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EXCEL - IDEA: XBRL DOCUMENT - Bravo Brio Restaurant Group, Inc. | Financial_Report.xls |
EX-31.A - EXHIBIT 31(A) - Bravo Brio Restaurant Group, Inc. | c23970exv31wa.htm |
EX-31.B - EXHIBIT 31(B) - Bravo Brio Restaurant Group, Inc. | c23970exv31wb.htm |
EX-32.A - EXHIBIT 32(A) - Bravo Brio Restaurant Group, Inc. | c23970exv32wa.htm |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 25, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34920
BRAVO BRIO RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)
Ohio | 34-91566328 | |
(State or other jurisdiction | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
777 Goodale Boulevard, Suite 100 | ||
Columbus, Ohio | 43212 | |
(Address of principal executive office) | (Zip Code) |
Registrants telephone number, including area code (614) 326-7944
Former name, former address and former fiscal year, if changed since last report.
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 þ No o
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 (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such
files. Yes þ No o
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 accelerated
filer, large accelerated filer, and smaller reporting company, in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(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 o No þ
As of November 4, 2011, the latest practicable date, 19,440,094 of the registrants common
shares, no par value per share, were issued and outstanding.
Table of Contents:
- 2 -
Table of Contents
Part I
Financial Information
Financial Information
Item 1. | Financial Statements |
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 25, 2011 and December 26, 2010
(Dollars in thousands)
(Dollars in thousands)
September 25, | December 26, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 4,740 | $ | 2,460 | ||||
Accounts receivable |
5,043 | 4,754 | ||||||
Tenant improvement allowance receivable |
2,647 | 632 | ||||||
Inventories |
2,238 | 2,415 | ||||||
Deferred income taxes |
2,630 | | ||||||
Prepaid expenses and other current assets |
1,668 | 2,229 | ||||||
Total current assets |
18,966 | 12,490 | ||||||
Property and equipment net |
159,374 | 147,621 | ||||||
Deferred income taxes net |
55,275 | | ||||||
Other assets net |
3,201 | 3,342 | ||||||
Total assets |
$ | 236,816 | $ | 163,453 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Trade and construction payables |
$ | 11,967 | $ | 9,920 | ||||
Accrued expenses |
23,051 | 21,150 | ||||||
Current portion of long-term debt |
1,714 | 2,050 | ||||||
Current portion of deferred lease incentives |
5,412 | 4,979 | ||||||
Deferred gift card revenue |
5,678 | 9,725 | ||||||
Total current liabilities |
47,822 | 47,824 | ||||||
Long-term portion of deferred lease incentives |
60,518 | 54,594 | ||||||
Long-term debt |
31,286 | 38,950 | ||||||
Other long-term liabilities |
17,467 | 15,682 | ||||||
Commitments and contingencies (note 6) |
||||||||
Stockholders equity |
||||||||
Common shares, no par value per share authorized,
100,000,000 shares; issued and outstanding, 19,368,344 at
September 25, 2011 and 19,250,500 at December 26,
2010 |
193,074 | 191,297 | ||||||
Retained deficit |
(113,351 | ) | (184,894 | ) | ||||
Total stockholders equity |
79,723 | 6,403 | ||||||
Total liabilities and stockholders equity |
$ | 236,816 | $ | 163,453 | ||||
See condensed notes to unaudited consolidated financial statements.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Thirteen and Thirty-Nine Weeks Ended September 25, 2011 and September 26, 2010 (Unaudited)
(Dollars in thousands except per share data)
(Dollars in thousands except per share data)
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 25, | September 26, | September 25, | September 26, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
$ | 88,774 | $ | 83,704 | $ | 273,592 | $ | 254,700 | ||||||||
Costs and expenses |
||||||||||||||||
Cost of sales |
23,617 | 21,735 | 73,008 | 66,124 | ||||||||||||
Labor |
30,730 | 28,404 | 92,893 | 86,504 | ||||||||||||
Operating |
13,958 | 13,465 | 42,388 | 40,025 | ||||||||||||
Occupancy |
5,587 | 5,672 | 17,747 | 16,982 | ||||||||||||
General and administrative expenses |
5,185 | 4,870 | 16,067 | 13,857 | ||||||||||||
Restaurant preopening costs |
1,281 | 207 | 2,882 | 1,892 | ||||||||||||
Depreciation and amortization |
4,303 | 4,272 | 12,555 | 12,607 | ||||||||||||
Total costs and expenses |
84,661 | 78,625 | 257,540 | 237,991 | ||||||||||||
Income from operations |
4,113 | 5,079 | 16,052 | 16,709 | ||||||||||||
Interest expense, net |
394 | 1,779 | 1,315 | 5,322 | ||||||||||||
Income before income taxes |
3,719 | 3,300 | 14,737 | 11,387 | ||||||||||||
Income tax (benefit) expense |
121 | 44 | (56,806 | ) | 148 | |||||||||||
Net income |
3,598 | 3,256 | 71,543 | 11,239 | ||||||||||||
Undeclared preferred dividends |
| (3,522 | ) | | (9,701 | ) | ||||||||||
Net income (loss) attributed to common
shareholders |
$ | 3,598 | $ | (266 | ) | $ | 71,543 | $ | 1,538 | |||||||
Net income (loss) per basic share |
$ | 0.19 | $ | (0.04 | ) | $ | 3.71 | $ | 0.21 | |||||||
Net income (loss) per diluted share |
$ | 0.18 | $ | (0.04 | ) | $ | 3.48 | $ | 0.21 | |||||||
Weighted average shares outstanding-basic |
19,330 | 7,234 | 19,286 | 7,234 | ||||||||||||
Weighted average shares outstanding-diluted |
20,551 | 7,234 | 20,545 | 7,234 | ||||||||||||
See condensed notes to unaudited consolidated financial statements.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity
For the Thirty-Nine Weeks Ended September 25, 2011 (Unaudited)
(Dollars in thousands)
(Dollars in thousands)
Common Shares | Retained | Stockholders | ||||||||||||||
Shares | Amount | Deficit | Equity | |||||||||||||
Balance December 26, 2010 |
19,250,500 | $ | 191,297 | $ | (184,894 | ) | $ | 6,403 | ||||||||
Net income |
| | 71,543 | 71,543 | ||||||||||||
Proceeds from the exercise of stock options |
117,844 | 162 | | 162 | ||||||||||||
Excess tax benefit related to stock option
exercises |
| 321 | | 321 | ||||||||||||
Share-based compensation costs |
| 1,294 | | 1,294 | ||||||||||||
Balance September 25, 2011 |
19,368,344 | $ | 193,074 | $ | (113,351 | ) | $ | 79,723 | ||||||||
See condensed notes to unaudited consolidated financial statements.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the Thirty-Nine Weeks Ended September 25, 2011 and September 26, 2010 (Unaudited)
(Dollars in thousands)
(Dollars in thousands)
Thirty-Nine Weeks Ended | ||||||||
September 25, | September 26, | |||||||
2011 | 2010 | |||||||
Cash flows provided by operating activities: |
||||||||
Net income |
$ | 71,543 | $ | 11,239 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
12,836 | 12,607 | ||||||
Loss on disposals of property and equipment |
361 | 129 | ||||||
Amortization of deferred lease incentives |
(4,143 | ) | (3,462 | ) | ||||
Share-based compensation costs |
1,294 | | ||||||
Interest incurred and capitalized but not yet paid |
| 114 | ||||||
Deferred income taxes |
(57,905 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Accounts and tenant improvement allowance receivables |
(2,304 | ) | 3,060 | |||||
Inventories |
177 | 165 | ||||||
Prepaid expenses and other current assets |
561 | (1,720 | ) | |||||
Trade and construction payables |
(329 | ) | (3,519 | ) | ||||
Deferred lease incentives |
10,500 | 5,308 | ||||||
Deferred gift card revenue |
(4,047 | ) | (3,905 | ) | ||||
Other accrued expenses |
1,901 | 2,452 | ||||||
Other net |
1,610 | 837 | ||||||
Net cash provided by operating activities |
32,055 | 23,305 | ||||||
Cash flows used in investing activities: |
||||||||
Purchase of property and equipment |
(22,258 | ) | (13,308 | ) | ||||
Proceeds from the sale of assets |
| 4 | ||||||
Net cash used in investing activities |
(22,258 | ) | (13,304 | ) | ||||
Cash flows used in financing activities: |
||||||||
Proceeds from long-term debt |
| 35,550 | ||||||
Payments on long-term debt |
(8,000 | ) | (42,112 | ) | ||||
Proceeds from the exercise of stock options |
162 | | ||||||
Excess tax benefit from stock option exercises |
321 | | ||||||
Net cash used in financing activities |
(7,517 | ) | (6,562 | ) | ||||
Net increase in cash and cash equivalents |
2,280 | 3,439 | ||||||
Cash and cash equivalents beginning of year |
2,460 | 249 | ||||||
Cash and cash equivalents end of period |
$ | 4,740 | $ | 3,688 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Interest paid, net of capitalized interest of $0 and $70 for the thirty-nine
weeks ended September 25, 2011 and September 26, 2010, respectively |
$ | 1,087 | $ | 5,197 | ||||
Income taxes paid |
$ | 1,162 | $ | 152 | ||||
Property plant and equipment financed by trade and construction payables |
$ | 4,595 | $ | 343 | ||||
Accruals and deferrals relating to initial public offering |
$ | | $ | 408 |
See condensed notes to unaudited consolidated financial statements.
- 6 -
Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Condensed Notes to Unaudited Consolidated Financial Statements
1. | Basis of Presentation |
Description of Business As of September 25, 2011, Bravo Brio Restaurant Group, Inc. (the
Company) owned and operated 90 restaurants under the trade names Bravo! Cucina Italiana®,
Brio® Tuscan Grille, and Bon Vie. Of the 90 restaurants the Company operates, there are 47
Bravo! Cucina Italiana® restaurants, 42 Brio® Tuscan Grille restaurants, and one Bon Vie
restaurant in operation in 30 states throughout the United States of America.
The accompanying unaudited consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) for interim financial information.
Accordingly, they do not include all the information and disclosures required by GAAP for
complete financial statements. Operating results for the thirty-nine weeks ended September 25,
2011 are not necessarily indicative of the results that may be expected for the fiscal year
ending December 25, 2011.
Certain information and disclosures normally included in the financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to applicable rules and
regulations of the Securities and Exchange Commission (SEC). In the opinion of management,
the unaudited consolidated financial statements include all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation. These unaudited
consolidated financial statements and related condensed notes should be read in conjunction
with the consolidated financial statements and notes for the fiscal year ended December 26,
2010 included in the Companys Annual Report on Form 10-K for the fiscal year ended December
26, 2010 filed with the SEC on February 17, 2011.
2. | Net Income Per Share |
Basic earnings per share (EPS) data is computed based on weighted average common shares
outstanding during the period. Diluted EPS data is computed based on weighted average common
shares outstanding, including all potentially issuable common shares. At September 25, 2011,
all outstanding stock options and restricted stock were included in the dilutive calculation.
At September 26, 2010, no stock options were exercisable and no restricted stock was
outstanding. Accordingly, no stock options or restricted stock were included as part of the
diluted EPS calculation for the period ended September 26, 2010.
(all information in thousands, except per share data)
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
September 25, | September 26, | September 25, | September 26, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) attributed to common shareholders |
$ | 3,598 | $ | (266 | ) | $ | 71,543 | $ | 1,538 | |||||||
Weighted average common shares outstanding |
19,330 | 7,234 | 19,286 | 7,234 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock Options |
1,104 | | 1,155 | | ||||||||||||
Restricted Stock |
117 | | 104 | | ||||||||||||
Weighted average common and potentially issuable
common shares outstanding diluted |
20,551 | 7,234 | 20,545 | 7,234 | ||||||||||||
Basic net income (loss) per common share |
$ | 0.19 | $ | (0.04 | ) | $ | 3.71 | $ | 0.21 | |||||||
Diluted net income (loss) per common share |
$ | 0.18 | $ | (0.04 | ) | $ | 3.48 | $ | 0.21 | |||||||
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
3. | Long-Term Debt |
Long-term debt at September 25, 2011 and December 26, 2010 consisted of the following (in
thousands):
September 25, | December 26, | |||||||
2011 | 2010 | |||||||
Term loan |
$ | 33,000 | $ | 41,000 | ||||
Total |
33,000 | 41,000 | ||||||
Less current maturities |
(1,714 | ) | (2,050 | ) | ||||
Long-term debt |
$ | 31,286 | $ | 38,950 | ||||
On October 26, 2010, the Company, in connection with its initial public offering (IPO),
entered into a credit agreement with a syndicate of financial institutions with respect to its
senior credit facilities. The senior credit facilities provide for (i) a $45.0 million term
loan facility, maturing in 2015, and (ii) a revolving credit facility under which the Company
may borrow up to $40.0 million (including a sublimit cap of up to $10.0 million for letters of
credit and up to $10.0 million for swing-line loans), maturing in 2015. The Company used
borrowings under its senior credit facilities, together with the net proceeds from the IPO, to
repay in full all of its debt outstanding prior to the IPO.
Under the credit agreement, the Company is allowed to incur additional incremental term loans
and/or increases in the revolving credit facility of up to $20.0 million if no event of default
exists and certain other requirements are satisfied. Borrowings under the senior credit
facilities bear interest at the Companys option of either (i) the Alternate Base Rate (as such
term is defined in the credit agreement) plus the applicable margin of 1.75% to 2.25% or (ii)
at a fixed rate for a period of one, two, three or six months equal to the London interbank
offered rate, LIBOR, plus the applicable margin of 2.75% to 3.25%. In addition to paying any
outstanding principal amount under the Companys senior credit facilities, the Company is
required to pay an unused facility fee to the lenders equal to 0.50% to 0.75% per annum on the
aggregate amount of the unused revolving credit facility, excluding swing-line loans,
commencing on October 26, 2010, payable quarterly in arrears. Borrowings under the Companys
senior credit facilities are collateralized by a first priority interest in all assets of the
Company.
The credit agreement provides for bank guarantee under standby letter of credit arrangements in
the normal course of business operations. The standby letters of credit are cancellable only
at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the
face amount of the standby letters of credit in accordance with its credit. As of October 26,
2010, all previously existing standby letters of credit were replaced by new standby letters of
credit. As of September 25, 2011, the maximum exposure under these standby letters of credit
was $3.2 million.
Pursuant to the credit agreement, the Company is required to meet certain financial covenants
including leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. At September 25, 2011, the Company was in compliance with
its applicable financial covenants.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
4. | Stock Based Compensation |
2006 Plan
Stock option activity for the thirty-nine weeks ended September 25, 2011 is summarized as
follows:
Number of | Weighted Average | |||||||
Shares | Exercise Price | |||||||
Outstanding at December 26, 2010 |
1,414,203 | $ | 1.44 | |||||
Exercised |
(117,844 | ) | $ | 1.37 | ||||
Granted |
| | ||||||
Forfeited |
| | ||||||
Outstanding at September 25, 2011 |
1,296,359 | $ | 1.44 | |||||
Exercisable at September 25, 2011 |
1,296,359 | $ | 1.44 | |||||
At September 25, 2011, the weighted-average remaining contractual term of options outstanding
was approximately 5.3 years and all of the options were exercisable. Aggregate intrinsic value
is calculated as the difference between the Companys closing price at the end of the fiscal
quarter and the exercise price, multiplied by the number of in-the-money options and represents
the pre-tax amount that would have been received by the option holders had they all exercised
such options on the fiscal quarter end date. The aggregate intrinsic value for outstanding and
exercisable options at September 25, 2011 was $17.8 million.
The total weighted-average grant-date fair value of all options granted in 2009 and prior was
$0.52 per share, and was estimated at the date of grant using the Black-Scholes option-pricing
model. The following assumptions were used for these options: weighted-average risk-free
interest rate of 4.49%, no expected dividend yield, weighted-average volatility of 32.2%, based
upon competitors within the industry, and an expected option life of five years. In October
2010 in connection with the IPO, the Companys board of directors determined, pursuant to the
exercise of its discretion in accordance with the Bravo Development, Inc. Option Plan (the
2006 Plan), that upon the consummation of the IPO (i) each then outstanding option award
under the 2006 Plan would be deemed to have vested in a percentage equal to the greater of
80.0% or the percentage of the option award already vested as of that date and, (ii) each then
outstanding option award would be deemed 80.0% exercisable. As a result of such determination,
all of the options were subject to modification accounting and therefore were revalued in their
entirety at the date of the modification. The Company recorded all of the stock compensation
expense related to the 2006 Plan in the thirteen weeks ended December 26, 2010 and no
additional stock compensation expense will be recorded with respect to options granted under
this plan.
Following the modification, the total weighted-average fair value of options granted under the
2006 Plan was $12.64 per share, and was estimated at the date of the modification using the
Black-Scholes option-pricing model. The following assumptions were used for these options:
weighted-average risk-free interest rate of 1.1%, no expected dividend yield, weighted-average
volatility of 45.8%, based upon competitors within the industry and an expected option life of
five years.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
Stock Incentive Plan
In October 2010, the Company adopted the Bravo Brio Restaurant Group, Inc. Stock Incentive Plan
(the Stock Incentive Plan) and since the inception of the Stock Incentive Plan, the Company
has granted 456,800 shares of restricted common stock to its employees.
Restricted stock activity for the thirty-nine weeks ended September 25, 2011 is summarized as
follows:
Weighted- | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Outstanding at December 26, 2010 |
449,300 | $ | 16.90 | |||||
Granted |
5,000 | $ | 22.41 | |||||
Vested |
| | ||||||
Forfeited |
(17,750 | ) | $ | 16.90 | ||||
Outstanding at September 25, 2011 |
436,550 | $ | 16.96 | |||||
Fair value of the outstanding shares of restricted stock is based on the average of the high
and low price of the Companys shares on the date immediately preceding the date of grant. In
the first thirty-nine weeks of 2011, the Company recorded approximately $1.3 million in stock
compensation costs related to the shares of restricted stock. As of September 25, 2011, total
unrecognized stock-based compensation expense related to non-vested shares of restricted stock
was approximately $5.4 million, which is expected to be recognized over a weighted average
period of approximately 3.1 years taking into account potential forfeitures. These shares of
restricted stock will vest, subject to certain exceptions, annually over a four-year period.
5. | Income Taxes |
The Company established a $59.5 million valuation allowance in 2008 against its then existing
net deferred tax assets and credits as it was deemed the negative evidence outweighed the
positive evidence and therefore the deferred tax assets would not likely be realized in future
periods.
During the thirteen weeks ended June 26, 2011, the Company determined that it was more likely
than not that its existing net deferred tax assets and tax credits would be realized after
considering all positive and negative evidence. Positive evidence included cumulative
profitability, future tax deductions and credits and a forecast of future taxable income
sufficient to realize its existing net deferred tax assets prior to the expiration of existing
net operating loss and credit carryforwards. Accordingly, the Company recorded an income tax
benefit of $57.2 million related to the reduction of the valuation allowance against net
deferred income tax assets in the thirteen weeks ended June 26, 2011.
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Table of Contents
Bravo Brio Restaurant Group, Inc. and Subsidiaries
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
As of September 25, 2011, the Company continues to carry a $1.8 million valuation allowance
against net deferred tax assets. The Company anticipates that the remaining valuation
allowance will be reduced over the final thirteen weeks of fiscal 2011, as the related net
deferred tax assets are deemed to be realizable. The Companys conclusion that it is more
likely than not that such deferred tax assets will be realized is strongly influenced by its
forecast of future taxable income. The Company believes its forecast of future taxable income
is reasonable; however, forecasts of future taxable income are inherently uncertain. Therefore,
if the Company realizes materially less future taxable income than forecasted or has material
unforeseen losses, then its ability to generate sufficient income necessary to realize its
existing deferred tax assets may be reduced. In addition, the Company will continue to assess
the assumptions used to determine the amount of the tax valuation allowance and may adjust the
tax valuation allowance in future periods based on changes in assumptions of forecasted future
taxable income and other factors, which may result in an additional charge to increase the
valuation allowance.
The income tax benefit recorded for the respective periods presented differs from the
expected income tax expense or benefit that would be calculated by applying the federal
statutory rate to the Companys income before income taxes primarily due to the reduction in
the valuation allowance for deferred tax assets, the utilization of net operating losses and
outstanding tax credits.
6. Commitments and Contingencies
The Company is subject to various claims, possible legal actions, and other matters arising out
of the normal course of business. While it is not possible to predict the outcome of these
issues, management is of the opinion that adequate provision for potential losses has been made
in the accompanying consolidated financial statements and that the ultimate resolution of these
matters will not have a material adverse effect on the Companys financial position, results of
operations or cash flows.
- 11 -
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
You should read this discussion together with our unaudited consolidated financial statements
and accompanying condensed notes. Unless indicated otherwise, any reference in this report to
the Company, we, us, and our refers to Bravo Brio Restaurant Group, Inc. together with
its subsidiaries.
This discussion contains forward-looking statements. These statements relate to future events or
our future financial performance. We have attempted to identify forward-looking statements by
terminology including anticipates, believes, can, continue, could, estimates,
expects, intends, may, plans, potential, predicts, should or will or the
negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties, and other factors, including those discussed
under the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended
December 26, 2010 filed with the SEC on February 17, 2011 (the 2010 Annual Report on Form
10-K).
Although we believe that the expectations reflected in the forward-looking statements are
reasonable based on our current knowledge of our business and operations, we cannot guarantee
future results, levels of activity, performance or achievements. We assume no obligation to
provide revisions to any forward-looking statements should circumstances change.
The following discussion summarizes the significant factors affecting the consolidated
operating results, financial condition, liquidity and cash flows of our company as of and for
the periods presented below. The following discussion and analysis should be read in
conjunction with our 2010 Annual Report on Form 10-K and the unaudited consolidated financial
statements and the related condensed notes thereto included herein.
Overview
We are a leading owner and operator of two distinct Italian restaurant brands, BRAVO! Cucina
Italiana (BRAVO!) and BRIO Tuscan Grille (BRIO), which includes our one Bon Vie restaurant
for purposes of the following discussion. We have positioned our brands as multifaceted
culinary destinations that deliver the ambiance, design elements and food quality reminiscent
of fine dining restaurants at a value typically offered by casual dining establishments, a
combination known as the upscale affordable dining segment. Each of our brands provides its
guests with a fine dining experience and value by serving affordable cuisine prepared using
fresh flavorful ingredients and authentic Italian cooking methods, combined with attentive
service in an attractive, lively atmosphere. We strive to be the best Italian restaurant
company in America and are focused on providing our guests an excellent dining experience
through consistency of execution.
Our business is highly sensitive to changes in guest traffic. Increases and decreases in guest
traffic can have a significant impact on our financial results. In recent years, we have faced
and we continue to face uncertain economic conditions, which have resulted in changes to our
guests discretionary spending. To adjust to this decrease in guest spending, we have focused
on controlling product margins and costs while maintaining our high standards for food quality
and service and enhancing our guests dining experience. We have worked with our distributors
and suppliers to control commodity costs, become more efficient with the use of our employee
base and found new ways to improve efficiencies across our company. We have increased our
electronic advertising, social media communication and public relations activities in order to
bring new guests to our restaurants and keep loyal guests coming back to grow our revenues.
Additionally, we have focused resources on highlighting our menu items and promoting our
non-entrée selections such as appetizers, desserts and beverages as part of our efforts to
drive higher sales volumes at our restaurants.
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Results of Operations
Thirteen Weeks Ended September 25, 2011 Compared to the Thirteen Weeks Ended September 26, 2010
The following table sets forth, for the periods indicated, our consolidated statements of
operations both on an actual basis and expressed as percentages of revenues.
Thirteen Weeks Ended | ||||||||||||||||||||||||
September 25, | % of | September 26, | % of | |||||||||||||||||||||
2011 | Revenues | 2010 | Revenues | Change | % Change | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenues |
$ | 88,774 | 100 | % | $ | 83,704 | 100 | % | $ | 5,070 | 6.1 | % | ||||||||||||
Cost and expenses: |
||||||||||||||||||||||||
Cost of sales |
23,617 | 26.6 | % | 21,735 | 26.0 | % | 1,882 | 8.7 | % | |||||||||||||||
Labor |
30,730 | 34.6 | % | 28,404 | 33.9 | % | 2,326 | 8.2 | % | |||||||||||||||
Operating |
13,958 | 15.7 | % | 13,465 | 16.1 | % | 493 | 3.7 | % | |||||||||||||||
Occupancy |
5,587 | 6.3 | % | 5,672 | 6.8 | % | (85 | ) | (1.5 | )% | ||||||||||||||
General and administrative
expenses |
5,185 | 5.8 | % | 4,870 | 5.8 | % | 315 | 6.5 | % | |||||||||||||||
Restaurant preopening costs |
1,281 | 1.4 | % | 207 | 0.2 | % | 1,074 | | ||||||||||||||||
Depreciation and amortization |
4,303 | 4.8 | % | 4,272 | 5.1 | % | 31 | 0.7 | % | |||||||||||||||
Total costs and expenses |
84,661 | 95.4 | % | 78,625 | 93.9 | % | 6,036 | 7.7 | % | |||||||||||||||
Income from operations |
4,113 | 4.6 | % | 5,079 | 6.1 | % | (966 | ) | (19.0 | )% | ||||||||||||||
Interest expense, net |
394 | 0.4 | % | 1,779 | 2.1 | % | (1,385 | ) | (77.9 | )% | ||||||||||||||
Income before income taxes |
3,719 | 4.2 | % | 3,300 | 3.9 | % | 419 | 12.7 | % | |||||||||||||||
Income tax expense |
121 | 0.1 | % | 44 | 0.1 | % | 77 | | ||||||||||||||||
Net income |
$ | 3,598 | 4.1 | % | $ | 3,256 | 3.9 | % | $ | 342 | 10.5 | % | ||||||||||||
Certain percentage amounts may not sum due to rounding. Percentages over 100% are not shown.
Revenues. Revenues increased $5.1 million, or 6.1%, to $88.8 million for the thirteen
weeks ended September 25, 2011, as compared to $83.7 million for the thirteen weeks ended
September 26, 2010. The increase of $5.1 million was primarily due to an additional 53
operating weeks provided by four new restaurants opened in the first thirty-nine weeks of 2011
and one restaurant opened in the fourth quarter of 2010. Also contributing to this increase
was a growth in comparable restaurant revenues of 1.3%, or $1.0 million, which was driven by a
2.4% increase in guest counts for an impact of $1.9 million in additional revenues, partially
offset by a decrease in average guest check. We consider a restaurant to be part of the
comparable revenue base in the first full quarter following the eighteenth month of operations.
For our BRAVO! brand, restaurant revenues increased $0.4 million, or 1.0%, to $39.1 million for
the thirteen weeks ended September 25, 2011 as compared to $38.7 million for the thirteen weeks
ended September 26, 2010. Comparable revenues for the BRAVO! brand restaurants increased 0.5%,
or $0.2 million, to $36.5 million for the thirteen weeks ended September 25, 2011 as compared
to $36.3 million for the thirteen weeks ended September 26, 2010. The increase was due to a
2.2% increase in guest counts for an impact of $0.8 million, partially offset by a decrease in
average guest check for the thirteen weeks ended September 25, 2011 as compared to the thirteen
weeks ended September 26, 2010. Revenues for BRAVO! brand restaurants not included in the
comparable revenue base increased $0.2 million to $2.6 million for the thirteen weeks ended
September 25, 2011. At September 25, 2011, there were 44 BRAVO! restaurants included in the
comparable revenue base and three BRAVO! restaurants not included in the comparable revenue
base.
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For our BRIO brand, restaurant revenues increased $4.6 million, or 10.4%, to $49.6 million for
the thirteen weeks ended September 25, 2011 as compared to $45.0 million for the thirteen weeks
ended September 26, 2010. Comparable revenues for the BRIO brand restaurants increased 2.0%,
or $0.8 million, to $43.0 million for the thirteen weeks ended September 25, 2011 as compared
to $42.2 million for the thirteen weeks ended September 26, 2010. This growth in comparable
revenues was due to a 2.5% increase in guest counts for an impact of $1.0 million in 2011 as
compared to 2010, partially offset by a decrease in average guest check. Revenues for BRIO
brand restaurants not
included in the comparable revenue base increased $3.8 million to $6.6 million for the thirteen
weeks ended September 25, 2011. At September 25, 2011, there were 36 BRIO restaurants included
in the comparable revenue base and seven BRIO restaurants not included in the comparable
revenue base.
Cost of Sales. Cost of sales, which consists of food costs and beverage costs, increased $1.9
million, or 8.7%, to $23.6 million for the thirteen weeks ended September 25, 2011, as compared
to $21.7 million for the thirteen weeks ended September 26, 2010. As a percentage of revenues,
cost of sales increased to 26.6% for the thirteen weeks ended September 25, 2011, from 26.0%
for the thirteen weeks ended September 26, 2010. The increase in cost of sales, as a
percentage of revenues, was a result of higher commodity costs, primarily for our meat, dairy
and grocery products for the thirteen weeks ended September 25, 2011. As a percentage of
revenues, food costs increased 0.9% and increased in total dollars by $1.9 million. The
increase in food costs in total dollars resulted from the growth in total restaurants and the
additional 53 operating weeks in 2011 as compared to 2010 as well as the increase in commodity
prices experienced in 2011 as compared to 2010. Beverage costs decreased as a percentage of
revenues by 0.3% and were equal in total costs to the same period in the prior year.
Labor Costs. Labor costs increased $2.3 million, or 8.2%, to $30.7 million for the thirteen
weeks ended September 25, 2011, as compared to $28.4 million for the thirteen weeks ended
September 26, 2010. This increase, primarily related to new restaurants, was the result of
increased hourly wages of $1.4 million, an increase in management labor of $0.4 million, and an
increase of $0.5 million in Company paid benefits. As a percentage of revenues, labor costs
increased to 34.6% for the thirteen weeks ended September 25, 2011, from 33.9% for the thirteen
weeks ended September 26, 2010. The increase as a percentage of revenues is primarily due to
the relatively higher labor costs in 2011 associated with the number and timing of new
restaurant openings.
Operating Costs. Operating costs increased $0.5 million, or 3.7%, to $14.0 million for the
thirteen weeks ended September 25, 2011, as compared to $13.5 million for the thirteen weeks
ended September 26, 2010. This increase was mainly due to an additional 53 operating weeks
provided by four new restaurants opened in the first thirty-nine weeks of 2011 and one
restaurant opened in the fourth quarter of 2010. As a percentage of revenues, operating costs
decreased to 15.7% for the thirteen weeks ended September 25, 2011, compared to 16.1% for the
thirteen weeks ended September 26, 2010. The decrease as a percentage of revenues was primarily
the result of positive leverage from the increase in comparable restaurant revenues as well as
lower advertising and utility costs incurred during the thirteen week period ended September
25, 2011 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs decreased $0.1 million, or 1.5%, to $5.6 million for the
thirteen weeks ended September 25, 2011, as compared to $5.7 million for the thirteen weeks
ended September 26, 2010. As a percentage of revenues, occupancy costs decreased to 6.3% for
the thirteen weeks ended September 25, 2011, from 6.8% for the thirteen weeks ended September
26, 2010. The decrease as a percentage of revenues was primarily the result of positive
leverage from the increase in comparable restaurant revenues as well as modestly lower rent and
insurance costs.
General and Administrative. General and administrative expenses increased by $0.3 million, or
6.5%, to $5.2 million for the thirteen weeks ended September 25, 2011, as compared to $4.9
million for the thirteen weeks ended September 26, 2010. The change was primarily attributable
to stock compensation costs of approximately $0.4 million related to the Stock Incentive Plan
and $0.3 million due to higher professional fees, primarily related to costs associated with
being a public company, that were incurred in the thirteen weeks ended September 25, 2011. The
increase in general and administrative costs were partially offset by management fees paid to
our private equity sponsors of $0.4 million incurred in the thirteen weeks ended September 26,
2010 but not in the comparable period in 2011. As a percentage of revenues, general and
administrative expenses were 5.8% for the thirteen weeks ended September 25, 2011 and September
26, 2010.
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Restaurant Pre-opening Costs. Pre-opening costs increased by $1.1 million to $1.3 million for
the thirteen weeks ended September 25, 2011, as compared to $0.2 million for the thirteen weeks
ended September 26, 2010. This period-to-period change in pre-opening costs was driven by the
timing and number of restaurant openings in a given period. During the thirteen weeks ended
September 25, 2011, we opened two restaurants, and had seven additional
restaurants under construction. In the thirteen weeks ended September 26, 2010, we had one
restaurant under construction.
Depreciation and Amortization. As a percentage of revenues, depreciation and amortization
expenses decreased to 4.8% for the thirteen weeks ended September 25, 2011 from 5.1% for the
thirteen weeks ended September 26, 2010. The change was primarily the result of positive
leverage from the increase in comparable restaurant revenues.
Net Interest Expense. Net interest expense decreased $1.4 million to $0.4 million for the
thirteen weeks ended September 25, 2011 as compared to $1.8 million for the thirteen weeks
ended September 26, 2010. This decrease was due to the payoff of the Companys old credit
facilities in connection with its initial public offering in October 2010 and the Companys
concurrent entrance into new credit facilities with lower average outstanding debt balances.
Income Taxes. For the thirteen weeks ended September 25, 2011 and September 26, 2010, there
was an income tax expense of $0.1 million and $0.0 million respectively. The income tax
expense presented for 2011 differs from the expected income tax expense or benefit that would
be calculated by applying the federal statutory rate to the Companys income before income
taxes primarily due to the reduction in the valuation allowance for deferred tax assets, the
utilization of net operating losses and outstanding tax credits.
Thirty-Nine Weeks Ended September 25, 2011 Compared to the Thirty-Nine Weeks Ended September
26, 2010
The following table sets forth, for the periods indicated, our consolidated statements of
operations both on an actual basis and expressed as percentages of revenues.
Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
September 25, | % of | September 26, | % of | |||||||||||||||||||||
2011 | Revenues | 2010 | Revenues | Change | % Change | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenues |
$ | 273,592 | 100 | % | $ | 254,700 | 100 | % | $ | 18,892 | 7.4 | % | ||||||||||||
Cost and expenses: |
||||||||||||||||||||||||
Cost of sales |
73,008 | 26.7 | % | 66,124 | 26.0 | % | 6,884 | 10.4 | % | |||||||||||||||
Labor |
92,893 | 34.0 | % | 86,504 | 34.0 | % | 6,389 | 7.4 | % | |||||||||||||||
Operating |
42,388 | 15.5 | % | 40,025 | 15.7 | % | 2,363 | 5.9 | % | |||||||||||||||
Occupancy |
17,747 | 6.5 | % | 16,982 | 6.7 | % | 765 | 4.5 | % | |||||||||||||||
General and administrative
expenses |
16,067 | 5.9 | % | 13,857 | 5.4 | % | 2,210 | 15.9 | % | |||||||||||||||
Restaurant preopening costs |
2,882 | 1.1 | % | 1,892 | 0.7 | % | 990 | 52.3 | % | |||||||||||||||
Depreciation and amortization |
12,555 | 4.6 | % | 12,607 | 4.9 | % | (52 | ) | (0.4 | )% | ||||||||||||||
Total costs and expenses |
257,540 | 94.1 | % | 237,991 | 93.4 | % | 19,549 | 8.2 | % | |||||||||||||||
Income from operations |
16,052 | 5.9 | % | 16,709 | 6.6 | % | (657 | ) | (3.9 | )% | ||||||||||||||
Interest expense, net |
1,315 | 0.5 | % | 5,322 | 2.1 | % | (4,007 | ) | (75.3 | )% | ||||||||||||||
Income before income taxes |
14,737 | 5.4 | % | 11,387 | 4.5 | % | 3,350 | 29.4 | % | |||||||||||||||
Income tax (benefit) expense |
(56,806 | ) | -20.8 | % | 148 | 0.1 | % | (56,954 | ) | | ||||||||||||||
Net income |
$ | 71,543 | 26.1 | % | $ | 11,239 | 4.4 | % | $ | 60,304 | | |||||||||||||
Certain percentage amounts may not sum due to rounding. Percentages over 100% are not shown.
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Revenues. Revenues increased $18.9 million, or 7.4%, to $273.6 million for the
thirty-nine weeks ended September 25, 2011, as compared to $254.7 million for the thirty-nine
weeks ended September 26, 2010. The increase of $18.9 million was primarily due to an
additional 167 operating weeks provided by five new restaurants opened in 2010 and four new
restaurants opened in the first thirty-nine weeks of 2011. Also contributing to this increase
was a 1.7%, or $4.0 million, growth in comparable restaurant revenues. The increase in
comparable revenues was driven by a 2.0% increase in guest counts for an impact of $4.9 million
in additional revenues, partially offset by a decrease in average guest check. We consider a
restaurant to be part of the comparable revenue base in the first full quarter following the
eighteenth month of operations.
For our BRAVO! brand, restaurant revenues increased $4.1 million, or 3.5%, to $121.3 million
for the thirty-nine weeks ended September 25, 2011 as compared to $117.2 million for the
thirty-nine weeks ended September 26, 2010. Comparable revenues for the BRAVO! brand
restaurants increased 0.2%, or $0.2 million, to $109.7 million for the thirty-nine weeks ended
September 25, 2011 as compared to $109.5 million for the thirty-nine weeks ended September 26,
2010. This growth in comparable revenues was due to an increase in guest counts of 0.9% for an
impact of $1.0 million in 2011 as compared to 2010, partially offset by a decrease in average
guest check. Revenues for BRAVO! brand restaurants not included in the comparable revenue base
increased $3.9 million to $11.6 million for the thirty-nine weeks ended September 25, 2011. At
September 25, 2011, there were 44 BRAVO! restaurants included in the comparable revenue base
and three BRAVO! restaurants not included in the comparable revenue base.
For our BRIO brand, restaurant revenues increased $14.7 million, or 10.7%, to $152.3 million
for the thirty-nine weeks ended September 25, 2011 as compared to $137.6 million for the
thirty-nine weeks ended September 26, 2010. Comparable revenues for the BRIO brand restaurants
increased 3.0%, or $3.8 million, to $131.4 million for the thirty-nine weeks ended September
25, 2011 as compared to $127.6 million for the thirty-nine weeks ended September 26, 2010.
This growth in comparable revenues was due to an increase in guest counts of 3.4% for an impact
of $4.3 million in 2011 as compared to 2010, partially offset by a decrease in average guest
check. Revenues for BRIO brand restaurants not included in the comparable revenue base
increased $10.9 million to $20.9 million for the thirty-nine weeks ended September 25, 2011.
At September 25, 2011, there were 36 BRIO restaurants included in the comparable revenue base
and seven BRIO restaurants not included in the comparable revenue base.
Cost of Sales. Cost of sales, which consists of food costs and beverage costs, increased $6.9
million, or 10.4%, to $73.0 million for the thirty-nine weeks ended September 25, 2011, as
compared to $66.1 million for the thirty-nine weeks ended September 26, 2010. As a percentage
of revenues, cost of sales increased to 26.7% for the thirty-nine weeks ended September 25,
2011, from 26.0% for the thirty-nine weeks ended September 26, 2010. The increase in cost of
sales, as a percentage of revenues, was a result of higher commodity costs primarily for our
meat, dairy and produce products in 2011. As a percentage of revenues, food costs increased
0.9% and increased in total dollars by $6.4 million. Beverage costs decreased as a percentage
of revenues by 0.2% but increased in total dollars by $0.5 million. The increase in total cost
of sales resulted from the growth in restaurants and the additional 167 operating weeks in 2011
as compared to 2010 as well as the increase in commodity prices.
Labor Costs. Labor costs increased $6.4 million, or 7.4%, to $92.9 million for the thirty-nine
weeks ended September 25, 2011, as compared to $86.5 million for the thirty-nine weeks ended
September 26, 2010. This increase, primarily related to new restaurants, was the result of
increased hourly wages of $4.2 million, increased management labor of $0.8 million and an
increase of $1.4 million in Company paid benefits. As a percentage of revenues, labor costs
were 34.0% for the thirty-nine weeks ended September 25, 2011 and September 26, 2010.
Operating Costs. Operating costs increased $2.4 million, or 5.9%, to $42.4 million for the
thirty-nine weeks ended September 25, 2011, as compared to $40.0 million for the thirty-nine
weeks ended September 26, 2010. This increase was mainly due to an additional 167 operating
weeks provided by five new restaurants opened in 2010 and four new restaurants opened in the
first thirty-nine weeks of 2011. As a percentage of revenues, operating costs decreased to
15.5% for the thirty-nine weeks ended September 25, 2011, compared to 15.7% for the thirty-nine
weeks ended September 26, 2010. The decrease as a percentage of revenues was primarily related
to the benefit of cost controls of utilities as well as lower advertising costs incurred in the
first thirty-nine weeks of 2011 as compared to the same period in 2010.
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Table of Contents
Occupancy Costs. Occupancy costs increased $0.7 million, or 4.5%, to $17.7 million for the
thirty-nine weeks ended September 25, 2011, as compared to $17.0 million for the thirty-nine
weeks ended September 26, 2010. The increase in occupancy costs in total dollars was primarily
related to the additional restaurants opened in 2010 and 2011 and the rental costs and common
area maintenance associated with them. As a percentage of revenues, occupancy costs decreased
to 6.5% for the thirty-nine weeks ended September 25, 2011 as compared to 6.7% for the
thirty-nine weeks ended September 26, 2010.
General and Administrative. General and administrative expenses increased by $2.2 million, or
15.9%, to $16.1 million for the thirty-nine weeks ended September 25, 2011, as compared to
$13.9 million for the thirty-nine weeks ended September 26, 2010. As a percentage of revenues,
general and administrative expenses increased to 5.9% for the thirty-nine weeks ended September
25, 2011, from 5.4% for the thirty-nine weeks ended September 26, 2010. The increase was
primarily attributable to stock compensation costs incurred by the Company in 2011 of
approximately $1.3 million related to the Stock Incentive Plan, as well as higher professional
fees of $1.2 million, primarily related to costs associated with being a public company,
incurred in the first thirty-nine weeks of 2011. Additionally we incurred
$0.6 million of costs and expenses in connection with a secondary public offering of the
Companys common shares in the first thirty-nine weeks of 2011. These costs were partially
offset by $1.2 million in management fees paid to our private equity sponsors that were
incurred in the first thirty-nine weeks of 2010 but not in the comparable period in 2011.
Restaurant Pre-opening Costs. Pre-opening costs increased by $1.0 million, to $2.9 million for
the thirty-nine weeks ended September 25, 2011 as compared to $1.9 million for the thirty-nine
weeks ended September 26, 2010. This period-to-period change in pre-opening costs was driven
by the timing and number of restaurant openings in a given period. During the first
thirty-nine weeks of 2011, we opened four restaurants, converted one restaurant from a BRAVO!
to a BRIO and had seven additional restaurants under construction. In the first thirty-nine
weeks of 2010, there were four restaurants opened and one additional restaurant under
construction.
Depreciation and Amortization. As a percentage of revenues, depreciation and amortization
expenses decreased to 4.6% for the thirty-nine weeks ended September 25, 2011 from 4.9% for the
thirty-nine weeks ended September 26, 2010. The change was primarily the result of positive
leverage from comparable restaurant revenues.
Net Interest Expense. Net interest expense decreased $4.0 million to $1.3 million for the
thirty-nine weeks ended September 25, 2011 as compared to $5.3 million for the thirty-nine
weeks ended September 26, 2010. This decrease was due to the payoff of the Companys old
credit facilities in connection with its initial public offering in October 2010 and the
Companys concurrent entrance into new credit facilities with lower average outstanding debt
balances.
Income Taxes. Income tax benefit was $56.8 million for the thirty-nine weeks ended September
25, 2011 and income tax expense was $0.1 million for the thirty-nine weeks ended September 26,
2010. In the thirteen weeks ended June 26, 2011, the Company substantially reduced the
valuation allowance previously provided against net deferred tax assets. As a result, in the
thirteen weeks ended June 26, 2011, the Company recorded a $57.2 million income tax benefit
reflecting the adjustment to the valuation allowance. For the thirty-nine weeks ended
September 25, 2011, this tax benefit was offset by income tax expense in 2011 of $0.4 million.
Liquidity
Our principal sources of cash have been net cash provided by operating activities and
borrowings under our senior credit facilities. As of September 25, 2011, we had approximately
$4.7 million in cash and cash equivalents and approximately $36.8 million of availability under
our senior credit facilities (after giving effect to $3.2 million of outstanding letters of
credit at September 25, 2011). Our need for capital resources is driven by our restaurant
expansion plans, on-going maintenance of our restaurants and investment in our corporate and
information technology infrastructures. Based on our current real estate development plans, we
believe our combined expected cash flows from operations, available borrowings under our senior
credit facilities and expected landlord lease incentives will be sufficient to finance our
planned capital expenditures and other operating activities for the next twelve months.
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Consistent with many other restaurant and retail chain store operations, we use operating lease
arrangements for the majority of our restaurant locations. We believe that these operating
lease arrangements provide appropriate leverage of our capital structure in a financially
efficient manner. Currently, operating lease obligations are not reflected as indebtedness on
our consolidated balance sheet. The use of operating lease arrangements will impact our
capacity to borrow money under our senior credit facilities. However, restaurant real estate
operating leases are expressly excluded from the restrictions under our senior credit
facilities related to the incurrence of funded indebtedness.
Our liquidity may be adversely affected by a number of factors, including a decrease in guest
traffic or average check per guest due to changes in economic conditions, as described in our
2010 Annual Report on Form 10-K under the heading Risk Factors.
The following table presents a summary of our cash flows for the thirty-nine weeks ended
September 25, 2011 and September 26, 2010 (in thousands):
Thirty-Nine Weeks Ended, | ||||||||
September 25, | September 26, | |||||||
2011 | 2010 | |||||||
Net cash provided by operating activities |
$ | 32,055 | $ | 23,305 | ||||
Net cash used in investing activities |
(22,258 | ) | (13,304 | ) | ||||
Net cash used in financing activities |
(7,517 | ) | (6,562 | ) | ||||
Net increase in cash and cash equivalents |
2,280 | 3,439 | ||||||
Cash and cash equivalents at beginning of year |
2,460 | 249 | ||||||
Cash and cash equivalents at end of period |
$ | 4,740 | $ | 3,688 | ||||
Operating Activities. Net cash provided by operating activities was $32.1 million for the
thirty-nine weeks ended September 25, 2011, compared to $23.3 million for the thirty-nine weeks
ended September 26, 2010. The increase in net cash provided by operating activities in the
first thirty-nine weeks of 2011 compared to the same period in 2010 was due to an increase in
cash operating receipts, primarily due to an increase in revenues, in excess of cash operating
expenditures from the prior year. Cash operating receipts for the first thirty-nine weeks of
2011 and 2010 were $274.9 million and $255.6 million, respectively. Cash operating expenditures
during the first thirty-nine weeks of 2011 and 2010 were $245.5 million and $231.5 million,
respectively. The increase in net cash is also attributable to $1.7 million in prepaid fees
relating to the Companys initial public offering in October of 2010, which were paid in the
first thirty-nine weeks of 2010, as well as an increase in cash received from lease incentives
of $1.2 million in the first thirty-nine weeks of 2011 as compared to the corresponding period
in 2010.
Investing Activities. Net cash used in investing activities was $22.3 million for the
thirty-nine weeks ended September 25, 2011, compared to $13.3 million used in the thirty-nine
weeks ended September 26, 2010. We invested cash to purchase property and equipment related to
our restaurant expansion plans. The increase in spending was related to the timing of
restaurant openings, the timing of spending related to our new restaurants as well as the
number of restaurants that opened during 2011 versus 2010. During the first thirty-nine weeks
of 2011, we opened four restaurants, converted one restaurant from a BRAVO! to a BRIO and had
seven additional restaurants under construction. In the first thirty-nine weeks of 2010 we
opened four restaurants and had one additional restaurant under construction.
Financing Activities. Net cash used in financing activities was $7.5 million for the
thirty-nine weeks ended September 25, 2011, compared to $6.6 million used in the thirty-nine
weeks ended September 26, 2010. Net cash used in financing activities in the first thirty-nine
weeks of 2011 was used for the pay down of the Companys term debt, partially offset by
proceeds and tax benefits received related to the exercise of stock options. The cash used in
financing activities in the first thirty-nine weeks of 2010 resulted from payments under the
Companys former revolving credit facility and other debt payments in excess of borrowings
under the former revolving credit facility.
As of September 25, 2011, we had no financing transactions, arrangements or other relationships
with any unconsolidated entities or related parties. Additionally, we had no financing
arrangements involving synthetic leases or trading activities involving commodity contracts.
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Table of Contents
Capital Resources
Future Capital Requirements. Our capital requirements are primarily dependent upon the pace of
our real estate development program and resulting new restaurants. Our real estate development
program is dependent upon many factors, including economic conditions, real estate markets,
site locations and nature of lease agreements. Our capital expenditure outlays are also
dependent on costs for maintenance and capacity additions in our existing restaurants as well
as information technology and other general corporate capital expenditures.
We anticipate that each new BRAVO! restaurant will, on average, require a total cash investment
of $1.5 million to $2.0 million (net of estimated lease incentives). We expect that each new
BRIO restaurant will require an estimated cash investment of $2.0 million to $2.5 million (net
of estimated lease incentives). We expect to spend approximately $0.4 million to $0.5 million
per restaurant for cash pre-opening costs. The projected cash investment per restaurant is
based on historical averages.
We currently estimate capital expenditures, net of estimated lease incentives, for the
remainder of 2011 to be in the range of approximately $7-$9 million, for a total of $21-$23
million for the year. This is primarily related to the opening of four restaurants in the last
thirteen weeks of 2011, the start of construction of restaurants to be opened in early 2012, as
well as normal maintenance related capital expenditures relating to our existing restaurants.
In conjunction with these restaurant openings, the Company anticipates incurring approximately
$2.1 million in pre-opening costs, including rent expensed during the construction period, for
the remainder of 2011 for a total of $5.0 million for all of 2011.
Current Resources. Our operations have not required significant working capital and, like many
restaurant companies, we have been able to operate with negative working capital. Restaurant
sales are primarily paid for in cash or by credit card, and restaurant operations do not
require significant inventories or receivables. In addition, we receive trade credit for the
purchase of food, beverages and supplies, therefore reducing the need for incremental working
capital to support growth. We had a net working capital deficit of $28.9 million at September
25, 2011, compared to a net working capital deficit of $35.3 million at December 26, 2010.
On October 26, 2010, we completed the initial public offering of our common shares. We issued
5,000,000 shares in the offering, and existing shareholders sold an additional 6,500,000
previously outstanding shares, including 1,500,000 shares sold to cover over-allotments. We
received net proceeds from the offering of approximately $62.1 million (after the payment of
offering expenses) that were used, together with borrowings under our senior credit facilities
(as described below), to repay all of our then-outstanding loans under our former senior credit
facilities and to repay all of our then-outstanding 13.25% senior subordinated secured notes,
in each case including any accrued and unpaid interest.
In connection with our initial public offering, we entered into a credit agreement with a
syndicate of financial institutions with respect to our senior credit facilities. Our senior
credit facilities provide for (i) a $45.0 million term loan facility, maturing in 2015, and
(ii) a revolving credit facility under which we may borrow up to $40.0 million (including a
sublimit cap of up to $10.0 million for letters of credit and up to $10.0 million for
swing-line loans), maturing in 2015. Under the credit agreement, we are also entitled to incur
additional incremental term loans and/or increases in the revolving credit facility of up to
$20.0 million if no event of default exists and certain other requirements are satisfied. Our
revolving credit facility is (i) jointly and severally guaranteed by each of our existing or
subsequently acquired or formed subsidiaries, (ii) secured by a first priority lien on
substantially all of our subsidiaries tangible and intangible personal property, (iii) secured
by a first priority security interest on all owned real property and (iv) secured by a pledge
of all of the capital stock of our subsidiaries. Our credit agreement also requires us to meet
financial tests, including a maximum consolidated total leverage ratio, a minimum consolidated
fixed charge coverage ratio and a maximum consolidated capital expenditures limitation. At
September 25, 2011, the Company was in compliance with its applicable financial covenants.
Additionally, our credit agreement contains negative covenants limiting, among other things,
additional indebtedness, transactions with affiliates, additional liens, sales of assets,
dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other
matters customarily restricted in such agreements and customary events of default, including
payment defaults, breaches of representations and warranties, covenant defaults, defaults under
other material debt, events of bankruptcy and insolvency, failure of any guaranty or security
document supporting the senior credit facilities to be in full force and effect, and a change
of control of our business.
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Borrowings under our senior credit facilities bear interest at our option of either (i) the
Alternate Base Rate (as such term is defined in the credit agreement) plus the applicable
margin of 1.75% to 2.25% or (ii) at a fixed rate for a period of one, two, three or six months
equal to LIBOR plus the applicable margin of 2.75% to 3.25%. The applicable margins with
respect to our senior credit facilities vary from time to time in accordance with agreed upon
pricing grids based on our consolidated total leverage ratio. Swing-line loans under our senior
credit facilities bear interest only at
the Alternate Base Rate plus the applicable margin. Interest on loans based upon the Alternate
Base Rate are payable on the last day of each calendar quarter in which such loan is
outstanding. Interest on loans based on LIBOR are payable on the last day of the applicable
LIBOR period and, in the case of any LIBOR period greater than three months in duration,
interest shall be payable quarterly. In addition to paying any outstanding principal amount
under our senior credit facilities, we are required to pay an unused facility fee to the
lenders equal to 0.50% to 0.75% per annum on the aggregate amount of the unused revolving
credit facility, excluding swing-line loans, commencing on October 26, 2010, payable quarterly
in arrears. As of September 25, 2011, we had an outstanding principal balance of $33.0 million
on our term loan facility and no outstanding balance on our revolving credit facility.
Based on the Companys forecasts, management believes that the Company will be able to maintain
compliance with its applicable financial covenants for the next twelve months. Management
believes that the cash flow from operating activities as well as available borrowings under its
revolving credit facility will be sufficient to meet the Companys liquidity needs.
Real Estate
As of September 25, 2011, we leased 86 and owned four restaurant sites, of which 80 are located
adjacent to or in lifestyle centers and/or shopping malls and 10 are free-standing units
strategically positioned in high-traffic areas. On average, our restaurants range in size from
6,000 to 9,000 square feet. Since the beginning of 2006, we have opened 45 new locations and
converted, relocated or closed five locations. The majority of our leases provide for minimum
annual rentals and contain percentage-of-sales rent provisions against which the minimum rent
is applied. A significant percentage of our leases also provide for periodic escalation of
minimum annual rent based upon increases in the Consumer Price Index. Typically, our leases are
ten or 15 years in length with two, five-year extension options.
The Company has entered into an agreement to terminate the lease of one BRAVO! location and to
close the related restaurant in December 2011. The impact on the Companys consolidated
financial statements with respect to this lease termination is not material as substantially
all of the assets related to this location were previously impaired.
Off-Balance Sheet Arrangements
As part of our on-going business, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as entities referred
to as structured finance or variable interest entities (VIEs), which would have been
established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As of September 25, 2011, we were not involved in any
VIE transactions and did not otherwise have any off-balance sheet arrangements.
Summary of Significant Accounting Policies
Accounting Estimates The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires
management 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 consolidated
financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company bases its estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances at the time. Actual amounts may
differ from those estimates.
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Impairment of Long-Lived AssetsThe Company reviews long-lived assets, such as property and
equipment and intangibles subject to amortization, for impairment when events or circumstances
indicate the carrying value of the assets may not be recoverable. In determining the
recoverability of the asset value, an analysis is performed at the individual restaurant level
and primarily includes an assessment of historical cash flows and other relevant factors and
circumstances. Negative restaurant-level cash flow over the previous 12-month period is
considered a potential impairment indicator. In such situations, the Company evaluates future
cash flow projections in conjunction with qualitative factors and future operating plans. Based
on this analysis, if the Company believes that the carrying amount of the assets are not
recoverable, an impairment charge is recognized based upon the amount by which the assets
carrying value exceeds fair value.
Each
quarter the Company evaluates sales and profitability trends of all
of our locations to determine if any impairment of the assets are
needed. The Company has been reviewing the performance of two
locations, which have a combined carrying value of approximately
$5.2 million. In particular, we are closely monitoring one
restaurant location, with a carrying value of $2.3 million, for
a possible non-cash impairment charge. Depending upon the performance
trends of this restaurant in the fourth quarter, we will evaluate
whether an impairment charge is required.
The Companys impairment assessment process requires the use of estimates and assumptions
regarding future cash flows and operating outcomes, which are based upon a significant degree
of managements judgment. The Company continues to assess the performance of restaurants and
monitors the need for future impairment. Changes in the economic environment, real estate
markets, capital spending, and overall operating performance could impact these estimates and
result in future impairment charges. There can be no assurance that future impairment tests
will not result in additional charges to earnings.
Stock-Based Compensation The Company maintains equity compensation incentive plans including
nonqualified stock options and restricted stock grants.
The Company previously granted options pursuant to the Bravo Development, Inc. Option Plan, or
the 2006 Plan, which were granted with exercise prices equal to the fair value of the Companys
common shares at the date of grant. All compensation costs related to these options were
recorded in the thirteen weeks ended December 26, 2010.
Restricted stock granted under the Bravo Brio Restaurant Group, Inc. Stock Incentive Plan, or
the Stock Incentive Plan, is recorded at the fair value of the Companys shares subject to the
grant, which is based on the average of the high and low trading price of the Companys shares
on the date immediately preceding the date of grant. The cost of employee service is
recognized as compensation expense over the period that an employee provides service in
exchange for the award, typically the vesting period. Pursuant to the Stock Incentive Plan,
the Company granted 456,800 restricted shares since the inception of the Plan, which will vest,
subject to certain exceptions, over a four year period. The Company will record compensation
expense related to these shares over that period.
See Note 4 to our Consolidated Financial Statements in Part I, Item 1 of this report for
further discussion on stock options and restricted stock.
Income Taxes Income tax provisions are comprised of federal and state taxes currently due,
plus deferred taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled.
Recognition of deferred tax assets is limited to amounts considered by management to be more
likely than not of realization in future periods. Future taxable income, adjustments in
temporary differences, available carry forward periods and changes in tax laws could affect
these estimates.
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The Company recognizes a tax position in the financial statements when it is more likely than
not that the position will be sustained upon examination by tax authorities that have full
knowledge of all relevant information.
In the thirteen weeks ended June 26, 2011, the Company significantly decreased the valuation
allowance previously provided against its net deferred tax assets. As of September 25, 2011,
the Company continued to carry a $1.8 million valuation allowance against net deferred tax
assets. The Company anticipates that the remaining valuation allowance will be reduced over
the last thirteen weeks of fiscal 2011, as the related net deferred tax assets are deemed to be
realizable. See Note 5 to our Consolidated Financial Statements in Part I, Item 1 of this
report for further discussion on taxes and the reduction of the valuation allowance.
Recent Accounting Pronouncements We reviewed all significant newly issued
accounting pronouncements and concluded that they either are not applicable to our operations
or that no material effect is expected on our financial statements as a result of future
adoption.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
We are subject to interest rate risk in connection with our long term debt. Our principal
interest rate exposure relates to the loans outstanding under our senior credit facilities,
which are payable at variable rates.
At September 25, 2011, we had $33.0 million in debt outstanding under our term loan facility.
Each eighth point change in interest rates on the variable rate portion of debt under our
senior credit facilities would result in a $41,000 annual change in our interest expense.
Commodity Price Risk
We are exposed to market price fluctuation in beef, seafood, produce and other food product
prices. Given the historical volatility of beef, seafood, produce and other food product
prices, these fluctuations can materially impact our food and beverage costs. While we have
taken steps to qualify multiple suppliers and enter into agreements for some of the commodities
used in our restaurant operations, there can be no assurance that future supplies and costs for
such commodities will not fluctuate due to weather and other market conditions outside of our
control. We currently do not contract for a majority of our seafood and we are unable to
contract for some of our commodities such as certain produce items for periods longer than one
week. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations.
Dairy costs can also fluctuate due to government regulation. Because we typically set our menu
prices in advance of our food product prices, we cannot immediately take into account changing
costs of food items. To the extent that we are unable to pass the increased costs on to our
guests through price increases, our results of operations would be adversely affected. We do
not use financial instruments to hedge our risk to market price fluctuations in beef, seafood,
produce and other food product prices at this time.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedure
We carried out an evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on
this evaluation, our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures, including the accumulation and communication of
disclosure to our principal executive officer and principal financial officer as appropriate to
allow timely decisions regarding disclosure, are effective to provide reasonable assurance that
material information required to be included in our periodic SEC reports is recorded,
processed, summarized and reported within the time periods specified in the relevant SEC rules
and forms.
The design of any system of control is based upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its
stated objectives under all future events, no matter how remote, or that the degree of
compliance with the policies or procedures may not deteriorate. Because of its inherent
limitations, disclosure controls and procedures may not prevent or detect all misstatements.
Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.
Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)
that occurred during the Companys most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over financial
reporting.
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Part II Other Information
Item 1. | Legal Proceedings |
Occasionally we are a party to various legal actions arising in the ordinary course of our
business including claims resulting from employment related claims and claims from guests or
employees alleging illness, injury or other food quality, health or operational concerns. None
of these types of litigation, most of which are covered by insurance, has had a material effect
on us, and as of the date of this report, we are not a party to any material pending legal
proceedings and are not aware of any claims that could have a materially adverse effect on our
financial position, results of operations, or cash flows.
Item 1A. | Risk Factors |
There have been no material changes from our risk factors as previously reported in our 2010
Annual Report on Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | [REMOVED AND RESERVED] |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
The following exhibits are filed or furnished with this Quarterly Report:
Exhibit Index
Exhibit | ||||
Number | Description | |||
31 | (a) | Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
31 | (b) | Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
32 | (a) | Certification of Chief Executive Officer and the Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 7, 2011
Bravo Brio Restaurant Group, Inc. |
||||
By: | /s/ Saed Mohseni | |||
Saed Mohseni | ||||
President, Chief Executive Officer and Director (Principal Executive Officer) |
By: | /s/ James J. OConnor | |||
James J. OConnor | ||||
Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) |
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