The negative
comparable sales trend reflected the economic challenges being faced across the country and in many of our franchise
markets. Of the 8.5% fiscal 2009 decline, seven states, representing 38 franchise-operated restaurants, accounted for
over half of the decline. Additionally, we saw a shift in the states with the largest declines from 2009 compared to
2008 due to changes in the geographic impact of the recession. For fiscal 2009 and fiscal 2008, there were 90 and 74
restaurants, respectively, included in franchise-operated comparable sales.
Average Weekly Net Sales (AWS):
Company-Owned
Full-Service
Counter-Service
Franchise-Operated
Fiscal Years Ended
January 3,
2010
December 28,
2008
$
$
$
$
48,197
49,840
35,413
53,016
$
$
$
$
50,685
52,744
36,911
56,535
Food and Beverage Costs – Food and beverage costs for fiscal 2009 were approximately $35.5 million or 30.1%
of net restaurant sales compared to approximately $37.6 million or 30.8% of net restaurant sales for fiscal 2008.
Results for fiscal 2009 reflected lower contract pricing for many of our core proteins. Our adult beverage sales at our
company-owned restaurants in fiscal 2009 and fiscal 2008 were approximately 9% as a percentage of dine-in sales.
Labor and Benefits – Labor and benefits at the restaurant level were approximately $37.0 million or 31.4% of
net restaurant sales in fiscal 2009 compared to approximately $38.2 million or 31.3% of net restaurant sales in fiscal
2008. The slight increase in the percentage was a result of sales deleverage partially offset by a reduction in our labor
matrix in early 2009 and the additional sales of the 53rd week of fiscal 2009, which positively impacted our fixed labor
costs.
Operating Expenses – Operating expenses for fiscal 2009 were approximately $31.5 million or 26.7% of net
restaurant sales compared to approximately $32.5 million or 26.6% of net restaurant sales for fiscal 2008. The slight
increase was due to sales deleverage and increased occupancy costs due to the three restaurants added in late 2008.
These were partially offset by utility and advertising cost savings in 2009. In 2009, advertising, as a percent of sales,
was approximately 3.4% compared to 3.7% for the prior year.
Depreciation and Amortization – Depreciation and amortization for fiscal 2009 was approximately $5.2 million,
or 3.8% of total revenue, compared to approximately $5.5 million, or 4.0% of total revenue for fiscal 2008. For fiscal
2009, depreciation and amortization expense was approximately $331,000 less than 2008, due to 2008 impairment
charges and a reduction in capital spending year over year.
General and Administrative Expenses – General and administrative expenses totalled approximately $16.0
million or 11.8% of total revenue in fiscal 2009 compared to approximately $16.5 million or 11.8% of total revenue in
fiscal 2008. In fiscal 2009, general and administrative expenses included approximately $832,000, for stock-based
compensation expense related to our performance share programs, options expense from FASB Accounting Standards
Codification for Compensation - Stock Compensation, and the issuance of shares to our Board of Directors for service
during fiscal 2009. In fiscal 2008, general and administrative expenses included approximately $694,000 for stock-
based compensation expense. Excluding bonus and stock-based compensation expense, the percentage would have
been 11.2% for fiscal 2009 and 11.3% for fiscal 2008. The increase in the percentage excluding stock-based
compensation compared to prior year primarily reflected the accrual for bonuses partially offset by our prudent cost
control over general administrative expenses in 2009.
Asset Impairment and Estimated Lease Termination and Other Closing Costs – In accordance with FASB
Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying
36
amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-
restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying
amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available
including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and
other factors. If these assumptions change in the future, we may be required to take additional impairment charges for
the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual
results could vary significantly from such estimates. Restaurant sites that are operating but have been previously
impaired are reported at the lower of their carrying amount or fair value less estimated costs to sell. Here is a summary
of these events and situations for fiscal 2009 and fiscal 2008.
2009 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurants
Various
Various
Software
Various
Total for 2009
Reason
Costs for closed restaurants(1)
Gain on lease terminations(2)
Asset impairment(3)
Other
Amount
240
(162)
129
11
218
$
$
(1)The Company incurred costs for the following closed restaurants: Snellville, Georgia, Alpharetta, Georgia, and Marietta, Georgia, which all
closed in 2008. Additionally, there were costs for West St. Paul, Minnesota and Naperville, Illinois which were closed in 2009.
(2)During the year, the Company negotiated lease buyouts for two Georgia locations, for a restaurant that closed in fiscal year 2006, and negotiated
a lease termination settlement for a restaurant site where construction had never commenced. Total termination fees were approximately
$1,313,000 less lease reserves of approximately $1,475,000 for a net gain of approximately $162,000.
(3)In accordance with FASB Accounting Standards Codification for Property, Plant and Equipment, the asset impairment charge, which was
recorded in the third quarter of fiscal 2009, was related to a software product that was replaced with an alternative solution prior to
implementation.
37
2008 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurant
Carpentersville
Calhoun
Naperville
Atlanta
Stillwater
Vernon Hills
Two Prospective Restaurants
Various
Total for 2008
Reason
Store closure (net of deferred rent credits)(1)
Asset impairment(2)
Asset impairment(2)
Asset impairment and lease reserve(2)(3)
Asset impairment(2)
Asset impairment(2)
Site costs for restaurants that were not opened(4)
Other
Amount
177
1,057
1,001
4,043
188
332
105
9
6,912
$
$
(1)The Company closed this restaurant in conjunction with the opening of a new prototype restaurant within four miles of the existing
restaurant, supporting the company’s strategy to reposition legacy restaurants in markets when opportunities arise. The Company negotiated
a lease buyout for this location and another location in the Chicago market that had been previously closed for a total of $80,000. The
agreement with the landlord for these two locations was subject to a bankruptcy judge’s final approval, which was obtained in the third
quarter of 2009. The final settlement was contained in the $1.3 million lease termination fees paid in 2009.
(2)In accordance with FASB Accounting Standards Codification for Property Plant and Equipment, based on the Company’s assessment of
expected cash flows from this location over the remainder of the respective lease terms.
(3)Includes the three restaurants in the Atlanta market which were acquired by the company from a franchisee for amounts due that were
subsequently closed. The lease reserve was recorded in accordance with FASB Accounting Standards Codification for Exit and Disposal
Cost Obligations, and equals the net present value of the remaining lease obligations for the 3 closed Atlanta restaurants, net of zero expected
sublease income.
(4) Write off of failed site preparation costs for two locations that the Company decided not to open.
Pre-opening Expenses – During fiscal 2009, we had no pre-opening expenses. During fiscal 2008, we had
approximately $1.1 million in pre-opening expenses, related to the opening of four company-owned restaurants in
2008.
Loss on Early Extinguishment of Debt – During 2009, we repaid five notes prior to their expiration, related to
two of our Minnesota restaurants and three of our Virginia restaurants. These notes had annual interest rates ranging
from 8.10% to 10.53% and were originally due between February 2020 and October 2023. A total of approximately
$7.1 million was paid to retire these notes early. Included in the debt retirement payment was a pre-payment penalty of
approximately $350,000 reflected as a loss on early extinguishment of debt in our consolidated statements of
operations. We recorded a non-cash charge of approximately $159,000 to write-off associated deferred financing fees
as a result of the early repayment, also reflected as early extinguishment of debt in our consolidated statement of
operations.
Interest Expense – Interest expense totaled approximately $1.4 million or 1.1% of total revenue for fiscal 2009,
compared to approximately $2.0 million or 1.4% of total revenue for fiscal 2008. This category includes interest
expense for notes payable, financing lease obligations and the interest for deferrals made under our non-qualified
deferred compensation plan. Due to the early payoff of five high-rate, long-term notes, lower balances and lower
interest rates on our line of credit year over year, our interest expense in 2009 decreased 27% from the prior year.
Interest Income – Interest income was approximately $129,000 and $246,000 for fiscal 2009 and fiscal 2008,
respectively.
Income Tax Expense/Benefit – We recorded income tax expense during fiscal 2009 of approximately $3.0
million which compares to a benefit of approximately $119,000 in fiscal 2008. We utilized $2.6 million of federal and
state net operating loss carry forwards in fiscal 2009 as compared to approximately $529,000 in fiscal 2008. Utilization
of state net operating losses will be achieved through offsetting tax liabilities generated through earnings. We did not
utilize any general business credit carry forwards in fiscal 2009 or fiscal 2008.
38
Basic and Diluted Net Income Per Common Share – Net income for fiscal 2009 was approximately $5.7
million or $0.63 per basic common share on approximately 9,114,000 weighted average basic shares outstanding
compared to net income of approximately $389,000 or $0.04 per basic common share on approximately 9,406,000
weighted average basic shares outstanding for fiscal 2008.
Diluted net income per common share for fiscal 2009 was $0.62 per common share on approximately 9,211,000
weighted average diluted shares outstanding compared to $0.04 per common share on approximately 9,542,000
weighted average diluted shares outstanding for fiscal 2008.
Financial Condition, Liquidity and Capital Resources
As of January 2, 2011 our Company held unrestricted cash and cash equivalents of approximately $2.7 million
compared to approximately $3.0 million as of January 3, 2010. Our cash balance reflects the repurchase of common
stock for $8.7 million, the acquisition of the seven restaurants for $6.8 million and $5.3 million of cash flows used for
capital expenditures, all of which occurred during fiscal 2010. These costs were partially offset by the cash flows
provided by fiscal 2010 operations and the $6.8 million in proceeds from a term loan.
Our current ratio, which measures our immediate short-term liquidity, was 0.81 at January 2, 2011 compared to
1.00 at January 3, 2010. The current ratio is computed by dividing total current assets by total current liabilities. The
change in our current ratio was primarily due to a decrease in our current assets resulting from the use of our deferred
tax asset and increased current liabilities resulting from higher accrued income taxes at the end of the 2010 fiscal year.
As is true with most restaurant companies, we often operate in a negative working capital environment due to the fact
that we receive cash up front from customers and then pay our vendors on a delayed basis.
Net cash provided by operations for each of the last three fiscal years was approximately $13.9 million in fiscal
2010, $14.5 million in fiscal 2009, and $11.2 million in fiscal 2008. Cash generated in fiscal 2010 was primarily from
net income of approximately $7.2 million, depreciation and amortization of approximately $5.5 million, an increase in
deferred taxes of approximately $1.2 million, stock-based compensation of $1.1 million and an increase in the use of
restricted cash of $533,000. These net increases were partially offset by an approximate $2.3 million gain on the
acquisition of seven restaurants and an approximate $531,000 decrease in accrued liabilities.
Cash generated in fiscal 2009 was primarily from net income of approximately $5.7 million, depreciation and
amortization of approximately $5.2 million, and increased accrued compensation and benefits of approximately $2.0
million. These increases were partially offset by a decrease in deferred taxes of approximately $1.8 million, a decrease
in accounts payable of approximately $1.7 million, and a decrease in other liabilities of approximately $1.0 million.
Cash generated in fiscal 2008 was primarily from net income of approximately $389,000, asset impairment,
estimated lease termination and other closing costs of approximately $6.9 million and depreciation and amortization of
approximately $5.5 million. These increases were partially offset by a decrease in accounts payable of approximately
$1.7 million, a decrease in accrued compensation and benefits of approximately $909,000 and a decrease in deferred
income taxes of approximately $542,000.
Net cash used for investing activities for each of the last three fiscal years was approximately $11.8 million in
fiscal 2010, $2.0 million in fiscal 2009, and $10.5 million in fiscal 2008. In fiscal 2010, we used approximately $5.3
million for capital expenditures. These expenditures were primarily for continued investment in, and remodeling
projects, for our existing restaurants, including approximately $364,000 for the New York and New Jersey restaurants,
as well as for the conversion of our new company-owned restaurant, and various corporate infrastructure projects. In
2009, our cash spend on fixed assets was approximately $2.0 million, we also had approximately $300,000 in accrued
fixed asset charges at the end of the year for projects in process that had not been paid for. Additionally, a portion of
our corporate infrastructure projects, originally planned to occur in fiscal 2009, were moved to fiscal 2010. In fiscal
2008, we used approximately $8.7 million for the construction of our Alexandria, Virginia, Salisbury, Maryland,
Algonquin, Illinois, and Greenwood, Indiana restaurants and $1.8 million for continued maintenance and other
infrastructure projects.
We expect total 2011 capital expenditures to be approximately $5.5 million, primarily reflecting continued
investments in our existing restaurants, including several significant remodeling projects, as well as, the conversion
39
costs for a new company-owned restaurant, and continued investments in corporate infrastructure systems.
Net cash used for financing activities was approximately $2.5 million in fiscal 2010, $11.3 million in fiscal 2009,
and $542,000 in fiscal 2008. In fiscal 2010, we had draws on our line of credit of approximately $20.5 million and had
repayments of approximately $21.0 million. The maximum balance on our line of credit during fiscal 2010 was $16.0
million. Additionally, we used approximately $8.7 million to repurchase approximately 1.1 million shares at an
average price of $8.18, excluding commissions. In fiscal 2009, we had draws on our line of credit of approximately
$9.0 million and had repayments of approximately $13.5 million. The maximum balance on our line of credit during
fiscal 2009 was $18.0 million. Additionally, we repaid $7.0 million of high interest rate debt. In fiscal 2008, we
repurchased 592,956 of our shares, representing the culmination of our fourth authorization and beginning of our fifth,
for approximately $5.1 million, including commissions. We had draws of approximately $26.0 million on our line of
credit and had repayments of $21.0 million. The maximum balance on our line of credit during fiscal 2008 was $20.0
million. In addition, we repaid $383,000 of debt. In 2011, we will have three main uses for our capital. We will
continue to use our cash to, first and foremost, grow our system. Alternatively, we will continue to repurchase our
common stock and reduce our debt levels.
The Company and certain of its subsidiaries (collectively known as the “Borrower”) currently have a Credit
Agreement with Wells Fargo Bank, National Association, as administrative agent and lender (the “Lender”). The
Credit Agreement contains a $30.0 million revolving credit facility (the “Facility”) with an opportunity, subject to the
Company meeting identified covenants and elections, to increase the commitment to $50.0 million.
Principal amounts outstanding under the Facility bear interest either at an adjusted Eurodollar rate plus an
applicable margin or at a Base Rate plus an applicable margin. The Base Rate is defined in the agreement as the
greater of the Federal Funds Rate (0.25% at January 2, 2011) plus 0.5% or Wells Fargo’s prime rate (3.25% at January
2, 2011). The applicable margin will depend on the Company’s Adjusted Leverage Ratio, as defined, at the end of the
previous quarter and will range from 1.00% to 2.00% for Eurodollar Rate Loans and from -0.50% to +0.50% for Base
Rate Loans. Unused portions of the Facility will be subject to an unused Facility fee which will be equal to either
0.25% or 0.375% of the unused portion, depending on the Company’s Adjusted Leverage Ratio. Our rate for the
unused portion of the Facility as of January 2, 2011, was 0.375%. An increase option exercise fee will apply to
increased amounts between $30.0 and $50.0 million. Our current weighted average rate for the fiscal year ended
January 2, 2011 was 2.7%.
The Facility contains customary affirmative and negative covenants for credit facilities of this type, including
limitations on the Borrower with respect to indebtedness, liens, investments, distributions, mergers and acquisitions,
dispositions of assets and transactions with affiliates of the Borrower, among others. The Facility also includes various
financial covenants that have maximum target capital expenditures, cash flow ratios, and adjusted leverage ratios. If
the Company’s Adjusted Leverage Ratio is greater than 3.00 to 1.00, an additional covenant applies that limits the
maximum royalty receivable aged past 30 days. In addition, capital expenditure limits include permitted stock
repurchase limits (limited to $10.0 million in aggregate during any 12 month period, and $20.0 million in aggregate
during the term of the agreement).
The Credit Agreement currently provides for up to $3.0 million in letters of credit to be used by the Company,
with any amounts outstanding reducing our availability for general corporate purchases, and also allows for the
termination of the Facility by the Borrower without penalty at any time. At January 2, 2011 we had $13.0 million in
borrowings under this Facility, and had approximately $579,000 in letters of credit for real estate locations. We were in
compliance with all covenants under the Credit Agreement as of January 2, 2011.
If the bank were to call the line of credit prior to expiration, the Company believes there are multiple options
available to obtain other sources of financing. While possibly at different terms, the Company believes there would be
other lenders available and willing to finance a new credit facility.
In 2009, we amended our credit agreement to change the definition of consolidated EBITDA to include a defined
amount of impairment charges and lease termination fees in any fiscal 2008 quarter. We paid fees of approximately
$45,000 related to the amendment, which were deferred during the first quarter of 2009 and are being amortized over
the remaining life of the Facility.
40
We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed.
Under the Facility, the Borrower has granted the Lender a security interest in all current and future personal property of
the Borrower.
The Company amended its Credit Agreement on March 4, 2010 in connection with the acquisition of the seven
New York and New Jersey restaurants. This amendment provided for an additional $6.8 million of long-term debt in
the form of a term loan with a maturity date of March 4, 2017. Principal amounts outstanding under this term loan bear
interest at an adjusted Eurodollar rate plus 225 basis points for an interest rate period of either one, two, three, or six
months at the discretion of the Company. The weighted average rate for fiscal 2010 was 2.63%. There is a required
minimum annual amortization of 5.0% of the principal balance. We also amended our credit agreement on February 1,
2011 in connection with a change in definition of maintenance and growth capital expenditures to allow for more
flexibility in classification of major remodeling projects as “growth” capital expenditures for our cash flow covenant.
We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed.
Under the Facility, the Borrower has granted the Lender a security interest in all current and future personal property of
the Borrower.
Contractual Obligations
(In thousands)
Payments Due by Period (including interest)
Long Term Debt(1)
Financing Leases
Line of Credit
Uncertain Tax Positions
Operating Lease Obligations
Sublease Income
Total
Total
2011
2012
2013
2014
2015
$
8,040
$
543
$
573
$
599
$
620
$
5,486
13,000
761
127,386
(90)
622
---
761
5,659
(33)
628
---
---
5,571
(34)
647
13,000
---
5,583
(23)
653
---
---
5,564
---
638
673
---
---
5,643
---
Thereafter
5,067
$
2,263
---
---
99,366
---
$ 154,583
$
7,552
$
6,738
$
19,806
$
6,837
$ 6,954
$ 106,696
(1)This is variable interest rate debt and interest expense is based on assumptions made at the time of this filing.
See Notes 8 and 9 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for
details of our contractual obligations.
Off-Balance Sheet Arrangements
Our Company does not have any off-balance sheet arrangements (as such term is defined in Item 303 of
regulation S-K) that are reasonably likely to have a current or future effect on our financial condition or changes in
financial condition, operating results, or liquidity.
Income Taxes
At 2010, we had cumulative state net operating loss carry-forwards for tax reporting purposes of approximately
$24 million for state purposes, which if not used will begin to expire in fiscal 2019. This amount will be adjusted when
we file our fiscal 2010 income tax returns in 2011. In addition, we had cumulative tax credit carry forwards of
approximately $653,000 which will not expire.
Inflation
The primary inflationary factors affecting our operations include food, beverage, and labor costs. In addition, our
leases require us to pay taxes, maintenance, repairs and utilities and these costs are subject to inflationary increases. In
some cases, some of our lease commitments are tied to consumer price index (CPI) increases. We are also subject to
interest rate changes based on market conditions.
41
We believe that relatively low inflation rates have contributed to relatively stable costs. There is no assurance,
however, that low inflation rates will continue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Company’s financial instruments include cash and cash equivalents and long-term debt. Our Company
includes as unrestrictive cash and cash equivalents, investments with original maturities of three months or less
when purchased and which are readily convertible into known amounts of cash. Our Company’s unrestricted cash
and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments.
We have no derivative financial instruments or derivative commodity instruments in our cash and cash
equivalents. The total outstanding long-term debt of all our Company as of January 2, 2011 was approximately
$23.5 million, including our line of credit, our term loan with Wells Fargo and financing lease obligations. The
terms of our credit facility with Wells Fargo Bank, National Association, as administrative agent and lender are
discussed above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Financial Condition, Liquidity and Capital Resources.”
Some of the food products purchased by us are affected by commodity pricing and are, therefore, subject to
price volatility caused by weather, production problems, delivery difficulties and other factors that are outside our
control. To control this risk in part, we have fixed-priced purchase commitments for food from vendors. In
addition, we believe that substantially all of our food is available from several sources, which helps to control
food commodity risks. We have secondary source suppliers for certain items and in 2010 we have made this a
key area of focus in order to protect the supply chain and to ensure a more fair and competitive pricing
environment. We believe we have the ability to increase menu prices, or vary the menu options offered, if
needed, in response to a food product price increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Famous Dave’s of America, Inc. are included herein, beginning on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period
covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that as of such date our disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Our Management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Our
Management assessed the effectiveness of our internal control over financial reporting as of January 2, 2011. In making
this assessment, our Management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Our Management has concluded that, as of
January 2, 2011, our internal control over financial reporting is effective based on these criteria.
42
Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Famous Dave's of America have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during our most recently-completed fiscal
quarter ended January 2, 2011 that have materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
43
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE
REGISTRANT
PART III
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.
The Company has adopted a Code of Ethics specifically applicable to its CEO, CFO and Key Financial &
Accounting Management. In addition, there is a more general Code of Ethics applicable to all Associates. The Code of
Ethics is available on our website at www.famousdaves.com and a copy is available free of charge to anyone requesting
it.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
The Company maintains the 1995 Stock Option and Compensation Plan (the “Management Plan”), the 1997
Employee Stock Option Plan (the “Employee Plan”), the 1998 Director Stock Option Plan (the “Director Plan”) and the
2005 Stock Incentive Plan (the “2005 Plan”). We have also granted stock incentives outside of these equity
compensation plans in limited situations. The Management Plan prohibits the granting of incentives after December
29, 2005, the tenth anniversary of the date the Management Plan was approved by the Company’s shareholders.
Similarly, the Employee Plan prohibits the granting of incentives after June 24, 2007, the tenth anniversary of the date
the Employee Plan was approved by the Company’s board of directors. The Director Plan prohibits the granting of
incentives after June 10, 2008, the tenth anniversary of the date the Director Plan was approved by the Company’s
shareholders. As such, no further grants of incentives may be made under the Management Plan, the Employee Plan or
the Director Plan. Nonetheless, these plans will remain in effect until all outstanding incentives granted there under
have either been satisfied or terminated.
The purpose, of the 2005 Plan, which was approved by the Company’s shareholders at the May 2005 annual
shareholders meeting, is to increase shareholder value and to advance the interests of the Company by furnishing a
variety of economic incentives designed to attract, retain and motivate Associates (including officers), certain key
consultants and directors of the Company. Under the 2005 Plans, an aggregate of 179,210 shares of our Company’s
common stock remained unreserved and available for issuance at January 2, 2011.
The Management Plan, the Director Plan and the 2005 Plan have each been approved by the Company’s
shareholders. The Employee Plan was not submitted for approval to the Company’s shareholders. The following table
sets forth certain information as of January 2, 2011 with respect to the Management Plan, the Employee Plan, the
Director Plan and the 2005 Plan.
44
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options Warrants
and Rights
(A)
Weighted-
Average
Exercise Price
of Outstanding
Options
(B)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
(C)
100,000
105,500
567,932
773,432
$
$
$
$
5.96
6.55
10.98
6.48
31,025
804,457
$
$
4.81
6.27
---
---
179,210
179,210
---
179,210
Plan Category
Equity compensation plans approved by
shareholders:
1995 Stock Option and Compensation
Plan
1998 Director Stock Option Plan
2005 Stock Incentive Plan(1)
TOTAL
Equity compensation plans not approved
by shareholders:
1997 Employee Stock Option Plan
TOTAL
(1)Includes 482,932 performance shares under the 2005 Plan, 75,000 restricted shares under the 2005 Plan, and 10,000 options granted under the 2005 Plan.
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.
45
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – January 2, 2011 and January 3, 2010
Consolidated Statements of Operations – Years ended January 2, 2011, January 3, 2010 and December
28, 2008
Consolidated Statements of Shareholders’ Equity – Years ended January 2, 2011, January 3, 2010 and
December 28, 2008
Consolidated Statements of Cash Flows – Years ended January 2, 2011, January 3, 2010 and
December 28, 2008
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II. Schedule of Valuation and Qualifying Accounts
Exhibits:
See "exhibit index" on the page following the consolidated financial statements and related footnotes
46
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Famous Dave’s of America, Inc.
We have audited the accompanying consolidated balance sheets of Famous Dave’s of America, Inc. (a Minnesota
corporation) and subsidiaries (the “Company”) as of January 2, 2011 and January 3, 2010, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 2, 2011.
Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index
appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Famous Dave’s of America, Inc. and subsidiaries as of January 2, 2011 and January 3, 2010 and the
consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 2011 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 18, 2011
F-1
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 2011 AND JANUARY 3, 2010
(in thousands, except share and per-share data)
ASSETS
January 2,
2011
January 3,
2010
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories
Deferred tax asset
Prepaid expenses and other current assets
Current portion of notes receivable, net
Total current assets
Property, equipment and leasehold improvements, net
Other assets:
Notes receivable, net, less current portion
Deferred tax asset
Other assets
$
$
2,654 $
94
3,097
2,444
205
2,369
384
11,247
61,550
54
---
3,278
76,129 $
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing lease obligations
Accounts payable
Accrued compensation and benefits
Other current liabilities
Total current liabilities
Long-term liabilities:
Line of credit
Long-term debt, less current portion
Financing lease obligations, less current portion
Deferred tax liability
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized,
8,245 and 9,202 shares issued and outstanding
at January 3, 2010 and December 28, 2008 respectively
Additional paid-in capital
Retained earnings
Total shareholders’ equity
$
538 $
3,935
4,409
4,972
13,854
13,000
6,205
4,292
446
5,428
43,225
82
10,238
22,584
32,904
76,129 $
$
See accompanying notes to consolidated financial statements.
2,996
627
3,279
2,198
714
1,845
823
12,482
54,818
327
206
548
68,381
162
3,974
4,337
3,991
12,464
13,500
---
4,490
---
4,933
35,387
92
17,536
15,366
32,994
68,381
F-2
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JANUARY 2, 2011, JANUARY 3, 2010, AND DECEMBER 28, 2008
(in thousands, except share and per share data)
Revenue:
Restaurant sales, net
Franchise royalty revenue
Franchise fee revenue
Licensing and other revenue
Total revenue
Costs and expenses:
Food and beverage costs
Labor and benefits costs
Operating expenses
Depreciation and amortization
General and administrative expenses
Asset impairment and estimated lease
termination and other closing costs
Pre-opening expenses
Gain on acquisition, net of acquisition costs
Net loss on disposal of property
Total costs and expenses
Income from operations
Other expense:
Loss on early extinguishment of debt
Interest expense
Interest income
Other expense, net
Total other expense
Income before income taxes
Income tax (expense) benefit
Net income
Basic net income per common share
Diluted net income per common share
January 2,
2011
January 3,
2010
December 28,
2008
$
$
$
$
$
131,154
15,902
345
867
148,268
38,754
41,352
36,107
5,547
16,165
74
300
(2,036)
22
136,285
$
117,934
16,912
200
972
136,018
35,489
37,016
31,487
5,191
16,000
218
---
79
24
125,504
122,016
17,026
492
848
140,382
37,581
38,185
32,510
5,522
16,521
6,912
1,103
---
18
138,352
11,983
10,514
2,030
---
(1,140)
171
---
(969)
11,014
(3,796)
7,218
0.84
0.82
$
$
$
(509)
(1,443)
129
(1)
(1,824)
8,690
(2,989)
5,701
0.63
0.62
$
$
$
---
(1,977)
246
(29)
(1,760)
270
119
389
0.04
0.04
Weighted average common shares outstanding - basic
8,620,000
9,114,000
9,406,000
Weighted average common shares outstanding - diluted
8,784,000
9,211,000
9,542,000
See accompanying notes to consolidated financial statements.
F-3
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED
JANUARY 2, 2011, JANUARY 3, 2010, AND DECEMBER 28, 2008
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Total
Balance -December 30, 2007
9,606
$
96
$
21,028
$
9,276
$
30,400
Exercise of stock options
Tax shortfall for equity
awards issued
Common stock issued
Performance shares surrendered to
cover payroll taxes incurred
Repurchase of common stock
Stock-based compensation
Net income
6
---
79
(19)
(593)
---
---
Balance -December 28, 2008
9,079
$
Exercise of stock options
Tax benefit for equity
awards issued
Common stock issued
Performance shares surrendered to
cover payroll taxes incurred
Repurchase of common stock
Stock-based compensation
Deferred compensation
Net income
17
---
147
(10)
(31)
---
---
---
Balance - January 3, 2010
9,202
$
Exercise of stock options
Tax benefit for equity
awards issued
Common stock issued
Performance shares surrendered to
cover payroll taxes incurred
Repurchase of common stock
Stock-based compensation
Deferred compensation
Net income
93
---
26
(9)
(1,067)
---
---
---
---
---
---
---
(5)
---
---
91
---
---
1
---
---
---
---
---
92
1
---
---
---
(11)
---
---
---
26
(76)
266
(176)
(5,067)
427
---
---
---
---
---
---
---
389
26
(76)
266
(176)
(5,072)
427
389
$
16,428
$
9,665
$
26,184
57
436
791
(28)
(188)
492
(452)
---
---
---
---
---
---
---
---
5,701
57
436
792
(28)
(188)
492
(452)
5,701
$
17,536
$
15,366
$
32,994
351
62
---
(68)
(8,735)
861
231
---
---
---
---
---
---
---
7,218
352
62
---
(68)
(8,746)
861
231
7,218
Balance - January 2, 2011
8,245
$
82
$
10,238
$
22,584
$
32,904
See accompanying notes to consolidated financial statements.
F-4
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 2, 2011, JANUARY 3, 2010, AND DECEMBER 28, 2008
(in thousands)
Cash flows from operating activities:
Net income
$
Adjustments to reconcile net income to cash flows provided by
operations:
Depreciation and amortization
Amortization of deferred financing costs
Loss on early extinguishment of debt
Net loss on disposal of property
Gain on acquisition of restaurants
Asset impairment and estimated lease
termination and other closing costs
Inventory reserve
Deferred income taxes
Deferred rent
Stock-based compensation
Changes in operating assets and liabilities, net of acquisition:
Restricted cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deposits
Accounts payable
Accrued compensation and benefits
Other current liabilities
Long-term deferred compensation
Cash flows provided by operations
Cash flows from investing activities:
Payments received on notes receivable
Payments for acquired restaurants
Purchases of property, equipment and leasehold improvements
Issuance of note receivable
Cash flows used for investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Proceeds from draws on line of credit
Payments on line of credit
Payments for debt issuance costs
Payments on long-term debt and financing lease obligations
Proceeds from exercise of stock options
Tax benefit (shortfall) for equity awards issued
Repurchase of common stock
Cash flows used for financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
January 2,
2011
January 3,
2010
December 28,
2008
7,218 $
5,701 $
389
5,547
56
---
22
(2,343)
74
8
1,161
671
1,092
533
(83)
(153)
(478)
(6)
(70)
1
532
102
13,884
428
(6,822)
(5,296)
(64)
(11,754)
6,800
20,500
(21,000)
(24)
(416)
352
62
(8,746)
(2,472)
(342)
2,996
5,191
60
159
24
---
218
45
1,777
277
832
543
443
48
(160)
100
(1,745)
2,023
(1,041)
26
14,521
54
---
(1,984)
---
(1,930)
---
9,000
(13,500)
(45)
(7,042)
57
436
(188)
(11,282)
1,309
1,687
5,522
22
---
18
---
6,912
---
(542)
570
694
1,250
(252)
(294)
(372)
(39)
(1,668)
(909)
(115)
(29)
11,157
71
---
(10,537)
---
(10,466)
---
26,000
(21,000)
(37)
(383)
26
(76)
(5,072)
(542)
149
1,538
1,687
Cash and cash equivalents, end of year
$
2,654 $
2,996 $
See accompanying notes to consolidated financial statements.
F-5
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUTNING POLICIES
Nature of business - We, Famous Dave's of America, Inc. (“Famous Dave’s” or the “Company”), were
incorporated in Minnesota on March 14, 1994. We develop, own, operate and franchise restaurants under the
name "Famous Dave's". As of January 2, 2011, there were 182 Famous Dave’s restaurants operating in 37 states,
including 52 company-owned restaurants and 130 franchise-operated restaurants. An additional 80 franchise
restaurants were committed to be developed through signed area development agreements as of January 2, 2011.
Seasonality – Our restaurants typically generate higher revenue in the second and third quarters of our
fiscal year as a result of seasonal traffic increases and high catering sales experienced during the summer months,
and lower revenue in the first and fourth quarters of our fiscal year, due to possible adverse weather which can
disrupt customer and Associate transportation to our restaurants.
Principles of consolidation – The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. Any inter-company transactions and
balances have been eliminated in consolidation.
Management’s use of estimates – The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications – Certain reclassifications have been made to prior year amounts to conform to the
current year’s presentation.
Financial instruments – Due to their short-term nature, the carrying value of our current financial assets
and liabilities approximates their fair value. The fair value of long-term debt approximates the carrying amount
based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk.
Segment reporting – We have company-owned and franchise-operated restaurants in the United States,
and operate within the single industry segment of foodservice. We make operating decisions on behalf of the
Famous Dave’s brand which includes both company-owned and franchise-operated restaurants. In addition, all
operating expenses are reported in total and are not allocated to franchising operations for either external or
internal reporting.
Fiscal year – Our fiscal year ends on the Sunday nearest December 31st of each year. Our fiscal year is
generally 52 weeks; however it periodically consists of 53 weeks. The fiscal year ended January 2, 2011 (fiscal
2010) consisted of 52 weeks, the fiscal year ended January 3, 2010 (fiscal 2009) consisted of 53 weeks, and the
fiscal year ended December 28, 2008 (fiscal 2008) consisted of 52 weeks.
Unrestricted cash and cash equivalents – Cash equivalents include all investments with original
maturities of three months or less or which are readily convertible into known amounts of cash and are not legally
restricted. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000,
while the remaining balances are uninsured at January 2, 2011. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable, net – We provide an allowance for uncollectible accounts on accounts receivable
based on historical losses and existing economic conditions, when relevant. We provide for a general bad debt
reserve for franchise receivables due to increases in days’ sales outstanding and deterioration in general economic
market conditions. This general reserve is based on the aging of receivables meeting specified criteria and is
F-6
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adjusted each quarter based on past due receivable balances. Additionally, we have periodically established a
specific reserve on certain receivables as necessary. Any changes to the reserve are recorded in general and
administrative expenses. The allowance for uncollectible accounts was approximately $80,000 and $67,000 at
January 2, 2011 and January 3, 2010, respectively. Accounts receivable are written off when they become
uncollectible, and payments subsequently received on such receivables are credited to allowance for doubtful
accounts. Accounts receivable balances written off have not exceeded allowances provided. We believe all
accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of provided
allowances are determined uncollectible, they are charged to expense in the period that determination is made.
Outstanding past due accounts receivable are subject to a monthly interest charge on unpaid balances which is
recorded as interest income in our consolidated statements of operations. In assessing recoverability of these
receivables, we make judgments regarding the financial condition of the franchisees based primarily on past and
current payment trends, as well as other variables, including annual financial information, which the franchisees
are required to submit to us.
Inventories – Inventories consist principally of small wares and supplies, food and beverages, and retail
goods, and are recorded at the lower of cost (first-in, first-out) or market.
Notes receivable - Notes receivable consist of receivables primarily related to our on-going business
agreements with franchisees, we consider such receivables to have similar risk characteristics and evaluate them
as one collective portfolio segment and class for determining the allowance for doubtful accounts. We monitor the
financial condition of our franchisees and record provisions for estimated losses on receivables when we believe it
is probable that our franchisees or licensees will be unable to make their required payments. Balances of notes
receivable due within one year are included in the Current portion of notes receivable while amounts due beyond
one year are included in Notes receivable less current portion. Notes receivable that are ultimately deemed to be
uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for
doubtful accounts. Interest income recorded on financing receivables has traditionally been immaterial. The fair
value of notes receivable currently approximates their carrying value.
Property, equipment and leasehold improvements, net – Property, equipment and leasehold
improvements are capitalized at a level of $250 or greater and are recorded at cost. Repair and maintenance costs
are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line
method over estimated useful lives ranging from 3-7 years, while buildings are depreciated over 30 years.
Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, including
reasonably assured renewal options, or the estimated useful life of the assets. Décor that has been installed in the
restaurants is recorded at cost and is depreciated using the straight-line method over seven years.
Liquor licenses - As part of the New York/New Jersey acquisition completed in March of 2010 (see note
17), the Company acquired transferable liquor licenses in jurisdictions with a limited number of authorized liquor
licenses. These licenses were capitalized as indefinite-lived intangible assets and are included in other assets in
our consolidated Balance Sheets (see note 5) at January 2, 2011. In accordance with the FASB Accounting
Standards Codification for Intangibles - Goodwill and Other Intangibles, we annually review the liquor licenses
for impairment and in fiscal 2010, no impairment charges were recorded. Additionally, the costs of obtaining
non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are
expensed as incurred. Annual liquor license renewal fees are expensed over the renewal term.
Debt issuance costs – Debt issuance costs are amortized to interest expense over the term of the related
financing on a straight-line basis, which approximates the interest method. In the event of early debt re-payment,
the capitalized debt issuance costs are written-off as a loss on early extinguishment of debt. During 2009, we
recorded $159,000 as a loss on early extinguishment of debt for the early pay off of five long-term notes payable.
The carrying value of our deferred debt issuance costs, classified as other long-term assets, is approximately
$143,000, and $175,000 respectively, net of accumulated amortization of $588,000 and $532,000, respectively, as
F-7
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of January 2, 2011 and January 3, 2010.
Construction overhead and capitalized interest – We capitalize construction overhead costs at the time a
building is turned over to operations, which is approximately two weeks prior to opening. In fiscal 2010 and
2008, we capitalized construction overhead costs of approximately $126,000 and $160,000, respectively. In
2009, we did not have any new restaurant construction and, therefore, did not have any capitalized construction
overhead. There was no capitalized interest in fiscal years 2010, 2009, or 2008 because construction was funded
with cash flow from operations. We depreciate and amortize construction overhead and capitalized interest over
the same useful life as leasehold improvements.
Advertising costs – Advertising costs are charged to expense as incurred. Advertising costs were
approximately $4.2 million, $4.0 million, and $4.5 million for fiscal years 2010, 2009, and 2008, respectively, and
are included in operating expenses in the consolidated statements of operations.
Software implementation costs – We capitalize labor costs associated with the implementation of
significant information technology infrastructure projects. This is based on actual labor rates per person including
benefits, for all the time spent in the implementation of software in accordance with the FASB Accounting
Standard Codification for Intangibles - Goodwill and Other. In fiscal 2010, we did not capitalize software
implementation costs and in fiscal 2009, we capitalized approximately $4,000 of software implementation costs.
Research and development costs – Research and development costs represent salaries and expenses of
personnel engaged in the creation of new menu and Limited-Time Offering (“LTO”) items, recipe enhancements
and documentation activities. Research and development costs were approximately $346,000, $369,000, and
$349,000, for fiscal years 2010, 2009, and 2008, respectively, and are included in general and administrative
expenses in the consolidated statements of operations.
Pre-opening expenses – All start-up and pre-opening costs are expensed as incurred. We had pre-opening
expenses of approximately $300,000 in fiscal 2010 related to the one new Company-owned restaurant that opened
in 2010. In fiscal 2009, we did not open any new Company–owned restaurants. We had pre-opening expenses of
approximately $1.1 million in fiscal 2008 related to four new Company-owned restaurants that opened in 2008.
Included in pre-opening expenses is pre-opening rent during the build-out period.
Lease accounting – In accordance with the FASB Accounting Standards Codification for Leases, we
recognize lease expense on a straight-line basis for our operating leases over the entire lease term including lease
renewal options and build-out periods where the renewal is reasonably assured and the build-out period takes
place prior to the restaurant opening or lease commencement date. Rent expense recorded during the build-out
period is reported as pre-opening expense. We account for construction allowances by recording a receivable
when its collectability is considered probable, and relieve the receivable once the cash is obtained from the
landlord for the construction allowance. Construction allowances are amortized as a credit to rent expense over
the full term of the lease, including reasonably assured renewal options and build-out periods.
Recoverability of property, equipment and leasehold improvements, impairment charges, and exit
and disposal costs – In accordance with the FASB Accounting Standards Codification for Property, Plant and
Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant
sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the
undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is
determined to be impaired, the loss is measured as the amount by which the carrying amount of the restaurant
exceeds its fair value. Fair value, as determined by the discounted future net cash flows, is estimated based on the
best information available including estimated future cash flows, expected growth rates in comparable restaurant
sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to
F-8
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
take additional impairment charges for the related assets. Considerable management judgment is necessary to
estimate future cash flows. Accordingly, actual results could vary significantly from the estimates.
We account for exit or disposal activities, including restaurant closures, in accordance with the FASB
Accounting Standards Codification for Exit or Disposal Cost Obligations. Such costs include the cost of
disposing of the assets as well as other facility-related expenses from previously closed restaurants. These costs
are generally expensed as incurred. Additionally, at the date we cease using a property under an operating lease,
we record a liability for the net present value of any remaining lease obligations, net of estimated sublease
income. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of
sublease income are recorded in the period incurred. Upon disposal of the assets associated with a closed
restaurant, any gain or loss is recorded in the same caption as the original impairment within our consolidated
statements of operations.
Asset retirement obligation – We account for asset retirement obligations under the FASB Accounting
Standards Codification for Asset Retirement and Environmental Obligations, which requires recognition of a
liability for the fair value of a required asset retirement obligation (“ARO”) when such obligation is incurred. The
Company’s AROs are primarily associated with leasehold improvements which, at the end of a lease, the
Company is contractually obligated to remove in order to comply with the lease agreement. The net ARO
liability included in other long term liabilities in our consolidated balance sheets was $96,000 at January 2, 2011
and $89,000 at January 3, 2010.
Public relations, marketing development fund and restricted cash – In fiscal 2004, we established a
system-wide Public Relations and Marketing Development fund. Company-owned restaurants, in addition to
franchise-operated restaurants, that entered into franchise agreements with the Company after December 17, 2003,
are required to contribute a percentage of net sales to the fund that is used for Public Relations and Marketing
Development Fund efforts throughout the system. These restaurants were required to contribute 0.5% of net sales
to this fund during both fiscal 2010 and 2009. In fiscal 2011, the contribution will be increased to 0.75% of net
sales. The assets held by this fund are considered restricted and are in an interest bearing account. Accordingly,
we reflected the cash related to this fund in restricted cash and the liability is included in accounts payable on our
consolidated balance sheets as of January 2, 2011 and January 3, 2010. As of January 2, 2011 and January 3,
2010, we had approximately $94,000 and $627,000 in this fund, respectively.
Gift cards – We record a liability in the period in which a gift card is issued and proceeds are received. As
gift cards are redeemed, this liability is reduced and revenue is recognized. We recognize gift card breakage
income as an offset to operating expense based on a stratified breakage rate per year. This breakage rate is based
on a percentage of sales when the likelihood of the redemption of the gift card becomes remote.
Interest income – We recognize interest income when earned.
Net income per common share – Basic net income per common share (“EPS”) is computed by dividing
net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS
equals net income divided by the sum of the weighted average number of shares of common stock outstanding
plus all additional common stock equivalents relating to stock options when dilutive.
F-9
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a reconciliation of basic and diluted net income per common share:
(in thousands, except per share data)
Net income per common share – basic:
Net income
Weighted average shares outstanding
Net income per common share – basic
$
$
Net income per common share – diluted:
Net income
Weighted average shares outstanding
Dilutive impact of common stock equivalents outstanding
Adjusted weighted average shares outstanding
Net income per common share – diluted
$
$
2010
Fiscal Year
2009
2008
7,218 $
8,620
0.84 $
7,218 $
8,620
164
8,784
0.82 $
5,701 $
9,114
0.63 $
5,701 $
9,114
97
9,211
0.62 $
389
9,406
0.04
389
9,406
136
9,542
0.04
All options outstanding as of January 2, 2011 were used in the computation of diluted EPS for fiscal 2010.
There were 158,640 and 376,960 options outstanding as of January 3, 2010 and December 28, 2008, respectively,
that were not available to be included in the computation of diluted EPS because they were anti-dilutive.
Stock-based compensation – We follow the provisions of the FASB Accounting Standards Codification
for Compensation-Stock Compensation, which requires us to recognize compensation cost for share-based awards
granted to team members based on their fair values at the time of grant over the requisite service period. Our pre-
tax compensation cost for stock options and other incentive awards is included in general and administrative
expenses in our consolidated statements of operations (see Note 10).
The FASB Accounting Standards Codification for Compensation-Stock Compensation requires that cash
flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative
compensation cost (excess tax benefits) be classified as cash flows from financing activities. There were no
stock options granted during fiscal years 2010, 2009 or 2008.
Revenue recognition – We record restaurant sales at the time food and beverages are served. We record
sales of merchandise items at the time items are delivered to the guest. All sales taxes are presented on a net basis
and are excluded from revenue. We have detailed below our revenue recognition policies for franchise and
licensing agreements.
Franchise arrangements – Our franchise-related revenue consists of area development fees, initial franchise
fees and continuing royalty payments. Our area development fee consists of a one-time, non-refundable payment
equal to $10,000 per restaurant in consideration for the services we perform in preparation of executing each area
development agreement. Substantially all of these services, which include, but are not limited to, conducting
market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing potential
franchise background investigation, are completed prior to our execution of the area development agreement and
receipt of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Our
initial, non-refundable, franchise fee is typically $30,000 to $40,000 per restaurant, of which $5,000 is recognized
immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred
related to the sale. The remaining non-refundable fee of $25,000 to $35,000 is included in deferred franchise fees
and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs
upon the franchise entering into a lease agreement for the restaurant(s). The franchise agreement represents a
separate and distinct earnings process from the area development agreements. Franchisees are also required to pay
F-10
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
us a monthly royalty equal to a percentage of their net sales, which has historically varied from 4% to 5%. In
general, new franchises pay us a monthly royalty of 5% of their net sales. During 2009 and 2010, we offered a
reduced royalty rate for twelve months from date of opening for franchisees that opened restaurants during 2010
and 2009.
Because of the continuing difficult economic environment and scarcity of capital for development, we
modified and extended this growth incentive program for fiscal 2011. The modification offers new and existing
franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011.
If a franchise restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the
remainder of 2011. Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of
2011, and opening in the third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any
openings in the fourth quarter and beyond would be at the 5% royalty rate.
Licensing and other revenue – We have a licensing agreement for our retail products, the initial term of
which expires in April 2015 with renewal options of five years, subject to the licensee’s attainment of identified
minimum product sales levels. Licensing revenue is recorded based on royalties earned by the Company in
accordance with our agreement. Licensing revenue for fiscal years 2010, 2009 and 2008 was approximately
$595,000, $523,000, and $408,000, respectively.
Periodically, we provide additional services, beyond the general franchise agreement, to our franchise
operations, such as new restaurant training, information technology setup and décor installation services. The cost
of these services is recognized upon completion and is billed to the respective franchisee and is generally payable
on net 30-day terms. Other revenue related to these services for fiscal years 2010, 2009 and 2008 was
approximately $272,000, $449,000, and $440,000, respectively.
Recently issued accounting pronouncements - In July 2010, the FASB issued Accounting Standards
Update (ASU) 2010-20, which requires new disclosures about an entity’s allowance for credit losses and the
credit quality of its financing receivables. Existing disclosures need to be amended to require an entity to provide
certain disclosures on a disaggregated basis by portfolio segment or by class of financing receivables. The new
disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or
after December 15, 2010. The adoption of ASU 2010-20 did not have a material impact on our consolidated
financial statements.
(2)
INVENTORIES
Inventories consisted approximately of the following at:
(in thousands)
Small wares and supplies
Food and beverage
Retail goods
January 2,
2011
January 3,
2010
$
$
1,420
986
38
2,444
$
$
1,331
829
38
2,198
F-11
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3)
NOTES RECEIVABLE
Notes receivable consisted approximately of the following at:
(in thousands)
January 2,
2011
January 3,
2010
Star Ribs – monthly installment of approximately $39,
payments began in March 2010, including interest of 7.9% due
September 2011. This note is unsecured.
North Country BBQ Ventures Inc. – was paid in one
installment based on the bankruptcy court's ruling pursuant to
Section 363 of Chapter 11 of the US Bankruptcy Code. This
note was unsecured. (See Note 15)
JP’s Bar-B-Que, LLC – payable in monthly installments of
approximately $8 was paid in full in February 2010. This note
was unsecured.
Old School BBQ, Inc. – monthly installments of approximately
$5.7 including interest at 9.0%, due November 2012, secured by
property and equipment and guaranteed by the franchise
owners.
Total notes receivable
Less: current maturities
$
319
(1)(4)
$
477
(1)(2)
---
---
119
438
(384)
54
485
(1)
14
(1)(3)
174
1,150
(823)
327
$
Long-term portion of notes receivable
$
(1)The note was originally classified as accounts receivable, but was reclassified to a note receivable due to the payment terms established by
the bankruptcy court.
(2)This note was net of a reserve of $99.
(3)This note was net of a reserve of $1.
(4)Based on Star Rib's good payment history, subsequent to their emergence from bankruptcy, the Company determined that the risk of
collection was minimal and a reserve was no longer required.
Future principal payments to be received on notes receivable are approximately as follows:
(in thousands)
Fiscal Year
2011 $
2012
Total
$
384
54
438
F-12
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net, consisted approximately of the following at:
(in thousands)
Land, buildings and improvements
Furniture, fixtures, and equipment
Décor
Construction in progress
Accumulated depreciation and amortization
Property, equipment and leasehold improvements, net
January 2,
2011
January 3,
2010
$
$
$
69,592
34,057
2,768
869
(45,736)
61,550
$
62,585
30,609
2,559
782
(41,717)
54,818
(5) OTHER ASSETS
Other assets consisted of the following at:
(in thousands)
Liquor licenses
Long-term lease interest assets
Other assets
(6) OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at:
(in thousands)
Gift cards payable
Other liabilities
Income taxes payable
Sales tax payable
Accrued property and equipment purchases
Deferred franchise fees
January 2,
2011
January 3,
2010
$
$
$
$
1,410
1,329
539
3,278
January 2,
2011
1,960
1,347
681
785
59
140
4,972
$
$
$
$
---
---
548
548
January 3,
2010
1,441
1,381
---
834
300
35
3,991
F-13
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) OTHER LIABILITIES
Other liabilities consisted of the following at:
(in thousands)
Deferred rent
Lease termination costs
Asset retirement obligations
Other liabilities
January 2,
2011
January 3,
2010
$
$
5,043
---
96
289
5,428
$
$
4,404
89
304
136
4,933
(8) CREDIT FACILITY AND DEBT COVENANTS, LONG-TERM DEBT, AND FINANCING LEASE
OBLIGATIONS
The Company and certain of its subsidiaries (collectively known as the “Borrower”) currently have a Credit
Agreement with Wells Fargo Bank, National Association, as administrative agent and lender (the “Lender”). The
Credit Agreement, contains a $30.0 million revolving credit facility (the “Facility”) with an opportunity, subject
to the Company meeting identified covenants and elections, to increase the commitment to $50.0 million.
Principal amounts outstanding under the Facility bear interest either at an adjusted Eurodollar rate plus an
applicable margin or at a Base Rate plus an applicable margin. The Base Rate is defined in the agreement as the
greater of the Federal Funds Rate (0.25% at January 2, 2011) plus 0.5% or Wells Fargo’s prime rate (3.25% at
January 2, 2011). The applicable margin will depend on the Company’s Adjusted Leverage Ratio, as defined, at
the end of the previous quarter and will range from 1.00% to 2.00% for Eurodollar Rate Loans and from -0.50%
to +0.50% for Base Rate Loans. Unused portions of the Facility will be subject to an unused Facility fee which
will be equal to either 0.25% or 0.375% of the unused portion, depending on the Company’s Adjusted Leverage
Ratio. Our rate for the unused portion of the Facility as of January 2, 2011, was 0.375%. An increase option
exercise fee will apply to increased amounts between $30.0 and $50.0 million. Our current weighted average rate
for the fiscal year ended January 2, 2011 was 2.7%.
The Facility contains customary affirmative and negative covenants for credit facilities of this type,
including limitations on the Borrower with respect to indebtedness, liens, investments, distributions, mergers and
acquisitions, dispositions of assets and transactions with affiliates of the Borrower, among others. The Facility
also includes various financial covenants that have maximum target capital expenditures, cash flow ratios, and
adjusted leverage ratios. If the Company’s Adjusted Leverage Ratio is greater than 3.00 to 1.00, an additional
covenant applies that limits the maximum royalty receivable aged past 30 days. In addition, capital expenditure
limits include permitted stock repurchase limits (limited to $10.0 million in aggregate during any 12 month
period, and $20.0 million in aggregate during the term of the agreement).
The Credit Agreement currently provides for up to $3.0 million in letters of credit to be used by the
Company, with any amounts outstanding reducing our availability for general corporate purchases, and also
allows for the termination of the Facility by the Borrower without penalty at any time. At January 2, 2011 we had
$13.0 million in borrowings under this Facility, and had approximately $579,000 in letters of credit for real estate
locations. We were in compliance with all covenants under the Credit Agreement as of January 2, 2011.
If the bank were to call the line of credit prior to expiration, the Company believes there are multiple
options available to obtain other sources of financing. While possibly at different terms, the Company believes
there would be other lenders available and willing to finance a new credit facility.
F-14
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2009, we amended our credit agreement to change the definition of consolidated EBITDA to include a
defined amount of impairment charges and lease termination fees in any fiscal 2008 quarter. We paid fees of
approximately $45,000 related to the amendment, which were deferred during the first quarter of 2009 and are
being amortized over the remaining life of the Facility.
We expect to use any borrowings under the Credit Agreement for general working capital purchases as
needed. Under the Facility, the Borrower has granted the Lender a security interest in all current and future
personal property of the Borrower.
Our credit facility consisted of the following at:
(in thousands)
January 2,
2011
January 3,
2010
Credit facility - Wells Fargo - balloon payment of the
outstanding balance due May 2013
Less: current maturities
Long-term credit facility net of current portion
$
$
13,000
---
$
13,000
$
13,500
---
13,500
Required principal payments under our credit facility are as follows:
(in thousands)
Fiscal Year
2011
2012
2013
Total credit facility obligation
Long-Term Debt
$
$
---
---
13,000
13,000
The Company amended its Credit Agreement on March 4, 2010 in connection with the acquisition of seven
New York and New Jersey restaurants (see Note 17). This amendment provided for an additional $6.8 million of
long-term debt in the form of a term loan with a maturity date of March 4, 2017. Principal amounts outstanding
under this term loan bear interest at an adjusted Eurodollar rate plus 225 basis points for an interest rate period of
one, two, three, or six months which is determined by the Company. Our current weighted average rate for the
fiscal year ended January 2, 2011 was 2.63%. There is a required minimum annual amortization of 5.0% of the
principal balance.
F-15
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consisted approximately of the following at:
(in thousands)
Notes Payable - Wells Fargo - monthly
installments are
approximately $28 until the final year of the loan, then our
payments will increase to approximately $400 including interest at
an adjusted Eurodollar rate plus 225 basis points for an interest rate
period of one, two, three, or six months which is determined by the
Company and is due March 2017, secured by the property and
equipment
Less: current maturities
Long-term debt net of current maturities
Required principal payments on long-term debt are as follows:
(in thousands)
January 2,
2011
January 3,
2010
$
$
$
6,545
(340)
6,205
$
---
---
---
Fiscal Year
2011 $
2012
2013
2014
2015
Thereafter
Total
$
340
340
340
340
340
4,845
6,545
Financing Lease Obligation
On March 31, 1999, the Company completed a $4.5 million financing obligation involving three existing
restaurants as part of a sale/leaseback transaction. Under this financing, we are obligated to make monthly
payments of $50,284 (which increases 4.04% every two years) for a minimum of 20 years. At the end of the 20
year lease term we may extend the lease for up to two additional five year terms. We also have the option to
purchase the leased restaurants on the 20th anniversary of the lease term and between the first and second five year
option terms. The option purchase price is the greater of $4.5 million or the fair market value, as defined in the
agreement, of the properties at the time the purchase option is exercised. Based upon our continued involvement
in the leased property and its purchase option, the transaction has been accounted for as a financing arrangement.
Accordingly, the three existing restaurants are included in property, equipment and leasehold improvements, and
had been depreciated over a 30 year term until fiscal 2007 when it was determined that it was likely that we would
not renew the lease at the end of the original term. This resulted in a change in accounting estimate for the useful
life of the restaurant’s assets to 20 years from 30 years. Accelerated depreciation of $61,000 was recorded in
2007 and will continue to be recorded on an accelerated basis prospectively. In addition, as the monthly lease
payments are made, the obligation will be reduced by the revised 20 year amortization table.
F-16
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financing lease obligations consisted of the following at:
(in thousands)
January 2,
2011
January 3,
2010
Financing lease – Spirit Financial – monthly installments of $50-
$59 – including an interest rate of 9.63%, due in March 2019.
Less current maturities
Long-term financing lease net of current maturities
$
$
$
4,490
(198)
4,292
$
4,652
(162)
4,490
Required principal payments under our financing leases are as follows:
(in thousands)
Fiscal Year
2011
2012
2013
2014
2015
Thereafter
Total
$
$
198
224
266
300
351
3,151
4,490
(9) OPERATING LEASE OBLIGATIONS
We have various operating leases for existing and future restaurants and corporate office space with
remaining lease terms ranging from 1 to 37 years, including lease renewal options. Twelve of the leases require
percentage rent of between 3% and 8% of annual gross sales, typically above a natural breakeven point, in
addition to the base rent. All of these leases contain provisions for payments of real estate taxes, insurance and
common area maintenance costs. Total occupancy lease costs for fiscal years 2010, 2009, and 2008, including
rent, common area maintenance costs, real estate taxes and percentage rent, were approximately $8.8 million, $7.1
million, and $7.2 million, respectively. Minimum rents were approximately $5.3 million, $5.1 million, and $4.6
million, for fiscal years 2010, 2009, and 2008, respectively. Percentage rent was approximately $326,000,
$368,000, and $264,000 for fiscal years 2010, 2009, and 2008, respectively. In December of 2009, the Company
sublet 2,100 square feet of its corporate office space until the end of its base lease term. Sublease income has
reduced the future minimum lease payments. In 2010, the Company recognized $23,000 of sublease income
which partially offset our total rent expense.
F-17
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments (including reasonably assured renewal options) existing at January 2, 2011
were:
(in thousands)
Fiscal Year
2011
2012
2013
2014
2015
Thereafter
Total operating lease obligations
Sublease income
Net operating lease obligations
$
$
5,659
5,571
5,583
5,564
5,643
99,366
127,386
(90)
127,296
(10) PERFORMANCE SHARES, STOCK OPTIONS, OTHER FORMS OF COMPENSATION, AND
COMMON SHARE REPURCHASES
Stock-based Compensation
We recognized stock-based compensation expense in our consolidated statements of operations for the
years ended 2010, 2009 and 2008, respectively, as follows:
(in thousands)
Performance Share Programs:
2006 Program
2007 Program
2008 Program
2009 Program
2010 Program
Performance Shares
Director Shares
Stock Options
Restricted Stock Units(1)
For the Years Ended
January 2,
2011
January 3,
2010
December 28,
2008
$
$
$
---
---
101
244
380
725
231
---
136
1,092
$
$
$
---
(19)
104
247
---
332
340
24
136
832
$
$
$
17
156
129
---
---
302
266
85
41
694
(1)On September 11, 2008, a new Chief Executive Officer was appointed and, commensurate with his promotion, a 50,000
restricted stock unit grant was made. In addition, on the same date, 25,000 restricted stock units were granted to our Chief
Financial Officer.
F-18
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Shares
Since fiscal 2005, stock incentive awards for employees of the Company (whom we refer to as team
members), including officers, have primarily taken the form of performance shares. We have a program under
which management and certain director-level team members may be granted performance shares under the 2005
Stock Incentive Plan, subject to certain contingencies. Issuance of the shares underlying the performance share
grants is contingent upon the Company achieving a specified minimum percentage of the cumulative earnings per
share goals (as determined by the Compensation Committee) for each of the three fiscal years covered by the
grant. Upon achieving the minimum percentage, and provided that the recipient remains a team member during
the entire three-year performance period, the Company will issue the recipient a percentage of the performance
shares that is based upon the percentage of the cumulative earnings per share goals achieved. No portion of the
shares will be issued if the specified percentage of earnings per share goals is achieved in any one or more fiscal
years but not for the cumulative three-year period.
No recipient will have any rights as a shareholder based on the performance share grants unless and until
the conditions have been satisfied and the shares have been issued to the recipient. In accordance with this
program, we recognize as compensation expense the value of these stock grants as they are earned in our
consolidated statements of operations throughout the performance period.
As of January 2, 2011, we had three performance share programs in progress. All of these performance
share awards qualify for equity-based treatment as required under the FASB Accounting Standards Codification
for Compensation - Stock Compensation. Accordingly, we recognize compensation cost for these share-based
awards based on their fair value, which is the closing stock price at the date of grant over the requisite service
period (i.e. fixed treatment). Participants in each performance share program are entitled to receive a specified
number of shares of the common stock (“Performance Shares”) based upon our achieving a specified percentage
of the cumulative total of the earnings per share goals established by our compensation committee for each fiscal
year within a three-year performance period (the “Cumulative EPS Goal”). In the second and third year of any
performance share program, the estimated attainment percentage is based on the forecasted earnings per share for
that program. For the 2008 program the attainment percentage was 91.2%. The estimated attainment percentage
for the 2009 program is 100%. In the first year of any program, we estimate the attainment rate to be 100%. In
accordance with FASB Accounting Standards Codification for Compensation - Stock Compensation, we have
recorded compensation net of the estimated non-attainment rates. We will continue to evaluate the need to adjust
the attainment percentages in future periods.
During the first quarter of fiscal 2010, we issued 25,925 shares upon satisfaction of conditions under the
2007 performance share program, representing the achievement of approximately 88.5% of the target payout for
this program. Recipients elected to forfeit 9,261 of those shares to satisfy tax withholding obligations, resulting in
a net issuance of 16,664 shares.
For each of the three programs currently in progress, if the Company achieves at least 80% of the
Cumulative EPS Goal, then each recipient will be entitled to receive a percentage of the “Target” number of
Performance Shares granted that is equal to the percentage of the Cumulative EPS Goal achieved, up to 100%.
With the 2008 program, if the Company achieves between 100% and 150% of the Cumulative EPS Goal, each
recipient will be entitled to receive an additional percentage of the “Target” number of Performance Shares
granted equal to twice the incremental percentage increase in the Cumulative EPS Goal over 100% (e.g., if the
Company achieves 120% of the Cumulative EPS Goal, then the recipient will be entitled to receive 140% of his
or her “Target” Performance Share amount). The maximum share payout a recipient will be entitled to receive
under the 2009 and the 2010 programs is 100% of the “Target” number of Performance Shares granted if the
Cumulative EPS Goal is met.
F-19
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 2, 2011, the following performance share programs were in progress:
Award
Date
12/31/2007
12/29/2008
1/4/2010
Performance Share
Program
2008 Program
2009 Program(3)
2010 Program
Target No. of
Performance
Shares
(Originally
Granted)(1)
78,800
280,300
193,700
No. of
Performance
Shares
(Outstanding
at January 2,
2011)(2)
27,000
267,100
191,200
Estimated
Payout of
Performance
Shares
24,632 (4)
267,100 (5)
191,200 (6)
(1)Assumes achievement of 100% of the applicable cumulative EPS goal.
(2)Net of forfeitures for employee departures.
(3)The aggregate target number of performance shares awarded under this program increased
significantly over prior years as a result of one-time grants related to the hiring of several new
executives and board members in late 2008 and early 2009, and a significantly lower stock price at the
grant date.
(4)Based on actual achievement of 91.2% of the cumulative EPS goal over the completed three year
performance period.
(5)Based on achievement of 100% of the cumulative EPS goal over the first two years of the
performance period.
(6)Assumes achievement of 100% of the applicable cumulative EPS goal.
Board of Directors’ Compensation
In May 2009, we awarded our independent board members shares of common stock for their service on our
board for May 2009 – April 2010. These shares were unrestricted upon issuance, but would have required
repayment of the prorated portion, or equivalent value thereof in cash, in the event that a board member failed to
fulfill his or her term of service. In total, 66,000 shares were issued on May 5, 2009, on which date the closing
price of our common stock was $6.72. The total compensation cost of approximately $444,000 has been reflected
in general and administrative expenses in our consolidated statements of operations for fiscal 2009 and fiscal
2010, and was recognized over the term of the director’s service from May 2009 to April 2010.
Additionally, during 2009, one-time stock grants were issued to board members Lisa A. Kro and Wallace
B. Doolin, commensurate with the additional responsibilities assigned to them upon assuming new positions on
the Board of Directors’ committees. They were granted 25,000 restricted shares each; with grant date fair values
of $168,000 and $150,000 on May 5, 2009 and September 29, 2009, respectively. These grants will vest ratably
over a period of five years beginning on the date they respectively joined the board.
In fiscal 2010, we compensated our independent board members with cash, and have been reflecting
compensation cost over the term of their board service from May 2010 to April 2011. In 2010, total
compensation expense for our board included approximately $231,000 of stock-based compensation expense
related to board service January - April and approximately $255,000 of cash compensation expense for service
from May - December during the fiscal year. In total, board of director cash compensation and stock-based
compensation expense for the board of directors during fiscal 2010 was $486,000.
Stock Options
We have adopted a 1995 Stock Option and Compensation Plan, a 1997 Employee Stock Option Plan, a
1998 Director Stock Option Plan and a 2005 Stock Incentive Plan (the “Plans”), pursuant to which we may grant
stock options, stock appreciation rights, restricted stock, performance shares, and other stock and cash awards to
eligible participants. Under the Plans, an aggregate of 179,210 shares of our Company’s common stock remained
F-20
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unreserved and available for issuance at January 2, 2011.
The stock options we had issued under the Plans were fully vested as of January 3, 2010 and expire 10
years from the date of grant. The 1995 Stock Option and Compensation Plan expired on December 29, 2005, the
1997 Employee Stock Option Plan expired on June 24, 2007, and the 1998 Director Stock Option Plan expired on
June 19, 2008. Although incentives are no longer eligible for grant under these plans, each such plan will remain
in effect until all outstanding incentives granted there under have either been satisfied or terminated.
Information regarding our Company’s stock options is summarized below:
Stock Options
(number of options in thousands)
Options outstanding at December 30, 2007
Canceled or expired
Exercised
Options outstanding at December 28, 2008
Canceled or expired
Exercised
Options outstanding at January 3, 2010
Exercised(1)
Options outstanding at January 2, 2011
Options exercisable at December 28, 2008
Options exercisable at January 3, 2010
Options exercisable at January 2, 2011
Number of
Options
Weighted Average
Exercise Price
399
$
(4)
(6)
389
(21)
(17)
351
(104)
247
$
382
$
351
$
247
$
5.57
4.98
4.62
5.59
5.94
3.44
5.68
4.30
6.27
5.58
5.68
6.27
(1)In 2010, Optionholders elected to forfeit approximately 11,000 shares to satisfy the strike price and tax withholding obligations, resulting in a
net issuance of approximately 93,000 shares.
F-21
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at January 2, 2011:
Options
Total outstanding
Weighted-
average
remaining
contractual life
Exercise prices
Number
outstanding
$ 3.94 - $ 6.00
110
2.30 years
$ 6.15 - $ 10.98
137
3.00 years
247
2.69 years
Exercisable
Weighted-
average
exercise price
Number
exercisable
Weighted-
average
exercise price
$
$
$
4.93
7.35
6.27
110
$
4.93
137
$
7.35
247
$
6.27
The aggregate intrinsic value of options (the amount by which the market price of the stock on the date of
exercise exceed the exercise price of the option) exercised during fiscal 2010 was approximately $463,000. As of
January 2, 2011, the aggregate intrinsic value of options outstanding and exercisable was approximately $1.2
million.
Restricted Stock Units
On September 11, 2008, Christopher O’Donnell was promoted to President and Chief Executive Officer.
Also on September 11, 2008, and pursuant to the agreement governing Mr. O’Donnell’s employment, the
Company granted 50,000 restricted stock units having an aggregate grant date fair value of $454,000. These
restricted stock units will vest in three equal installments on the three, four and five year anniversaries of the grant
date provided that Mr. O’Donnell remains employed by the Company through the applicable vesting date, and
will vest in its entirety upon a “change of control” as defined in the employment agreement. In accordance with
FASB Accounting Standards Codification for Compensation-Stock Compensation, the compensation expense for
this grant will be recognized in equal quarterly installments as general and administrative expense in our
consolidated statements of operations commencing in the third quarter of 2008 and continue through the
applicable service period which expires in the third quarter of fiscal 2013.
In addition, on the same date, the Company made a grant of 25,000 restricted stock units to the Company’s
Chief Financial Officer, Diana Purcel, for a grant date fair value of $227,000. This grant is subject to the same
terms and conditions as Mr. O’Donnell’s grant.
Common Share Repurchases
On August 6, 2008, our Board of Directors approved a stock repurchase program that authorized the
repurchase of up to 1.0 million shares of our common stock in both the open market or through privately
negotiated transactions. As of September 2010, we repurchased all of the shares under this authorization, for
approximately $7.8 million at an average market price per share of $7.79, excluding commissions. During fiscal
2010, we repurchased 892,988 shares under this program for approximately $6.9 million at an average market
price per share of $7.76, excluding commissions.
On November 4, 2010, our Board of Directors approved a stock repurchase program that authorized the
repurchase of up to 1.0 million shares of our common stock in both the open market or through privately
negotiated transactions. As of January 2, 2011 we had repurchased 174,100 shares under this program for
F-22
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $1.8 million at an average market price of $10.33, excluding commissions.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan, which gives eligible team members the option
to purchase Common Stock (total purchases in a year may not exceed 10 percent of a team member’s current year
compensation) at 100 percent of the fair market value of the Common Stock at the end of each calendar quarter.
For the year ended January 2, 2011 and January 3, 2010, there were approximately 5,849 shares and 10,050 shares
purchased, respectively, with a weighted average fair value of $9.17 and $5.22, respectively. For the fiscal years
ended January 2, 2011 and January 3, 2010, the Company did not recognize any expense related to the stock
purchase plan due to it being non-compensatory as defined by IRS Section 423.
(11) RETIREMENT SAVINGS PLANS
401(k) Plan
We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal
Revenue Code, which covers employees meeting certain eligibility requirements. In fiscal 2010 and 2009 we
matched 25.0%, and in fiscal 2008, we matched 50.0%, respectively, of the employee’s contribution up to 4.0%
of their earnings. Team member contributions were approximately $538,000, $538,000 and $593,000, for fiscal
2010, 2009, and 2008, respectively. The employer match was $84,000, $87,000, and $178,000 for fiscal 2010,
2009, and 2008, respectively. There were approximately $11,000 in discretionary contributions to the Plan during
fiscal 2010. There were no discretionary contributions to the plan in fiscal 2009. In fiscal 2008, there was
approximately $1,000 of discretionary contributions to the Plan.
Non-Qualified Deferred Compensation Plan
We have a Non-Qualified Deferred Compensation Plan effective as of February 25, 2005 (the “Plan”).
Eligible participants are those team members who are at the “director” level and above and who are selected by
the Company to participate in the Plan. Participants must complete a deferral election each year to indicate the
level of compensation (salary, bonus and commissions) they wish to have deferred for the coming year. This
deferral election is irrevocable except to the extent permitted by the Plan Administrator, and the Regulations
promulgated by the IRS. During fiscal 2010 and fiscal 2009, we matched 25% of the first 4.0% contributed and
paid a declared interest rate of 6.0% on balances outstanding. During fiscal 2008 we matched 50% of the first
4.0% contributed and paid a declared interest rate of 8.0%. The Board of Directors administers the Plan and may
change the rate or any other aspects of the Plan at any time.
Deferral periods are limited to the earlier of termination of employment or not less than three calendar years
following the end of the applicable Plan Year. Extensions of the deferral period for a minimum of five years are
allowed provided an election for extension is made at least one year before the first payment affected by the
change. Payments can be in a lump sum or in equal payments over a two-, five- or ten-year period, plus interest
from the commencement date.
The Plan assets are kept in an unsecured account that has no trust fund. In the event of bankruptcy,
participants entitled to future payments under the Plan would have no greater rights than that of an unsecured
general creditor of the Company and the Plan confers no legal rights for interest or claim on any specific assets of
the Company. Benefits provided by the Plan are not insured by the Pension Benefit Guaranty Corporation
(PBGC) under Title IV of the Employee Retirement Income Security Act of 1974 (“ERISA”), because the
pension insurance provisions of ERISA do not apply to the Plan.
F-23
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal year ended January 2, 2011, eligible participants contributed approximately $83,000 to the
Plan and the Company provided matching funds and interest of approximately $55,000, net of distributions of
approximately $249,000, due to executive departures and required distributions in accordance with our Plan.
(12)
INCOME TAXES
We provide for income taxes based on our estimate of federal and state income tax liabilities. These
estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for
items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense
allowable for tax purposes, and the tax deductibility of certain other items. Our estimates are based on the
information available to us at the time that we prepare the income tax provision. We generally file our annual
income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal,
state, and local governments, generally years after the tax returns are filed. These returns could be subject to
material adjustments or differing interpretations of the tax laws.
At January 2, 2011, we had cumulative net operating loss carry-forwards of approximately $23.0 million for
state tax purposes, (a valuation allowance has been computed on $23.0 million of the state net operating loss
carry-forward); We also had cumulative tax credit carry-forwards of approximately $653,000 which will not
expire.
The following table summarizes the income tax (expense) benefit for income taxes:
(in thousands)
Current:
Federal
State
Deferred:
Federal
State
2010
Fiscal Year
2009
2008
$
(2,134)
(501)
(2,635)
$
(523)
(235)
(758)
$
(1,137)
(24)
(1,161)
(1,992)
(239)
(2,231)
(310)
(113)
(423)
433
109
542
119
Total tax (expense) benefit
$
(3,796)
$
(2,989)
$
The impact of an uncertain tax positions taken or expected to be taken on an income tax return must be
recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial
statements unless it is more likely than not of being sustained.
F-24
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the years
ended January 2, 2011 and January 3, 2010, respectively, is presented in the table below:
(in thousands)
Beginning balance on December 28, 2008
Increases attributable to tax positions taken during prior periods
Beginning balance on January 3, 2010
Increases attributable to tax positions taken during prior periods
Decreases due to lapses of statutes of limitations
$
---
55
55
734
(19)
Ending balance on January 2, 2011
$
770
Unrecognized tax benefits of $77,000 at January 2, 2011 and $55,000 at January 3, 2010 had an effect on
the annual effective tax rate. In accordance with FASB Accounting Standards Codification for Income Taxes, the
differences between the amounts affecting the annual effective rate and the amount reflected in the reconciliation
above relates to deferred federal and state taxes on unrecognized tax benefits related to federal and state income
taxes. The Company anticipates that the total amount of unrecognized tax benefits of approximately $761,000
primarily related to certain occupancy deductions could decrease within the next 12 months due to the settlement
of a federal audit.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component
of income tax expense. Total accrued interest and penalties amounted to $41,000 and $9,000 on a gross basis at
January 2, 2011 and January 3, 2010, respectively. Interest and penalties recognized in the consolidated
statements of operations related to uncertain tax positions which amounted to $32,000 of expense in 2010 and
$9,000 in 2009.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As of
January 2, 2011, the Company was no longer subject to income tax examinations for taxable years before 2007 in
the case of U.S. federal and taxable years generally before 2006 in the case of state taxing authorities, consisting
primarily of Minnesota. The Company is currently under federal audit for 2008 and 2009.
At January 2, 2011, we believe that the realization of the deferred tax asset is more likely than not based on
our taxable income for fiscal 2010 and fiscal 2009 and based on the expectation that our Company will generate
the necessary taxable income in future years, except for a portion of the state net operating loss carry forward, for
which the Company has created a $1.2 million (tax effected) valuation allowance.
Deferred taxes, detailed below, recognize the impact of temporary differences between the amounts of
assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax
laws. Realization of the net operating loss carry forwards and other deferred tax temporary differences are
contingent on future taxable earnings. During fiscal years 2010, 2009 and 2008, our deferred tax asset was
reviewed for expected utilization using a “more likely than not” approach as required by FASB Accounting
Standards Codification for Income Taxes, by assessing the available positive and negative evidence surrounding
its recoverability.
F-25
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Current deferred tax asset (liability):
Tax credit carryover
Accrued and deferred compensation
Deferred revenue
Accrued expenses
Other
Financing lease obligations
Inventories
Prepaid expenses
Total short-term deferred tax asset
Long-term deferred tax (liability) asset:
Tax credit carryover
State net operating loss carry-forwards
Accrued and deferred compensation
Accrued expenses
Lease reserve
Deferred revenue
Valuation allowance
Intangible property basis difference
Property and equipment basis difference
Total long-term deferred tax (liability) asset
January 2,
2011
January 3,
2010
$
$
$
$
---
669
593
197
30
(137)
(531)
(616)
205
653
1,236
141
1,733
101
(112)
(1,236)
216
(3,178)
(446)
$
$
$
$
500
708
462
161
26
(81)
(498)
(564)
714
1,675
1,411
152
---
124
(221)
(1,368)
---
(1,567)
206
Reconciliation between the statutory rate and the effective tax rate is as follows:
Federal statutory tax rate
State taxes, net of federal benefit
Tax effect of permanent differences – meals and entertainment
Tax effect of permanent differences – Tip Credit
Tax effect of permanent differences – Other
Tax effect of general business credits
Adjustment to beginning deferreds
Uncertain tax positions
Other
Effective tax rate
Fiscal Year
2010
2009
34.0 %
34.0 %
3.6
0.3
1.7
(0.2)
(5.4)
---
0.6
(0.1)
3.6
0.7
2.1
(0.2)
(6.4)
---
0.6
---
34.5 %
34.4 %
2008 (1)
34.0 %
50.0
24.1
68.5
1.5
(205.6)
(22.2)
---
5.6
(44.1) %
(1)2008 percentages are larger compared to other years as a result of less income before taxes in 2008 compared to other years, even though the
dollar amounts of items are similar.
F-26
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) SUPPLEMENTAL CASH FLOWS INFORMATION
For the Fiscal Year Ended
2009
2010
2008
(in thousands)
Cash paid for interest
Cash paid for taxes
Non-cash investing and financing activities:
Redemption of note receivable due to the
acquisition of franchise restaurants
Accrued property and equipment purchases
Reclassification of additional paid-in-capital to payroll taxes
payable for performance shares issued
Issuance of common stock to independent board members
Acquisition of the fixed assets and inventory from
the Atlanta acquisition
Write-off of note receivable, accounts receivable, other assets and
accounts payable from the Atlanta acquisition
(14) SELECTED QUARTERLY DATA (UNAUDITED)
$
$
$
$
$
$
$
$
961
1,819
$
$
1,418
820
613
240
$
$
---
(102)
$
$
$
$
1,823
446
---
1,335
(176)
266
68 $
$
---
---
$
---
$
(28) $
$
340
---
---
$
$
(1,745)
1,745
The following represents selected quarterly financial information for fiscal years 2010 and 2009.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2010
2009
2010
2009
2010
2009
2010
2009
$ 32,599
$
4,375
$
2,707
$ 33,787
$
$
2,430
1,320
$
$
$
40,749
4,137
2,536
$
$
$
36,325
4,448
2,368
$
$
$
38,703
$ 33,305
2,444
1,458
$
$
2,202
1,239
$
$
$
36,217
1,027
517
$
$
$
32,601
1,434
774
$
0.30
$
0.15
$
0.29
$
0.26
$
0.17
$
0.14
$
0.06
$
0.08
$
0.30
$
0.15
$
0.29
$
0.26
$
0.17
$
0.13
$
0.06
$
0.08
Revenue
Income from operations
Net income
Basic net income
per common share
Diluted net income
per common share
(15) LITIGATION
In the normal course of business, the Company is involved in a number of litigation matters that are
incidental to the operation of the business. These matters generally include, among other things, matters with
regard to employment and general business-related issues. The Company currently believes that the resolution of
any of these pending matters will not have a material adverse effect on its financial position or liquidity, but an
adverse decision in more than one of the matters could be material to its consolidated results of operations.
F-27
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) ASSET IMPAIRMENT AND ESTIMATED LEASE TERMINATION AND OTHER CLOSING
COSTS
In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we
evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held
and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net
cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be
impaired, the loss is measured by the amount by which the carrying amount of the restaurant site exceeds its fair
value. Fair value is estimated based on the best information available including estimated future cash flows,
expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these
assumptions change in the future, we may be required to take additional impairment charges for the related assets.
Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could
vary significantly from such estimates. Restaurant sites that are operating but have been previously impaired are
reported at the lower of their carrying amount or fair value less estimated costs to sell. Here is a summary of
these events and situations for fiscal 2010, fiscal 2009, and fiscal 2008.
2010 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurants
Various
Palatine
Atlanta
Various
Total for 2010
Reason
Amount
Costs for closed restaurants(1)
Lease reserve(2)
Gain on lease terminations(3)
Other
$
$
68
88
(84)
2
74
(1)The Company incurred costs for closed restaurants which primarily related to its Palatine, IL restaurant which was closed in 2010.
(2)The lease reserve was recorded in accordance with FASB Accounting Standards Codification for Exit and Disposal Cost Obligations, and equals
the net present value of the remaining lease obligations for the Palatine, Illinois restaurant, net of expected sublease income, equal to zero.
(3)During the year, the Company negotiated lease buyouts for its Marietta, GA location. Total termination fees were approximately $506,000 less
lease reserve of approximately $591,000 for a net gain of approximately $84,000.
F-28
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2009 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurants
Various
Various
Software
Various
Total for 2009
Reason
Costs for closed restaurants(1)
Gain on lease terminations(2)
Asset impairment(3)
Other
Amount
240
(162)
129
11
218
$
$
(1)The Company incurred costs for the following closed restaurants: Snellville, Georgia, Alpharetta, Georgia, and Marietta, Georgia, which all
closed in 2008. Additionally, there were costs for West St. Paul, Minnesota and Naperville, Illinois which were closed in 2009.
(2)During the year, the Company negotiated lease buyouts for two Georgia locations, for a restaurant that closed in fiscal year 2006, and negotiated
a lease termination settlement for a restaurant site where construction had never commenced. Total termination fees were approximately
$1,313,000 less lease reserves of approximately $1,475,000 for a net gain of approximately $162,000.
(3)In accordance with FASB Accounting Standards Codification for Property, Plant and Equipment, the asset impairment charge, which was
recorded in the third quarter of fiscal 2009, was related to a software product that was replaced with an alternative solution prior to
implementation.
2008 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):
Restaurant
Carpentersville
Calhoun
Naperville
Atlanta
Stillwater
Vernon Hills
Two Prospective Restaurants
Various
Total for 2008
Reason
Store closure (net of deferred rent credits)(1)
Asset impairment(2)
Asset impairment(2)
Asset impairment and lease reserve(2)(3)
Asset impairment(2)
Asset impairment(2)
Site costs for restaurants that were not opened(4)
Other
Amount
177
1,057
1,001
4,043
188
332
105
9
6,912
$
$
(1)The Company closed this restaurant in conjunction with the opening of a new prototype restaurant within four miles of the existing
restaurant, supporting the company’s strategy to reposition legacy restaurants in markets when opportunities arise. The Company negotiated
a lease buyout for this location and another location in the Chicago market that had been previously closed for a total of $80,000. The
agreement with the landlord for these two locations was subject to a bankruptcy judge’s final approval, which was obtained in the third
quarter of 2009. The final settlement was contained in the $1.3 million lease termination fees paid in 2009.
(2)In accordance with FASB Accounting Standards Codification for Property Plant and Equipment, based on the Company’s assessment of
expected cash flows from this location over the remainder of the respective lease terms.
(3)Includes the three restaurants in the Atlanta market which were acquired by the company from a franchisee for amounts due that were
subsequently closed. The lease reserve was recorded in accordance with FASB Accounting Standards Codification for Exit and Disposal
Cost Obligations, and equals the net present value of the remaining lease obligations for the 3 closed Atlanta restaurants, net of zero expected
sublease income.
(4) Write off of failed site preparation costs for two locations that the Company decided not to open.
F-29
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below reflects the change in our reserve for lease termination costs for fiscal 2010 and 2009:
Balance at
Beginning
of Period
Additions
Charged to
Costs and
Expenses
Deductions
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
Year ended January 3, 2010
Reserve for lease termination costs
Year ended January 2, 2011
Reserve for lease termination costs
$
2,201.4
292.6
(1,905.0)
$
589.0
$
589.0
89.2
(590.5)
$
87.7
These amounts are recorded in other current liabilities or other liabilities depending on when we expect the
amounts to be paid.
(17)
ACQUISITION OF SEVEN RESTAURANTS IN NEW YORK AND NEW JERSEY
On March 3, 2010, the Company purchased the assets of seven of nine Famous Dave’s restaurants located
in New York and New Jersey previously owned and operated by a Famous Dave's franchisee, North Country
BBQ Ventures, Inc. These assets were purchased under Section 363 of Chapter 11 of the U.S. Bankruptcy Code
and the acquisition was approved by the United States Bankruptcy Court for the District of New Jersey. The
Company did not assume any liabilities except for the outstanding gift cards that the Company chose to honor.
Famous Dave’s of America, Inc. continues to operate the restaurants. For the two restaurants that were not
acquired, one was subsequently closed and the other was purchased out of bankruptcy by another buyer who
assumed the existing franchise agreement.
The purchase price for the seven restaurants of approximately $7.4 million was offset by approximately
$649,000 of pre- and post-petition notes receivable of the Company due and payable from the seller, resulting in a
net cash payment of $6.8 million, which was funded by a term loan from Wells Fargo Bank, N.A. (See Note 8,
Credit Facility and Debt Covenants, Long-Term Debt, and Financing Lease Obligations for the specific terms and
conditions for this term loan.) This acquisition was accounted for using the acquisition method of accounting in
accordance with FASB Accounting Standards Codification for Business Combinations.
F-30
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net assets acquired were recorded based on their fair values at the acquisition date as follows (in
thousands):
Inventory
Property, equipment, and leasehold improvements
Other assets(1)
Gift card liability
Lease interest liabilities
Asset disposal costs
Fair value of the net assets acquired
$
$
125
7,262
2,843 (2)
(312)
(138) (2)
(2)
9,778
(1)Other assets are comprised of approximately $1.4 million of liquor licenses, $1.4 million of lease interest assets and $16,000 of security
deposits for various operating leases.
(2)Lease interest assets and lease interest liabilities will be amortized ratably to occupancy costs which is reflected in operating expenses in the
Company’s consolidated statements of operations.
The excess of the aggregate fair value of the assets acquired over the purchase price was allocated to gain
on acquisition of approximately $2.3 million and is reflected in the consolidated statements of operations for the
fiscal year ended January 2, 2011. The Company incurred approximately $386,000 of costs associated with the
acquisition, $79,000 of which were incurred in fiscal 2009, and $307,000 of which were incurred in fiscal 2010.
The fiscal 2010 acquisition-related costs are reflected as a net adjustment to the gain on the acquisition in the
consolidated statements of operations for the year ended January 2, 2011.
The following unaudited pro forma information presents a summary of the results of operations of the
Company assuming the acquisition of the seven restaurants described above occurred at the beginning of fiscal
2009 as required by FASB Accounting Standards Codification for Business Combinations. Pro Forma results
were based on the previous owner’s unaudited financial statements which is permitted under the Securities and
Exchange Commission rules for business that d not meet the significant subsidiary criteria. These results were
then adjusted for the impact of certain acquisition-related items, such as: additional amortization of identified
intangible assets, additional depreciation expense of property and equipment recorded at fair value, increased
occupancy costs, increased interest expense on acquisition debt, inclusion of transaction-related charges and
related income tax effects.
The pro forma financial information is presented for informational purposes only and is not indicative of the
results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal
2009, nor is it indicative of future operating results. Both periods presented reflect the net gain on the acquisition.
Pro Forma Results (unaudited)
(in thousands except per share data)
Revenue
Net income
Net income per common share-basic
Net income per common share-diluted
Fiscal Years
2010
2009
$
$
150,614
7,242
0.84
0.82
154,391
7,294
0.80
0.79
F-31
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
Financial Statement Schedule
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
Year ended December 28, 2008:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
Year ended January 3, 2010:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
Year ended January 2, 2011:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
$
$
$
15.9
171.0
---
$
$
$
658.8
2,242.9
269.0
$
$
$
(217.7)
(212.5)
(62.0)
457.0
$
$ 2,201.4
207.0
$
$
457.0
$ 2,201.4
207.0
$
$
$
$
226.5
292.6
74.3
$
(616.1)
$ (1,905.0)
(281.3)
$
$
$
$
67.4
589.0
---
$
$
$
67.4
589.0
---
$
$
$
50.9
89.2
81.3
$
$
$
(38.7)
(590.5)
(71.1)
$
$
$
79.6
87.7
10.2
F-32
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
FAMOUS DAVE’S OF AMERICA, INC.
(“Registrant”)
Dated: March 18, 2011
By: /s/ Christopher O’Donnell
Christopher O’Donnell
President and Chief Executive Officer and Director (Principal
Executive Officer)
By: /s/ Diana Garvis Purcel
Diana Garvis Purcel
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 18, 2011
by the following persons on behalf of the registrant, in the capacities indicated.
Signature
Title
/s/ Christopher O’Donnell
Christopher O’Donnell
President and Chief Executive Officer and Director
/s/ K. Jeffrey Dahlberg
K. Jeffrey Dahlberg
/s/ Wallace B. Doolin
Wallace B. Doolin
/s/ Lisa A. Kro
Lisa A. Kro
/s/ Richard L. Monfort
Richard L. Monfort
/s/ Dean A. Riesen
Dean A. Riesen
Director
Director
Director
Director
Director
Exhibit No.
Description
EXHIBITS
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Articles of Incorporation, incorporated by reference to Exhibit 3.1 to our Registration
Statement on Form SB-2 (File No. 333-10675) filed with the Securities and Exchange
Commission on August 23, 1996
Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to Form 10-Q filed
November 7, 2008
Trademark License Agreement between Famous Dave's of America, Inc. and Grand Pines
Resorts, Inc., incorporated by reference to Exhibit 10.11 to the Registration Statement on Form
SB-2 (File No. 333-10675) filed on August 23, 1996
1995 Employee Stock Option Plan (as amended through May 22, 2002), incorporated by
reference from Exhibit 10.1 to Form 10-Q filed August 14, 2002
Amendment to 1995 Employee Stock Option and Compensation Plan, effective November 7,
2006, incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 9, 2006
1997 Stock Option and Compensation Plan (as amended through May 22, 2002), incorporated
by reference from Exhibit 10.2 to Form 10-Q filed August 14, 2002
1998 Director Stock Option Plan (as amended through May 22, 2002), incorporated by
reference from Exhibit 10.3 to Form 10-Q filed August 14, 2002
Amended and Restated 2005 Stock Incentive Plan, incorporated by reference from Exhibit
10.1 to Form 10-Q filed August 8, 2008
First Amended and Restated Executive Elective Deferred Stock Unit Plan dated January 1,
2008, incorporated by reference from Exhibit 10.11 to Form 10-K filed March 14, 2008
Amended and Restated Credit Agreement by and between Wells Fargo Bank, National
Association and Famous Dave’s of America, Inc., dated July 31, 2006, incorporated by
reference to Exhibit 10.1 to Form 8-K filed August 2, 2006
First Amendment to the Amended and Restated Credit Agreement by and between Wells
Fargo Bank, National Association and Famous Dave’s of America, Inc., dated April 17, 2008,
incorporated by reference to Exhibit 10.1 to Form 8-K filed April 23, 2008
Second Amendment to the Amended and Restated Credit Agreement by and between Wells
Fargo Bank, National Association and Famous Dave’s of America, Inc., dated March 4, 2010,
incorporated by reference to Exhibit 10.2 to Form 8-K filed March 9, 2010
Letter amendment dated February 1, 2011, to the Second Amendment to the Amended and
Restated Credit Agreement by and between Wells Fargo Bank, National Association and
Famous Dave’s of America, Inc.
Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q filed
May 9, 2008
Second Amended and Restated Non-Qualified Deferred Compensation Plan, dated January 1,
2008, incorporated by reference to Exhibit 10.16 to Form 10-K filed March 14, 2008
Form of Severance Agreement dated January 4, 2008, between Famous Dave's of America,
Inc. and each of Diana G. Purcel and Christopher O’Donnell, incorporated by reference to
Exhibit 10.1 for Form 8-K filed January, 8, 2008
Exhibit No.
Description
EXHIBITS
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
21.0
23.1
31.1
31.2
32.1
32.2
Form of 2008 – 2010 Performance Share Agreement and Schedule of Grants under such form,
incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed January 18, 2008
Form 2009 – 2011 Performance Share Agreement and Schedule of Grants under such form,
incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed January 28, 2009
Form 2010-2012 Performance Share Agreement and Schedule of Grants under such form,
incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed January 6, 2010
Form 2011-2013 Performance Share Agreement and Schedule of Grants under such form,
incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed January 5, 2011
Form of Director Stock Grant, incorporated by reference to Exhibit 10.3 to Form 8-K filed
February 21, 2008
Restricted Stock Unit Agreement, between Famous Dave's of America, Inc. and each of Diana
G. Purcel and Christopher O’Donnell, incorporated by reference to Exhibits 10.1 and 10.2, to
Form 8-K filed September 17, 2008
Form of Restricted Stock Agreement dated May 5, 2009, between Famous Dave’s of America, Inc.
and K. Jeffrey Dahlberg, incorporated by reference from Exhibit 10.1 to Form 10-Q filed on May
7, 2009
Form of Restricted Stock Agreement dated May 5, 2009, between Famous Dave’s of America, Inc.
and Lisa A. Kro, incorporated by reference from Exhibit 10.2 to Form 10-Q filed on May 7, 2009
Form of Restricted Stock Agreement dated May 5, 2009, between Famous Dave’s of America, Inc.
and Wallace B. Doolin, incorporated by reference from Exhibit 10.1 to Form 10-Q filed on
November 5, 2009
Amended and Restated Asset Purchase Agreement by and between North Country BBQ Ventures,
Inc. and Famous Dave’s of America, Inc., dated February 26, 2010, incorporated by reference to
Exhibit 10.1 to Form 8-K filed March 9, 2010
Subsidiaries of Famous Dave's of America, Inc.
Consent of Grant Thornton LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
SUBSIDIARIES OF FAMOUS DAVE'S OF AMERICA, INC.
Exhibit 21.0
Entity
FEIN
% of Ownership
D&D of Minnesota, Inc.
41-1856702
Famous Dave's Ribs of Maryland, Inc.
41-1958496
Famous Dave's Ribs, Inc.
Famous Dave's Ribs-U, Inc.
FDA Properties, Inc.
41-1884517
41-1884548
36-4379010
Lake & Hennepin BBQ and Blues, Inc.
41-1834594
Minwood Partners, Inc.
51-0396229
100%
96%
100%
100%
100%
100%
100%
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We have issued our report dated March 18, 2011 with respect to the consolidated financial statements
and schedule included in the Annual Report of Famous Dave’s of America, Inc. and subsidiaries on
Form 10-K for the year ended January 2, 2011. We hereby consent to the incorporation by reference of
said report in the Registration Statements of Famous Dave’s of America, Inc. on Forms S-3 (File No.
333-86358 effective April 22, 2002, No. 333-48492 effective November 3, 2000, No. 333-95311
effective March 23, 2000, No. 333-54562 effective February 2, 2001, No. 333-65428 effective July 24,
2001, and No. 333-73504 effective November 21, 2001) and Forms S-8 (File No. 333-88928 effective
May 23, 2002, No. 333-88930 effective May 23, 2002, No. 333-88932 effective May 23, 2002, No. 333-
16299 effective November 18, 1996, No. 333-49939 effective April 10, 1998, No. 333-124985 effective
May 17, 2005 and No. 333-49965 effective April 10, 1998).
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 18, 2011
I, Christopher O’Donnell, certify that:
CERTIFICATIONS
Exhibit 31.1
1. I have reviewed this Annual Report on Form 10-K of Famous Dave’s of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Dated: March 18, 2011
By: /s/ Christopher O’Donnell
Christopher O’Donnell
President and Chief Executive Officer
Exhibit 31.2
I, Diana Garvis Purcel, certify that:
CERTIFICATIONS
1. I have reviewed this Annual Report on Form 10-K of Famous Dave’s of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Dated: March 18, 2011
By: /s/ Diana Garvis Purcel
Diana Garvis Purcel
Chief Financial Officer and Secretary
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.1
In connection with the Annual Report of Famous Dave's of America, Inc (the “Registrant”) on Form 10-K for the
annual period ended January 2, 2011, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Christopher O’Donnell, President, Chief Executive Officer and Director of the Registrant,
certify, in accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
Dated: March 18, 2011
By:
/s/ Christopher O’Donnell
Christopher O’Donnell
President and Chief Executive Officer
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.2
In connection with the Annual Report of Famous Dave's of America, Inc (the “Registrant”) on Form 10-K for the
annual period ended January 2, 2011, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Diana Garvis Purcel, Chief Financial Officer and Secretary of the Registrant, certify, in
accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
Dated: March 18, 2011
By: /s/ Diana Garvis Purcel
Diana Garvis Purcel
Chief Financial Officer and Secretary
BoArd oF dIreCTorS, eXeCUTIVe TeAm ANd SHAreHoLder INFormATIoN
BoArd oF dIreCTorS
eXeCUTIVe TeAm
SHAreHoLder INFormATIoN
K. Jeffrey Dahlberg
Chairman of the Board
Christopher O’Donnell
President and Chief Executive Officer and
Member of Strategic Planning Committee
Wallace B. Doolin
Chairman of Strategic Planning Committee,
Member of Compensation Committee and
Member of Corporate Governance &
Nominating Committee
Lisa A. Kro
Chairperson of Audit Committee,
Member of Strategic Planning Committee,
and Member of Corporate Governance &
Nominating Committee
Richard L. Monfort
Member of Compensation Committee
and Audit Committee
Dean A. Riesen
Chairman of Compensation Committee,
Chairman of Corporate Governance &
Nominating Committee, Member of Audit
Committee and Member of Strategic
Planning Committee
Christopher O’Donnell
President and Chief Executive Officer
Diana Garvis Purcel
Chief Financial Officer and Secretary
Jeff Abramson
Vice President, Purchasing
Aric Nissen
Vice President, Marketing and R&D
Jackie Ottoson
Vice President, Human Resources
and Training
Victor Salamone
Vice President, Franchise Operations
and Development
Ben Welshons
Vice President, Company Operations
CHAIrmAN emerITUS
David W. Anderson
Founder and Chairman Emeritus
Investor/Analyst Contact
Diana Garvis Purcel
952-294-1300
Independent Registered Public
Accounting Firm
Grant Thornton LLP
Minneapolis, Minnesota
Legal Counsel
Maslon Edelman Borman and Brand, LLP
Transfer Agent & Registrar
Wells Fargo
Stock Exchange Listing
Common stock is traded on
the NASDAQ Global Select Market
under the symbol DAVE
Annual Meeting
The annual meeting of shareholders is
scheduled to begin at 3:00 PM (CST) on
Tuesday, May 3, 2011 at the
Company’s headquarters
reSTAUrANT LoCATIoNS
• 52 ComPany REStauRantS
• 128 FRanChiSE REStauRantS
As of March 2011, Famous Dave’s had a total of 180 company-owned and
franchise-operated restaurants in 37 states.