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Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

 

¨ 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   34-1566328

(State or other jurisdiction

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

777 Goodale Boulevard, Suite 100

Columbus, Ohio

  43212
(Address of principal executive office)   (Zip Code)

Registrant’s 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  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 (§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  x    No  ¨

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   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    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

As of August 1, 2013, the latest practicable date, 19,606,058 of the registrant’s common shares, no par value per share, were outstanding.

 

 

 


Table of Contents

Table of Contents:

 

Part I – Financial Information

  

Item 1. Financial Statements

  

Consolidated Balance Sheets

     3   

Consolidated Statements of Operations

     4   

Consolidated Statements of Stockholders’ Equity

     5   

Consolidated Statements of Cash Flows

     6   

Condensed Notes to Unaudited Consolidated Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     11   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     20   

Item 4. Controls and Procedures

     20   

Part II – Other Information

     21   

Item 1. Legal Proceedings

     21   

Item 1A. Risk Factors

     21   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     21   

Item 3. Defaults Upon Senior Securities

     21   

Item 4. Mine Safety Disclosures

     21   

Item 5. Other Information

     21   

Item 6. Exhibits

     21   

Signatures

     23   

 

- 2 -


Table of Contents

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2013 AND DECEMBER 30, 2012

(Dollars in thousands)

 

     June 30,
2013
    December 30,
2012
 
     (Unaudited)    

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,861      $ 13,717   

Accounts receivable

     5,878        7,728   

Tenant improvement allowance receivable

     834        1,638   

Inventories

     2,723        3,023   

Deferred income taxes, net

     1,898        2,304   

Prepaid expenses and other current assets

     4,880        2,547   
  

 

 

   

 

 

 

Total current assets

     22,074        30,957   

Property and equipment — net

     178,908        175,969   

Deferred income taxes — net

     49,807        52,068   

Other assets — net

     4,102        4,344   
  

 

 

   

 

 

 

Total assets

   $ 254,891      $ 263,338   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities

    

Trade and construction payables

   $ 11,192      $ 10,695   

Accrued expenses

     22,568        24,724   

Current portion of long-term debt

     2,082        2,704   

Deferred lease incentives

     6,187        6,430   

Deferred gift card revenue

     8,819        12,210   
  

 

 

   

 

 

 

Total current liabilities

     50,848        56,763   
  

 

 

   

 

 

 

Deferred lease incentives

     60,300        64,761   

Long-term debt

     14,132        20,382   

Other long-term liabilities

     21,102        21,149   

Commitments and contingencies (Note 6)

    

Stockholders’ equity

    

Common shares, no par value per share—authorized, 100,000,000 shares; issued 19,895,854 at June 30, 2013 and 19,820,428 shares issued at December 30, 2012

     196,802        195,512   

Preferred shares, no par value, per share—authorized, 5,000,000 shares; issued and outstanding, 0 shares at June 30, 2013 and December 30, 2012

     —          —     

Treasury shares, 290,525 shares at June 30, 2013; and 224,172 shares at December 30, 2012

     (3,952     (2,927

Retained deficit

     (84,341     (92,302
  

 

 

   

 

 

 

Total stockholders’ equity

     108,509        100,283   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 254,891      $ 263,338   
  

 

 

   

 

 

 

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 TWENTY-SIX WEEKS ENDED JUNE 30, 2013 AND JUNE 24, 2012 (UNAUDITED)

(in thousands except per share data)

 

     Thirteen Weeks Ended      Twenty-Six Weeks Ended  
     June 30,      June 24,      June 30,      June 24,  
     2013      2012      2013      2012  

Revenues

   $ 105,622       $ 102,807       $ 208,685       $ 201,184   
  

 

 

    

 

 

    

 

 

    

 

 

 

Costs and expenses

           

Cost of sales

     27,051         26,482         54,015         52,119   

Labor

     36,882         35,267         73,464         69,422   

Operating

     16,588         15,764         32,708         30,663   

Occupancy

     7,171         6,728         14,006         13,218   

General and administrative expenses

     5,836         5,688         11,695         11,385   

Restaurant preopening costs

     558         811         1,259         2,173   

Depreciation and amortization

     4,962         4,663         9,831         9,076   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and expenses

     99,048         95,403         196,978         188,056   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     6,574         7,404         11,707         13,128   

Interest expense, net

     284         332         601         686   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     6,290         7,072         11,106         12,442   

Income tax expense

     1,748         1,952         3,145         3,563   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 4,542       $ 5,120       $ 7,961       $ 8,879   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per basic share

   $ 0.23       $ 0.26       $ 0.41       $ 0.45   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per diluted share

   $ 0.22       $ 0.25       $ 0.39       $ 0.43   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding-basic

     19,591         19,555         19,598         19,528   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding-diluted

     20,489         20,618         20,482         20,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 TWENTY-SIX WEEKS ENDED JUNE 30, 2013 (UNAUDITED)

(Dollars in thousands)

 

     Common Shares     Retained     Treasury Stock     Stockholders’  
     Shares     Amount     Deficit     Shares     Amount     Equity  

Balance — December 30, 2012

     19,820,428      $ 195,512      $ (92,302     (224,172   $ (2,927   $ 100,283   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —          7,961        —          —          7,961   

Share-based compensation costs

     —          1,395        —          —          —          1,395   

Proceeds from the exercise of stock options

     48,489        70        —          —          —          70   

Issuance of shares of restricted stock

     37,125        —          —          —          —          —     

Excess tax deficiency from share based payments, net

     —          (21     —          —          —          (21

Shares withheld from restricted stock vesting for minimum tax withholdings

     (10,188     (154     —          —          —          (154

Purchase of treasury shares

     —          —          —          (66,353     (1,025     (1,025
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance — June 30, 2013

     19,895,854      $ 196,802      $ (84,341     (290,525   $ (3,952   $ 108,509   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 CASH FLOWS

FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 2013 AND JUNE 24, 2012

(UNAUDITED)

(Dollars in thousands)

 

     Twenty-Six Weeks Ended  
     June, 30     June 24,  
     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 7,961      $ 8,879   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     10,018        9,260   

Loss on disposals of property and equipment

     1,280        129   

Amortization of deferred lease incentives

     (7,288     (2,940

Share-based compensation costs

     1,395        1,105   

Deferred income taxes

     2,667        2,062   

Changes in assets and liabilities:

    

Accounts and tenant improvement allowance receivables

     2,654        53   

Inventories

     300        138   

Prepaid expenses and other current assets

     (2,333     57   

Trade and construction payables

     611        (1,980

Deferred lease incentives

     2,584        4,508   

Deferred gift card revenue

     (3,391     (3,267

Other accrued expenses

     (2,223     1,583   

Other — net

     (7     876   
  

 

 

   

 

 

 

Net cash provided by operating activities

     14,228        20,463   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (14,171     (18,493

Proceeds from the sale of assets

     22        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (14,149     (18,493
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments on long-term debt

     (6,872     (8,809

Proceeds from the exercise of stock options

     70        131   

Excess tax benefit related to share based payments

     46        189   

Shares withheld from restricted stock vesting for minimum tax withholdings

     (154     —     

Repurchase of treasury shares

     (1,025     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (7,935     (8,489
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (7,856     (6,519

Cash and cash equivalents — beginning of period

     13,717        10,093   
  

 

 

   

 

 

 

Cash and cash equivalents — end of period

   $ 5,861      $ 3,574   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

     514        545   

Income taxes paid

     958        831   

Property financed by trade and construction payables

     1,610        1,615   

See condensed notes to unaudited consolidated financial statements.

 

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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 June 30, 2013, Bravo Brio Restaurant Group, Inc. (the “Company”) operated 103 restaurants under the trade names “Bravo! Cucina Italiana®,” “Brio Tuscan GrilleTM,” and “Bon Vie®.” Of the 103 restaurants the Company operates, there are 46 Bravo! Cucina Italiana® restaurants, 56 Brio Tuscan GrilleTM restaurants and one Bon Vie® restaurant in operation in 31 states throughout the United States of America. The Company owns all of its restaurants with the exception of one BRIO restaurant, which it operates under a management agreement and for which operation it receives a management fee.

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 thirteen weeks ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2013.

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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012 filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2013 (the “2012 Annual Report on Form 10-K”).

 

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 June 30, 2013 and June 24, 2012, all outstanding stock options and restricted stock were included in the dilutive calculation.

(in thousands, except per share data)

 

     Thirteen Weeks Ended      Twenty-Six Weeks Ended  
     June 30,      June 24,      June 30,      June 24,  
     2013      2012      2013      2012  

Net income

   $ 4,542       $ 5,120       $ 7,961       $ 8,879   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     19,591         19,555         19,598         19,528   

Effect of dilutive securities:

           

Stock options

     824         998         847         1,018   

Restricted stock

     74         65         37         54   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and potentially issuable common shares outstanding—diluted

     20,489         20,618         20,482         20,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income per common share

   $ 0.23       $ 0.26       $ 0.41       $ 0.45   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per common share

   $ 0.22       $ 0.25       $ 0.39       $ 0.43   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 June 30, 2013 and December 30, 2012 consisted of the following (in thousands):

 

     June 30,
2013
    December 30,
2012
 

Total term loan

   $ 16,214      $ 23,086   

Less current maturities

     (2,082     (2,704
  

 

 

   

 

 

 

Long-term debt

   $ 14,132      $ 20,382   
  

 

 

   

 

 

 

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.

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 Company’s 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 Company’s 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 Company’s senior credit facilities are collateralized by a first priority interest in substantially all assets of the Company and its subsidiaries.

On October 9, 2012, the Company entered into an amendment to its credit agreement. The amendment eliminated dollar restrictions in paying dividends, distributions to shareholders, or repurchasing the Company’s common shares subject to the defined leverage ratio.

The credit agreement provides for a 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 June 30, 2013, the maximum exposure under these standby letters of credit was $2.6 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 June 30, 2013, the Company was in compliance with its applicable financial covenants.

 

4. STOCK BASED COMPENSATION

In June 2006, the Company adopted the Bravo Development, Inc. Option Plan (the “2006 Plan”) in order to provide an incentive to employees. In conjunction with the Company’s IPO, all of the then outstanding options under the 2006 Plan became exercisable and the 2006 Plan was terminated. No further compensation costs will be recorded under the 2006 Plan. The 2006 Plan was replaced with the Bravo Brio Restaurant Group, Inc. Stock Incentive Plan (the “Stock Incentive Plan”), which was adopted in October 2010.

 

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Table of Contents

2006 Plan

Stock option activity for the twenty-six weeks ended June 30, 2013 is summarized as follows:

 

     Number
of Shares
    Weighted Average
Exercise Price
 

Outstanding at December 30, 2012

     992,192      $ 1.45   

Exercised

     (48,489   $ 1.45   

Granted

     —          —     

Forfeited

     —          —     
  

 

 

   

 

 

 

Outstanding at June 30, 2013

     943,703      $ 1.45   
  

 

 

   

 

 

 

Exercisable at June 30, 2013

     943,703      $ 1.45   
  

 

 

   

 

 

 

At June 30, 2013, the weighted-average remaining contractual term of options outstanding was approximately 3.4 years and all of the options were exercisable. Aggregate intrinsic value is calculated as the difference between the Company’s 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 June 30, 2013 was $15.4 million.

Stock Incentive Plan

Restricted stock activity for the twenty-six weeks ended June 30, 2013 is summarized as follows:

 

           Weighted-  
     Number of
Shares
    Average Grant
Date Fair  Value
 

Outstanding at December 30, 2012

     345,312      $ 18.19   

Granted

     141,400      $ 14.71   

Vested

     (37,125   $ 19.76   

Forfeited

     (7,599   $ 17.39   
  

 

 

   

 

 

 

Outstanding at June 30, 2013

     441,988      $ 16.96   
  

 

 

   

 

 

 

Fair value of the outstanding shares of restricted stock is based on the average of the high and low price of the Company’s shares on the date immediately preceding the date of grant. On February 28, 2013, 141,400 shares of restricted stock were granted to employees and directors of the Company pursuant to the Stock Incentive Plan. The average of the high and low price of the Company’s shares on February 27, 2013, the date immediately preceding the date of grant in which stock markets were open, was $14.71. In the first two quarters of 2013, stock compensation costs related to shares of restricted stock were approximately $1.4 million. As of June 30, 2013, total unrecognized stock-based compensation expense related to non-vested shares of restricted stock was approximately $6.0 million, which is expected to be recognized over a weighted average period of approximately 2.4 years taking into account potential forfeitures. These shares of restricted stock will vest, subject to certain exceptions, annually over a four-year period.

 

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Table of Contents
5. INCOME TAXES

The Company’s consolidated balance sheets at June 30, 2013 and December 30, 2012 include a net deferred tax asset of $51.7 million and $54.4 million, respectively. The Company performs analyses to evaluate whether the deferred tax assets will be realized. Such analyses assumes that the Company will continue to be a going concern and that it is more likely than not that the deferred tax assets will be realized through the generation of future taxable income.

The Company is currently under examination by the Internal Revenue Service for the fiscal year ended December 26, 2010. The Company does not believe that any adjustment as a result of the examination would be material to the financial statements.

 

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 Company’s financial position, results of operations or cash flows.

On May 24, 2012, the Company was named as a defendant in a class action lawsuit alleging certain violations of the Fair Labor Standards Act as well as certain Iowa wage and hours laws. Since that time the Company has answered the complaint and worked with the plaintiff to address the potential violations. While the Company believes that it has meritorious defenses to these allegations, the Company determined that working towards a settlement in this particular case was in its best interest. On May 31, 2013, the parties signed a negotiated settlement agreement, subject to final approval by the court. Based on the current status of the case, the Company does not believe that there will be a material impact to the financial statements as a result of any potential future payments.

 

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Table of Contents
Item 2. Management’s 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” refer 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 2012 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 2012 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 for purposes of the following discussion includes our one Bon Vie restaurant. 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.

Results of Operations

Thirteen Weeks Ended June 30, 2013 Compared to the Thirteen Weeks Ended June 24, 2012

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.

 

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     Thirteen Weeks Ended                     
     June 30,
2013
     % of
Revenues
    June 24,
2012
     % of
Revenues
    Change     % Change  
     (dollars in thousands)  

Revenues

   $ 105,622         100   $ 102,807         100   $ 2,815        2.7

Cost and expenses:

              

Cost of sales

     27,051         25.6     26,482         25.8     569        2.1

Labor

     36,882         34.9     35,267         34.3     1,615        4.6

Operating

     16,588         15.7     15,764         15.3     824        5.2

Occupancy

     7,171         6.8     6,728         6.5     443        6.6

General and administrative expenses

     5,836         5.5     5,688         5.5     148        2.6

Restaurant preopening costs

     558         0.5     811         0.8     (253     (31.2 )% 

Depreciation and amortization

     4,962         4.7     4,663         4.5     299        6.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total costs and expenses

     99,048         93.8     95,403         92.8     3,645        3.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Income from operations

     6,574         6.2     7,404         7.2     (830     (11.2 )% 

Net interest expense

     284         0.3     332         0.3     (48     (14.5 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Income before income taxes

     6,290         6.0     7,072         6.9     (782     (11.1 )% 

Income tax expense

     1,748         1.7     1,952         1.9     (204     (10.5 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net income

   $ 4,542         4.3   $ 5,120         5.0   $ (578     (11.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $2.8 million, or 2.7%, to $105.6 million for the thirteen weeks ended June 30, 2013, as compared to $102.8 million for the thirteen weeks ended June 24, 2012. The increase of $2.8 million was primarily due to a net additional 71 operating weeks provided by six company owned restaurants opened in the last thirty-nine weeks of 2012, and three new restaurants opened in the first two quarters of 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. Partially offsetting the effect of the net increase in operating weeks was a decrease in comparable restaurant revenues of 3.0% or $2.8 million, which was driven by a 2.1% decrease in guest counts that decreased comparable revenues by $1.9 million, and a decrease of 0.9% in average check. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations. Additionally, during the second quarter of 2012, we opened one BRIO that we do not own but which we operate pursuant to a management agreement under which we receive a management fee. Other than our receipt of this management fee, the operation of this restaurant has no impact on our financial statements.

For our BRAVO! brand, restaurant revenues decreased $0.5 million, or 1.2%, to $41.1 million for the thirteen weeks ended June 30, 2013 as compared to $41.6 million for the thirteen weeks ended June 24, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 1.6%, or $0.7 million, to $38.9 million for the thirteen weeks ended June 30, 2013 as compared to $39.6 million for the thirteen weeks ended June 24, 2012. This decrease was due to a decrease in guest counts partially offset by an increase in average check. Revenues for BRAVO! brand restaurants not included in the comparable revenue base increased $0.2 million to $2.2 million for the thirteen weeks ended June 30, 2013. At June 30, 2013, there were 44 BRAVO! restaurants included in the comparable revenue base and two BRAVO! restaurants not included in the comparable revenue base.

For our BRIO brand, restaurant revenues increased $3.2 million, or 5.3%, to $64.4 million for the thirteen weeks ended June 30, 2013 as compared to $61.2 million for the thirteen weeks ended June 24, 2012. Comparable revenues for the BRIO brand restaurants decreased 4.0%, or $2.1 million, to $51.4 million for the thirteen weeks ended June 30, 2013 as compared to $53.5 million for the thirteen weeks ended June 24, 2012. This decrease was due to a decrease in guest counts as well as in average check. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $5.3 million to $13.0 million for the thirteen weeks ended June 30, 2013. At June 30, 2013, there were 42 BRIO restaurants included in the comparable revenue base and 14 BRIO restaurants not included in the comparable revenue base.

 

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Cost of Sales. Cost of sales increased approximately $0.6 million, or 2.1%, to $27.1 million for the thirteen weeks ended June 30, 2013, as compared to $26.5 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, cost of sales decreased to 25.6% for the thirteen weeks ended June 30, 2013, from 25.8% for the thirteen weeks ended June 24, 2012. The decrease in cost of sales, as a percentage of revenues, was primarily the result of a favorable change in our menu mix as well as a menu price increase, which was partially offset by higher commodity costs for our poultry, seafood and grocery products in 2013 as compared to 2012. As a percentage of revenues, food costs decreased 0.1% to 21.0% but increased in total dollars by $0.5 million. Beverage costs decreased 0.1% as a percentage of revenues to 4.6% but increased in total dollars by $0.1 million. The increase in these costs in total dollars was related to the growth in restaurants in 2013 due to six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013.

Labor Costs. Labor costs increased $1.6 million, or 4.6%, to $36.9 million for the thirteen weeks ended June 30, 2013, as compared to $35.3 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, labor costs increased to 34.9% for the thirteen weeks ended June 30, 2013, from 34.3% for the thirteen weeks ended June 24, 2012. These increases were primarily due to the deleveraging resulting from the decrease in our comparable revenues as well as labor inefficiencies associated with the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013.

Operating Costs. Operating costs increased $0.8 million, or 5.2%, to $16.6 million for the thirteen weeks ended June 30, 2013, as compared to $15.8 million for the thirteen weeks ended June 24, 2012. This increase was primarily due to a net additional 71 operating weeks in 2013 as compared to 2012 resulting from the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. As a percentage of revenues, operating costs increased to 15.7% for the thirteen weeks ended June 30, 2013, compared to 15.3% for the thirteen weeks ended June 24, 2012. The increase as a percentage of revenues was primarily related to higher advertising costs, repair and maintenance costs and janitorial services as well as the deleveraging resulting from the decrease in comparable sales in the second quarter of 2013 as compared to the same period in the prior year.

Occupancy Costs. Occupancy costs increased approximately $0.5 million, or 6.6%, to $7.2 million for the thirteen weeks ended June 30, 2013, as compared to $6.7 million for the thirteen weeks ended June 24, 2012. The increase was due to the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013. As a percentage of revenues, occupancy costs increased to 6.8% for the thirteen weeks ended June 30, 2013 compared to 6.5% for the thirteen weeks ended June 24, 2012 due to the deleveraging resulting from the decrease in comparable sales in the second quarter of 2013 as compared to the same period in the prior year.

General and Administrative. General and administrative expenses increased by $0.1 million, or 2.6%, to $5.8 million for the thirteen weeks ended June 30, 2013, as compared to $5.7 million for the thirteen weeks ended June 24, 2012. The increase in expenses was attributable to higher stock compensation costs due to a stock grant in 2013 as well as a slight increase in professional fees. As a percentage of revenues, general and administrative expenses remained flat at 5.5% for the thirteen weeks ended June 30, 2013 and June 24, 2012.

Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.2 million, to $0.6 million for the thirteen weeks ended June 30, 2013, as compared to $0.8 million for the thirteen weeks ended June 24, 2012. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the thirteen weeks ended June 30, 2013, we opened one restaurant and had five additional restaurants under construction. During the thirteen weeks ended June 24, 2012, we opened one restaurant and had four additional restaurants under construction.

 

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Depreciation and Amortization. Depreciation and amortization expenses increased $0.3 million, to $5.0 million for the thirteen weeks ended June 30, 2013 compared to $4.7 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, depreciation and amortization expenses increased to 4.7% for the thirteen weeks ended June 30, 2013 as compared to 4.5% for the thirteen weeks ended June 24, 2012. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the quarter, while the increase in dollars was due to the growth in the number of our restaurants.

Net Interest Expense. Net interest expense slightly decreased to $0.3 million for the thirteen weeks ended June 30, 2013. This decrease was due to lower average outstanding debt during the thirteen weeks ended June 30, 2013 compared to the same period in the prior year.

Income Taxes. Income tax expense was $1.7 million, or 27.8% of income before income taxes, for the thirteen weeks ended June 30, 2013 as compared to $2.0 million, or 27.6% of income before income taxes, for the thirteen weeks ended June 24, 2012. The decrease in the tax expense as a percentage of income before income taxes was due to increased general business credits.

Twenty-Six Weeks Ended June 30, 2013 Compared to the Twenty-Six Weeks Ended June 24, 2012

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.

 

     Twenty-Six Weeks Ended                     
     June 30,
2013
     % of
Revenues
    June 24,
2012
     % of
Revenues
    Change     % Change  
     (dollars in thousands)  

Revenues

   $ 208,685         100   $ 201,184         100   $ 7,501        3.7

Cost and expenses:

              

Cost of sales

     54,015         25.9     52,119         25.9     1,896        3.6

Labor

     73,464         35.2     69,422         34.5     4,042        5.8

Operating

     32,708         15.7     30,663         15.2     2,045        6.7

Occupancy

     14,006         6.7     13,218         6.6     788        6.0

General and administrative expenses

     11,695         5.6     11,385         5.7     310        2.7

Restaurant preopening costs

     1,259         0.6     2,173         1.1     (914     (42.1 )% 

Depreciation and amortization

     9,831         4.7     9,076         4.5     755        8.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total costs and expenses

     196,978         94.4     188,056         93.5     8,922        4.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Income from operations

     11,707         5.6     13,128         6.5     (1,421     (10.8 )% 

Net interest expense

     601         0.3     686         0.3     (85     (12.4 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Income before income taxes

     11,106         5.3     12,442         6.2     (1,336     (10.7 )% 

Income tax expense

     3,145         1.5     3,563         1.8     (418     (11.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net income

   $ 7,961         3.8   $ 8,879         4.4   $ (918     (10.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $7.5 million, or 3.7%, to $208.7 million for the twenty-six weeks ended June 30, 2013, as compared to $201.2 million for the twenty-six weeks ended June 24, 2012. The increase of $7.5 million was primarily due to a net additional 183 operating weeks provided by nine company owned restaurants opened in 2012 and three restaurants opened in 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. Partially offsetting the effect of the net increase in operating weeks was a decrease in comparable restaurant revenues of 2.7% that decreased revenues by $5.0 million, which was driven by a 2.7% decrease in guest counts. Average check for the first twenty-six weeks of 2013 was flat as compared to the same period in the prior year. Our comparable restaurant revenues for 2013 were negatively impacted due to the shift in our operating calendar as a result of the fifty-third week in fiscal 2012. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations. Additionally, during the second quarter of 2012, we opened one BRIO that we do not own but which we operate pursuant to a management agreement under which we receive a management fee. Other than our receipt of this management fee, the operation of this restaurant has no impact on our financial statements.

 

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For our BRAVO! brand, restaurant revenues decreased $0.6 million, or 0.7%, to $81.3 million for the twenty-six weeks ended June 30, 2013 as compared to $81.9 million for the twenty-six weeks ended June 24, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 1.6%, or $1.2 million, to $77.2 million for the twenty-six weeks ended June 30, 2013 as compared to $78.4 million for the twenty-six weeks ended June 24, 2012. This decrease was due to a decrease in guest counts partially offset by an increase in average check. Revenues for BRAVO! brand restaurants not included in the comparable revenue base increased $0.6 million to $4.1 million for the twenty-six weeks ended June 30, 2013. At June 30, 2013, there were 44 BRAVO! restaurants included in the comparable revenue base and two BRAVO! restaurants not included in the comparable revenue base.

For our BRIO brand, restaurant revenues increased $8.0 million, or 6.7%, to $127.2 million for the twenty-six weeks ended June 30, 2013 as compared to $119.2 million for the twenty-six weeks ended June 24, 2012. Comparable revenues for the BRIO brand restaurants decreased 3.6%, or $3.7 million, to $101.7 million for the twenty-six weeks ended June 30, 2013 as compared to $105.4 million for the twenty-six weeks ended June 24, 2012. This decrease was due to a decrease in both guest counts and average check during the first twenty-six weeks of 2013. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $11.7 million to $25.5 million for the twenty-six weeks ended June 30, 2013. At June 30, 2013, there were 42 BRIO restaurants included in the comparable revenue base and 14 BRIO restaurants not included in the comparable revenue base.

Cost of Sales. Cost of sales increased approximately $1.9 million, or 3.6%, to $54.0 million for the twenty-six weeks ended June 30, 2013, as compared to $52.1 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, cost of sales remained flat at 25.9% for the twenty-six weeks ended June 30, 2013 and June 24, 2012. The increase in commodity costs in 2013 over 2012 was offset by a price increase over the same period. As a percentage of revenues, food costs remained flat at 21.2% but increased in total dollars by $1.6 million. Beverage costs remained flat as a percentage of revenues at 4.7% but increased in total dollars by $0.3 million. The increase in these costs in total dollars was related to growth in the number of our restaurants in 2013 due to the nine company owned restaurants opened in 2012 and the three restaurants opened in the twenty-six weeks ended June 30, 2013.

Labor Costs. Labor costs increased approximately $4.1 million, or 5.8%, to $73.5 million for the twenty-six weeks ended June 30, 2013, as compared to $69.4 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, labor costs increased to 35.2% for the twenty-six weeks ended June 30, 2013, from 34.5% for the twenty-six weeks ended June 24, 2012. These increases were primarily due to the deleveraging resulting from the decrease in our comparable revenues as well as labor inefficiencies associated with the nine company owned restaurants opened in 2012 and three new restaurants opened in 2013.

Operating Costs. Operating costs increased $2.0 million, or 6.7%, to $32.7 million for the twenty-six weeks ended June 30, 2013, as compared to $30.7 million for the twenty-six weeks ended June 24, 2012. This increase was mainly due to a net additional 183 operating weeks in 2013 as compared to 2012 resulting from the nine company owned restaurants opened in 2012 and three restaurants opened in the first twenty-six weeks of 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. As a percentage of revenues, operating costs increased to 15.7% for the twenty-six weeks ended June 30, 2013, compared to 15.2% for the twenty-six weeks ended June 24, 2012. The increase as a percentage of revenues was primarily related to higher repairs and maintenance, advertising costs and janitorial services, as well as the deleveraging from the decrease in comparable sales in the first twenty-six weeks of 2013 as compared to the same period in the prior year.

Occupancy Costs. Occupancy costs increased $0.8 million, or 6.0%, to $14.0 million for the twenty-six weeks ended June 30, 2013, as compared to $13.2 million for the twenty-six weeks ended June 24, 2012. The increase was due to nine company owned restaurants opened in 2012 and three new restaurants opened in the first twenty-six weeks of 2013. As a percentage of revenues, occupancy costs increased to 6.7% for the twenty-six weeks ended June 30, 2013 as compared to 6.6% for the twenty-six weeks ended June 24, 2012.

 

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General and Administrative. General and administrative expenses increased by $0.3 million, or 2.7%, to $11.7 million for the twenty-six weeks ended June 30, 2013, as compared to $11.4 million for the twenty-six weeks ended June 24, 2012. The increase in expenses was attributable to higher stock compensation costs due to stock grants in 2012 and 2013 as compared to the prior period. As a percentage of revenues, general and administrative expenses decreased to 5.6% for the twenty-six weeks ended June 30, 2013, from 5.7% for the twenty-six weeks ended June 24, 2012.

Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.9 million, to $1.3 million for the twenty-six weeks ended June 30, 2013, as compared to $2.2 million for the twenty-six weeks ended June 24, 2012. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the first twenty-six weeks of 2013, we opened three restaurants and had five additional restaurants under construction. In the first twenty-six weeks of 2012, we opened four restaurants and had four additional restaurants under construction.

Depreciation and Amortization. Depreciation and amortization expenses increased $0.7 million, to $9.8 million for the twenty-six weeks ended June 30, 2013 compared to $9.1 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, depreciation and amortization expenses increased to 4.7% for the twenty-six weeks ended June 30, 2013 as compared to 4.5% for the twenty-six weeks ended June 24, 2012. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the first two quarter of 2013, while the increase in dollars was due to the growth in the number of our restaurants.

Net Interest Expense. Net interest expense decreased $0.1 million to $0.6 million for the twenty-six weeks ended June 30, 2013 as compared to $0.7 million for the twenty-six weeks ended June 24, 2012. This decrease was due to lower average outstanding debt during the first twenty-six weeks of 2013 compared to the same period in the prior year.

Income Taxes. Income tax expense was $3.1 million, or 28.3% of income before income taxes, for the twenty-six weeks ended June 30, 2013 as compared to $3.6 million, or 28.6% of income before income taxes, for the twenty-six weeks ended June 24, 2012. The decrease in the tax expense as a percentage of income before income taxes was due to increased general business credits.

Liquidity

Our principal sources of cash have been net cash provided by operating activities and borrowings under our senior credit facilities. As of June 30, 2013, we had approximately $5.9 million in cash and cash equivalents and approximately $37.4 million of availability under our senior credit facilities (after giving effect to $2.6 million of outstanding letters of credit at June 30, 2013). Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants, investment in our corporate infrastructure 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 in fiscal 2013.

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 2012 Annual Report on Form 10-K under the heading “Risk Factors.”

 

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The following table presents a summary of our cash flows for the twenty-six weeks ended June 30, 2013 and June 24, 2012 (in thousands):

 

     Twenty-Six Weeks Ended,  
     June 30,     June 24,  
     2013     2012  

Net cash provided by operating activities

   $ 14,228      $ 20,463   

Net cash used in investing activities

     (14,149     (18,493

Net cash used in financing activities

     (7,935     (8,489
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (7,856     (6,519

Cash and cash equivalents at beginning of period

     13,717        10,093   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 5,861      $ 3,574   
  

 

 

   

 

 

 

Operating Activities. Net cash provided by operating activities was $14.2 million for the twenty-six weeks ended June 30, 2013, compared to net cash provided by operations of $20.5 million for the twenty-six weeks ended June 24, 2012. The decrease in net cash provided by operating activities in the first twenty-six weeks of 2013 compared to the same period in 2012 was due to an increase in cash expenditures in excess of the increase in cash receipts. This was primarily due to the timing of rent payments at quarter end in 2013 as compared to 2012 and the repayment of tenant allowances. Cash receipts from operations for the first twenty-six weeks of 2013 and 2012, were $205.5 million and $197.9 million, respectively. Cash expenditures from operations during the first twenty-six weeks of 2013 and 2012 were $194.2 million and $180.4 million, respectively.

Investing Activities. Net cash used in investing activities was $14.1 million for the twenty-six weeks ended June 30, 2013, compared to $18.5 million for the twenty-six weeks ended June 24, 2012. We invest cash to purchase property and equipment related to our restaurant expansion plans. The decrease 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 were opened and under construction during 2013 versus 2012. During the first twenty-six weeks of 2013, we opened three restaurants and had five additional restaurants under construction. In the first twenty-six weeks of 2012, we opened four restaurants and had four additional restaurants under construction.

Financing Activities. Net cash used in financing activities was $7.9 million for the twenty-six weeks ended June 30, 2013, compared to cash used in financing activities of $8.5 million for the twenty-six weeks ended June 24, 2012. For the twenty-six weeks ended June 30, 2013, $6.9 million was used to pay down the Company’s term debt and $1.0 million was used to repurchase Company shares as part of the Company’s buyback program. For the twenty-six weeks ended June 24, 2012, $8.8 million was used to pay down the Company’s term debt, partially offset by $0.3 million in cash and tax benefits related to stock option exercises that was received during the first twenty-six weeks of the 2012.

As of June 30, 2013, 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.

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.

 

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We anticipate that each new restaurant on average will require a total cash investment of $1.5 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 2013 to be in the range of approximately $12.0 million to $14.0 million, for a total of $23.0 million to $25.0 million for the year. This is primarily related to the opening of five additional restaurants in the last two quarters of 2013, the start of construction of restaurants to be opened in early 2014, as well as normal maintenance related capital expenditures relating to our existing restaurants. In conjunction with these restaurant openings, the Company anticipates expensing approximately $2.7 million in preopening costs for the remainder of 2013 for a total of approximately $4.0 million for all of 2013.

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, beverage and supplies, therefore reducing the need for incremental working capital to support growth. We had a net working capital deficit of $28.8 million at June 30, 2013, compared to a net working capital deficit of $25.8 million at December 30, 2012.

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 June 30, 2013, 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. On October 9, 2012, we entered into an amendment to our credit agreement. The amendment eliminated dollar restrictions in paying dividends, distributions to shareholders, or repurchasing of our common share subject to the defined leverage ratio.

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 June 30, 2013, we had an outstanding principal balance of approximately $16.2 million on our term loan facility and no outstanding balance on our revolving credit facility.

 

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Based on the Company’s 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 Company’s liquidity needs over the same period.

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 June 30, 2013, we are not involved in any VIE transactions and do 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 GAAP 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.

There have been no material changes to the significant accounting policies from what was previously reported in our 2012 Annual Report on Form 10-K.

Recent Accounting Pronouncements — We reviewed all 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 June 30, 2013, we had $16.2 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 $20,000 annual change in our interest expense.

Commodity Price Risk

We are exposed to market price fluctuation in some of our food product prices. Given the historical volatility of our 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 any of our fresh 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 related to any of our 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 Company’s 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 Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II – Other Information

 

Item 1. Legal Proceedings

See Note 6 to our consolidated financial statement in Part 1, Item 1 of this report.

 

Item 1A. Risk Factors

There have been no material changes from our risk factors as previously reported in our 2012 Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases of common shares made during the quarter ended June 30, 2013 by or on behalf of the Company or any “affiliated purchaser” as defined by Rule 10b5-1 of the Exchange Act.

 

Bravo Brio Restaurant Group Accounting Periods

   Total
Number
of Shares
Purchased
(1)
     Average
Price
Paid Per
Share
     Total
Number of
Shares
Purchased
as Part of
the
Publicly
Announced
Plans
     Increase in
Dollars for
Share
Repurchase
Authorization
     Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
 

4/1/13-4/28/13

     —         $ —           —         $ —         $ 16,047,947   

4/29/13-5/26/13

     554       $ 16.95         —         $ —         $ 16,047,947   

5/27/13-6/30/13

     —         $ —           —         $ —         $ 16,047,947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total for the Quarter

     554       $ 16.95         —           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes 554 shares withheld, on May 1, 2013, to cover tax withholding obligations at $16.95 per share relating to the vesting of restricted stock issued to employees pursuant to the Company’s Stock Incentive Plan and available to be granted in future periods.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

None.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

The following exhibits are filed or furnished with this Quarterly Report:

 

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EXHIBIT INDEX

 

Exhibit
Number

 

Description

10.1*   Employment Agreement dated August 1, 2013, between the Company and Brian T. O’Malley, employed as the Chief Operating Officer.
11   Computation of Per Share Earnings (included in the notes to the Condensed Notes to Unaudited Consolidated Financial Statement contained in this Report).
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.

 

* Filed herewith

 

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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: August 2, 2013

 

Bravo Brio Restaurant Group, Inc.

By:   /s/ Saed Mohseni
  Saed Mohseni
  President, Chief Executive Officer and Director
  (Principal Executive Officer)
By:   /s/ James J. O’Connor
  James J. O’Connor
  Chief Financial Officer, Treasurer and Secretary
  (Principal Financial Officer)

 

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