Bravo Brio Restaurant Group, Inc. - FORM 10-Q - April 30, 2014

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EX-32.A - SECTION 906 CEO AND CFO CERTIFICATION - Bravo Brio Restaurant Group, Inc.ex-32aq12014.htm

 
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 March 30, 2014
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 April 30, 2014, the latest practicable date, 19,158,971 of the registrant’s common shares, no par value per share, were outstanding.
 


Table of Contents:
 

- 2 -

PART I
FINANCIAL INFORMATION
 
Item 1.    Financial Statements

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 2014 AND DECEMBER 29, 2013
(Dollars in thousands)
 
 
March 30,
2014
 
December 29,
2013
 
(Unaudited)
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3,730

 
$
7,640

Accounts receivable
6,281

 
8,181

Tenant improvement allowance receivable
348

 
1,386

Inventories
2,689

 
2,941

Deferred income taxes, net
2,811

 
2,625

Prepaid expenses and other current assets
5,006

 
5,434

Total current assets
20,865

 
28,207

Property and equipment — net
168,010

 
169,127

Deferred income taxes — net
52,627

 
53,381

Other assets — net
4,037

 
4,137

Total assets
$
245,539

 
$
254,852

Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Trade and construction payables
$
9,750

 
$
8,781

Accrued expenses
22,569

 
23,651

Current portion of long-term debt
3,296

 
2,082

Deferred lease incentives
7,600

 
7,021

Deferred gift card revenue
9,977

 
12,876

Total current liabilities
53,192

 
54,411

Deferred lease incentives
58,985

 
60,539

Long-term debt
7,877

 
13,611

Other long-term liabilities
22,539

 
22,515

Commitments and contingencies (Note 6)

 

Stockholders’ equity
 
 
 
Common shares, no par value per share— authorized 100,000,000 shares; 20,051,403 shares issued at March 30, 2014 and 19,991,927 shares issued at December 29, 2013
198,211

 
197,913

Preferred shares, no par value per share— authorized 5,000,000 shares; issued and outstanding, 0 shares at March 30, 2014 and December 29, 2013
—

 
—

Treasury shares, 894,432 shares at March 30, 2014; and 633,273 shares at December 29, 2013
(13,383
)
 
(9,378
)
Retained deficit
(81,882
)
 
(84,759
)
Total stockholders’ equity
102,946

 
103,776

Total liabilities and stockholders’ equity
$
245,539

 
$
254,852

See condensed notes to unaudited consolidated financial statements.

- 3 -

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2014 AND MARCH 31, 2013 (UNAUDITED)
(in thousands except per share data)
 
 
Thirteen Weeks Ended
 
March 30,
2014
 
March 31,
2013
Revenues
$
102,648

 
$
103,063

Costs and expenses
 
 
 
Cost of sales
26,510

 
26,964

Labor
36,564

 
36,582

Operating
16,813

 
16,120

Occupancy
7,414

 
6,835

General and administrative expenses
5,738

 
5,859

Restaurant preopening costs
348

 
701

Depreciation and amortization
5,010

 
4,869

Total costs and expenses
98,397

 
97,930

Income from operations
4,251

 
5,133

Interest expense, net
256

 
317

Income before income taxes
3,995

 
4,816

Income tax expense
1,118

 
1,397

Net income
$
2,877

 
$
3,419

Net income per basic share
0.15

 
0.17

Net income per diluted share
0.14

 
0.17

Weighted average shares outstanding-basic
19,314

 
19,606

Weighted average shares outstanding-diluted
20,165

 
20,476

See condensed notes to unaudited consolidated financial statements.


- 4 -

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2014 (UNAUDITED)
(Dollars in thousands)
 
 
Common Shares
 
Retained
 
Treasury Stock
 
Stockholders’
 
Shares
 
Amount
 
Deficit
 
Shares
 
Amount
 
Equity
Balance — December 29, 2013
19,991,927

 
$
197,913

 
$
(84,759
)
 
(633,273
)
 
$
(9,378
)
 
$
103,776

Net income
—

 
—

 
2,877

 
—

 
—

 
2,877

Share-based compensation costs
—

 
610

 
—

 
—

 
—

 
610

Proceeds from the exercise of stock options
10,000

 
15

 
—

 
—

 
—

 
15

Issuance of shares of restricted stock
68,001

 
—

 
—

 
—

 
—

 
—

Excess tax deficiency from share based payments, net
—

 
(41
)
 
—

 
—

 
—

 
(41
)
Shares withheld from restricted stock vesting for minimum tax withholdings
(18,525
)
 
(286
)
 
—

 
—

 
—

 
(286
)
Purchase of treasury shares
—

 
—

 
—

 
(261,159
)
 
(4,005
)
 
(4,005
)
Balance — March 30, 2014
20,051,403

 
$
198,211

 
$
(81,882
)
 
(894,432
)
 
$
(13,383
)
 
$
102,946

See condensed notes to unaudited consolidated financial statements.


- 5 -

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2014 AND MARCH 31, 2013
(UNAUDITED)
(Dollars in thousands)
 
 
Thirteen Weeks Ended
 
March 30,
2014
 
March 31,
2013
Cash flows from operating activities:
 
 
 
Net income
$
2,877

 
$
3,419

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,104

 
4,962

Loss on disposals of property and equipment
75

 
97

Amortization of deferred lease incentives
(1,726
)
 
(4,742
)
Share-based compensation costs
610

 
659

Deferred income taxes
568

 
1,313

Changes in assets and liabilities:
 
 
 
Accounts and tenant improvement allowance receivables
2,939

 
1,659

Inventories
252

 
214

Prepaid expenses and other current assets
428

 
(2,202
)
Trade and construction payables
95

 
(194
)
Deferred lease incentives
751

 
1,368

Deferred gift card revenue
(2,899
)
 
(2,983
)
Other accrued expenses
(1,128
)
 
(4,791
)
Other — net
23

 
(126
)
Net cash provided by/(used in) operating activities
7,969

 
(1,347
)
Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(3,089
)
 
(4,855
)
Net cash used in investing activities
(3,089
)
 
(4,855
)
Cash flows from financing activities:
 
 
 
Payments on long-term debt
(4,520
)
 
(1,352
)
Proceeds from the exercise of stock options
15

 
28

Excess tax benefit related to share based payments
6

 
7

Shares withheld from restricted stock vesting for minimum tax withholdings
(286
)
 
(145
)
Repurchase of treasury shares
(4,005
)
 
(1,025
)
Net cash used in financing activities
(8,790
)
 
(2,487
)
Net decrease in cash and cash equivalents
(3,910
)
 
(8,689
)
Cash and cash equivalents — beginning of period
7,640

 
13,717

Cash and cash equivalents — end of period
$
3,730

 
$
5,028

Supplemental disclosures of cash flow information:
 
 
 
Interest paid
154

 
327

Income taxes paid
355

 
517

Property financed by trade and construction payables
1,542

 
1,130

See condensed notes to unaudited consolidated financial statements.


- 6 -

BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Consolidated Financial Statements
 
1.
BASIS OF PRESENTATION
Description of Business — As of March 30, 2014, Bravo Brio Restaurant Group, Inc. (the “Company”) operated 107 restaurants under the trade names “Bravo! Cucina Italiana®,” “Brio Tuscan Grille™,” and “Bon Vie®.” Of the 107 restaurants the Company operates, there are 46 Bravo! Cucina Italiana® restaurants, 60 Brio Tuscan Grille™ restaurants and one Bon Vie® restaurant in operation in 33 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 March 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2014.
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 29, 2013 filed with the SEC on March 3, 2014 (the “2013 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.
(in thousands, except per share data)
 
 
Thirteen Weeks Ended
 
March 30,
2014
 
March 31,
2013
Net income
$
2,877

 
$
3,419

Weighted average common shares outstanding
19,314

 
19,606

Effect of dilutive securities:
 
 
 
Stock options
804

 
869

Restricted stock
47

 
1

Weighted average common and potentially issuable common shares outstanding—diluted
20,165

 
20,476

Basic net income per common share
$
0.15

 
$
0.17

Diluted net income per common share
$
0.14

 
$
0.17


Shares of common stock equivalents of $0.3 million were excluded from the diluted calculation due to their anti-dilutive effect for the thirteen weeks ended March 30, 2014.


- 7 -
BRAVO BRIO RESTAURANT GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Consolidated Financial Statements – (Continued)

3.
LONG-TERM DEBT
Long-term debt at March 30, 2014 and December 29, 2013 consisted of the following (in thousands):
 
 
March 30,
2014
 
December 29, 2013
Total term loan
$
11,173

 
$
15,693

Less current maturities
3,296

 
2,082

Long-term debt
$
7,877

 
$
13,611

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 March 30, 2014, the maximum exposure under these standby letters of credit was $2.4 million.
 
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.

2006 Plan
Stock option activity for the thirteen weeks ended March 30, 2014 is summarized as follows:
 
 
Number
of Shares
 
Weighted Average
Exercise Price
Outstanding at December 29, 2013
915,417

 
$
1.45

Exercised
(10,000
)
 
$
1.45

Granted
—

 
$
—

Forfeited
—

 
$
—

Outstanding at March 30, 2014
905,417

 
$
1.45

Exercisable at March 30, 2014
905,417

 
$
1.45


- 8 -

At March 30, 2014, the weighted-average remaining contractual term of options outstanding was approximately 2.7 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 March 30, 2014 was $11.4 million.
Stock Incentive Plan
Restricted stock activity for the thirteen weeks ended March 30, 2014 is summarized as follows:
 
 
Number of
Shares
 
Weighted-
Average Grant
Date Fair  Value
Outstanding at December 29, 2013
343,107

 
$
16.94

Granted
136,000

 
$
15.50

Vested
(68,001
)
 
$
17.23

Forfeited
(8,300
)
 
$
16.86

Outstanding at March 30, 2014
402,806

 
$
16.41

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.  In the first thirteen weeks of 2014, stock compensation costs related to shares of restricted stock were approximately $0.6 million. As of March 30, 2014, total unrecognized stock-based compensation expense related to non-vested shares of restricted stock was approximately $5.1 million taking into account potential forfeitures, which is expected to be recognized over a weighted average period of approximately 2.5 years. These shares of restricted stock will vest, subject to certain exceptions, annually over a four-year period. The Company's restricted stock award agreements allow employees to surrender to the Company shares of stock upon vesting in lieu of their payment of the required personal employment-related taxes. Employees surrendered to the Company 18,525 shares and 9,634 shares of stock towards the minimum statutory tax withholdings which the Company recorded as a reduction in common shares in an amount of approximately $0.3 million and $0.1 million, for the thirteen weeks ended March 30, 2014 and March 31, 2013, respectively.

5.
INCOME TAXES
The Company’s consolidated balance sheets at March 30, 2014 and December 29, 2013 include net deferred tax assets of $55.4 million and $56.0 million, respectively. The Company performs a periodic analysis to evaluate whether the deferred tax assets will be realized. Such analysis concluded 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.


- 9 -

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 included herein. 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 2013 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 2013 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 approach to operations continues to focus on core ways to drive and grow our business. We look for new and different ways to increase our comparable sales through various initiatives. We are constantly identifying new potential sites to expand both of our brands by opening new restaurants in the best possible locations within a development and throughout the country. We will continue to evaluate our existing restaurant base to ensure each location is meeting our standards from both an operational and profitability standpoint. Finally, we explore all of our options in deploying our capital in a way that is best for our shareholders and our business.
Our business is highly sensitive to seasonal fluctuations as historically, the percentage of operating income earned during the fourth quarter has been higher due, in part, to higher restaurant sales during the year-end holiday shopping season.  Our business is also highly sensitive to changes in guest traffic and the operating environment continues to be difficult with negative comparable store sales, driven by negative guest traffic, in each quarter of 2013 and the first quarter of 2014. 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. 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. Additionally, we continue to promote our light menu to attract guests looking for healthier options in their dining experience.

- 10 -

Results of Operations
Thirteen Weeks Ended March 30, 2014 Compared to the Thirteen Weeks Ended March 31, 2013
The following table sets forth, for the periods indicated, our consolidated statements of operations both on an actual basis and expressed as a percentage of revenues.
 
Thirteen Weeks Ended
 
March 30, 2014
 
% of
Revenues
 
March 31, 2013
 
% of
Revenues
 
Change
 
% Change
 
(dollars in thousands)
Revenues
$
102,648

 
100.0
%
 
$
103,063

 
100
%
 
$
(415
)
 
(0.4
)%
Cost and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
26,510

 
25.8
%
 
26,964

 
26.2
%
 
(454
)
 
(1.7
)%
Labor
36,564

 
35.6
%
 
36,582

 
35.5
%
 
(18
)
 
—
 %
Operating
16,813

 
16.4
%
 
16,120

 
15.6
%
 
693

 
4.3
 %
Occupancy
7,414

 
7.2
%
 
6,835

 
6.6
%
 
579

 
8.5
 %
General and administrative expenses
5,738

 
5.6
%
 
5,859

 
5.7
%
 
(121
)
 
(2.1
)%
Restaurant preopening costs
348

 
0.3
%
 
701

 
0.7
%
 
(353
)
 
(50.4
)%
Depreciation and amortization
5,010

 
4.9
%
 
4,869

 
4.7
%
 
141

 
2.9
 %
Total costs and expenses
98,397

 
95.9
%
 
97,930

 
95.0
%
 
467

 
0.5
 %
Income from operations
4,251

 
4.1
%
 
5,133

 
5.0
%
 
(882
)
 
(17.2
)%
Net interest expense
256

 
0.2
%
 
317

 
0.3
%
 
(61
)
 
(19.2
)%
Income before income taxes
3,995

 
3.9
%
 
4,816

 
4.7
%
 
(821
)
 
(17.0
)%
Income tax expense
1,118

 
1.1
%
 
1,397

 
1.4
%
 
(279
)
 
(20.0
)%
Net income
$
2,877

 
2.8
%
 
$
3,419

 
3.3
%
 
$
(542
)
 
(15.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
Certain percentage amounts may not sum due to rounding.
Revenues. Revenues decreased $0.5 million, or 0.4%, to $102.6 million for the thirteen weeks ended March 30, 2014, as compared to $103.1 million for the thirteen weeks ended March 31, 2013. The decrease of $0.5 million was primarily due to a decrease in comparable restaurant revenues of 4.8% or $4.6 million, which was driven by a 7.7% decrease in guest counts. Partially offsetting the effect of the decrease in comparable guest counts was a net additional 49 operating weeks provided by eight company owned restaurants opened in 2013; less the operating weeks of three and one restaurant closures in 2013 and 2014, respectively; and an increase of 2.9% in comparable restaurant 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.
For our BRAVO! brand, restaurant revenues decreased $3.1 million, or 7.6%, to $37.1 million for the thirteen weeks ended March 30, 2014 as compared to $40.2 million for the thirteen weeks ended March 31, 2013. Comparable revenues for the BRAVO! brand restaurants decreased 5.5%, or $2.1 million, to $35.8 million for the thirteen weeks ended March 30, 2014 as compared to $37.9 million for the thirteen weeks ended March 31, 2013. 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 decreased $1.0 million to $1.3 million for the thirteen weeks ended March 30, 2014 as compared to $2.3 million for the thirteen weeks ended March 31, 2013. The decrease of $1.0 million was primarily due to the closure of one restaurant during the thirteen weeks ended March 30, 2014. At March 30, 2014, 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 $2.7 million, or 4.2%, to $65.5 million for the thirteen weeks ended March 30, 2014 as compared to $62.8 million for the thirteen weeks ended March 31, 2013. Comparable revenues for the BRIO brand restaurants decreased 4.4%, or $2.5 million, to $54.8 million for the thirteen weeks ended March 30, 2014 as compared to $57.3 million for the thirteen weeks ended March 31, 2013. This decrease was due to a decrease in guest counts as well as a slight decrease in average check. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $5.2 million to $10.7 million for the thirteen weeks ended March 30, 2014. At March 30, 2014, there were 49 BRIO restaurants included in the comparable revenue base and 11 BRIO restaurants not included in the comparable revenue base.


- 11 -

Cost of Sales. Cost of sales decreased approximately $0.5 million, or 1.7%, to $26.5 million for the thirteen weeks ended March 30, 2014, as compared to $27.0 million for the thirteen weeks ended March 31, 2013. As a percentage of revenues, cost of sales decreased to 25.8% for the thirteen weeks ended March 30, 2014, from 26.2% for the thirteen weeks ended March 31, 2013. The decrease in cost of sales, as a percentage of revenues, was due to a menu price increase, which was partially offset by higher commodity costs, principally seafood, in 2014 as compared to 2013. As a percentage of revenues, food costs decreased 0.2% to 21.2% and decreased in total dollars by $0.3 million. Beverage costs decreased 0.2% as a percentage of revenues to 4.6% and decreased in total dollars by $0.2 million. The decrease in these costs in total dollars was related to the decrease in comparable sales in 2014.
Labor Costs. Labor costs were flat at $36.6 million for the thirteen weeks ended March 30, 2014 as compared to the thirteen weeks ended March 31, 2013. As a percentage of revenues, labor costs increased to 35.6% for the thirteen weeks ended March 30, 2014, from 35.5% for the thirteen weeks ended March 31, 2013. While manager labor increased due to the opening of new restaurants in 2013, this increase was offset by efficiencies in hourly labor.
Operating Costs. Operating costs increased $0.7 million, or 4.3%, to $16.8 million for the thirteen weeks ended March 30, 2014, as compared to $16.1 million for the thirteen weeks ended March 31, 2013. This increase was primarily due to a net additional 49 operating weeks in 2014 as compared to 2013 resulting from the eight company owned restaurants opened in all of 2013, less the operating weeks of three and one restaurant closures in 2013 and 2014, respectively. As a percentage of revenues, operating costs increased to 16.4% for the thirteen weeks ended March 30, 2014, compared to 15.6% for the thirteen weeks ended March 31, 2013. The increase as a percentage of revenues was related to the decrease in comparable sales in 2014 as well as higher advertising costs and repair and maintenance costs in the first quarter of 2014 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs increased approximately $0.6 million, or 8.5%, to $7.4 million for the thirteen weeks ended March 30, 2014, as compared to $6.8 million for the thirteen weeks ended March 31, 2013. The increase was due to the eight company owned restaurants opened in all of 2013. As a percentage of revenues, occupancy costs increased to 7.2% for the thirteen weeks ended March 30, 2014 compared to 6.6% for the thirteen weeks ended March 31, 2013, primarily due to the deleveraging resulting from the decrease in comparable sales in the first quarter of 2014.
General and Administrative. General and administrative expenses decreased by $0.2 million, or 2.1%, to $5.7 million for the thirteen weeks ended March 30, 2014, as compared to $5.9 million for the thirteen weeks ended March 31, 2013. The decrease in general and administrative expenses was attributable to lower travel expenses as well as lower labor and fringe benefit costs. As a percentage of revenues, general and administrative expenses decreased to 5.6% for the thirteen weeks ended March 30, 2014 compared to 5.7% for the thirteen weeks ended March 31, 2013.
Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.4 million, to $0.3 million for the thirteen weeks ended March 30, 2014, as compared to $0.7 million for the thirteen weeks ended March 31, 2013. 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 March 30, 2014, we had three restaurants under construction. During the thirteen weeks ended March 31, 2013, we opened two restaurants and had one additional restaurant under construction.

Depreciation and Amortization. Depreciation and amortization expenses increased $0.1 million, to $5.0 million for the thirteen weeks ended March 30, 2014 compared to $4.9 million for the thirteen weeks ended March 31, 2013. As a percentage of revenues, depreciation and amortization expenses increased to 4.9% for the thirteen weeks ended March 30, 2014 as compared to 4.7% for the thirteen weeks ended March 31, 2013. 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 decreased to $0.3 million for the thirteen weeks ended March 30, 2014. This decrease was due to lower average outstanding debt during the thirteen weeks ended March 30, 2014 compared to the same period in the prior year.
Income Taxes. Income tax expense was $1.1 million, or 28.0% of income before income taxes, for the thirteen weeks ended March 30, 2014 as compared to $1.4 million, or 29.0% of income before income taxes, for the thirteen weeks ended March 31, 2013. The decrease in tax expense as a percentage of income before income taxes was due to increased general business credits.


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Liquidity
Our principal sources of cash have been net cash provided by operating activities and borrowings under our senior credit facilities. As of March 30, 2014, we had approximately $3.7 million in cash and cash equivalents and approximately $37.6 million of availability under our senior credit facilities (after giving effect to $2.4 million of outstanding letters of credit at March 30, 2014). 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 over the next twelve months.
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 2013 Annual Report on Form 10-K under the heading “Risk Factors.”

The following table presents a summary of our cash flows for the thirteen weeks ended March 30, 2014 and March 31, 2013 (dollars in thousands):
 
 
Thirteen Weeks Ended,
 
March 30,
2014
 
March 31,
2013
Net cash provided by/(used in) operating activities
$
7,969

 
$
(1,347
)
Net cash used in investing activities
(3,089
)
 
(4,855
)
Net cash used in financing activities
(8,790
)
 
(2,487
)
Net decrease in cash and cash equivalents
(3,910
)
 
(8,689
)
Cash and cash equivalents at beginning of period
7,640

 
13,717

Cash and cash equivalents at end of period
$
3,730

 
$
5,028

Operating Activities. Net cash provided by operating activities was $8.0 million for the thirteen weeks ended March 30, 2014, compared to net cash used in operations of $1.3 million for the thirteen weeks ended March 31, 2013. The increase in net cash provided by operating activities in the first thirteen weeks of 2014 compared to the same period in 2013 was due to repayment of tenant allowances and the timing of rent payments. Furthermore, we remitted additional sales tax due to an extra week of sales in the fourth quarter of fiscal 2012 that were paid out in the first quarter of fiscal 2013. Cash receipts from operations for the first thirteen weeks of 2014 and 2013 were, including the net redemption of gift cards, $99.9 million and $100.0 million, respectively. Cash expenditures from operations during the first thirteen weeks of 2014 and 2013 were $93.8 million and $100.1 million, respectively.
Investing Activities. Net cash used in investing activities was $3.1 million for the thirteen weeks ended March 30, 2014, compared to $4.9 million for the thirteen weeks ended March 31, 2013. We invest cash to purchase property and equipment related to our restaurant expansion plans. The decrease in spending was related to the timing of spending related to our new restaurants as well as the number of restaurants that were opened and under construction during 2014 versus 2013. During the first thirteen weeks of 2014, we had three additional restaurants under construction. In the first thirteen weeks of 2013, we opened two restaurants and had one additional restaurant under construction.
Financing Activities. Net cash used in financing activities was $8.8 million for the thirteen weeks ended March 30, 2014, compared to net cash used in financing activities of $2.5 million for the thirteen weeks ended March 31, 2013. For the thirteen weeks ended March 30, 2014, $4.5 million was used to pay down our term debt and $4.0 million was used to repurchase Company shares as part of our stock buyback program. For the thirteen weeks ended March 31, 2013, $1.4 million was used to pay down our term debt and $1.0 million was used to repurchase Company shares as part of our stock buyback program.

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As of March 30, 2014, 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 the 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 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 2014 to be in the range of approximately $21.0 million to $23.0 million, for a total of $22.0 million to $24.0 million for the year. This is primarily related to the opening of six additional restaurants in the last three quarters of 2014, the start of construction of restaurants to be opened in early 2015, as well as normal maintenance related capital expenditures relating to our existing restaurants. In conjunction with these restaurant openings, the Company anticipates expensing approximately $3.2 million to $3.7 million in pre-opening costs for the remainder of 2014 for a total of $3.5 million to $4.0 million for year.
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 $32.3 million at March 30, 2014, compared to a net working capital deficit of $26.2 million at December 29, 2013.
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 March 30, 2014, we were in compliance with our 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 is 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 is 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 March 30, 2014, we had an outstanding principal balance of approximately $11.2 million on our term loan facility and no outstanding balance on our revolving credit facility.

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Based on our forecasts, management believes that we will be able to maintain compliance with our applicable financial covenants for the next twelve months. Management believes that the cash provided by operating activities as well as available borrowings under our revolving credit facility will be sufficient to meet our 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 March 30, 2014, we were not involved in any VIE transactions and did not otherwise have any off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies from what was previously reported in our 2013 Annual Report on Form 10-K.
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. We base our 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.
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 March 30, 2014, we had $11.2 million in debt outstanding under our term loan facility. Each one-eighth point change in interest rates on the variable rate portion of debt under our senior credit facilities would result in an approximately $15,000 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 amended (the "Exchange Act") 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 Exchange Act) 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 statements 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 2013 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 March 30, 2014 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
12/30/2013-1/26/2014
 
—

 
$
—

 
—

 
$
—

 
$
17,873,867

1/27/2014-2/23/2014
 
—

 
$
—

 
—

 
$
—

 
$
17,873,867

2/24/2014-3/30/2014
 
261,159

 
$
15.34

 
261,159

 
$
—

 
$
13,868,981

Total for the Quarter
 
261,159

 
$
15.34

 
261,159

 
 
 
 
 
(1)
Includes 261,159 Company shares repurchased during the periods noted above, at an average price of $15.34 per share, including commissions, as part of the Company’s 10b-18 plan that was approved by the Board of Directors on October 23, 2013. Pursuant to the plan, the Board of Directors has authorized the Company to make up to $20 million in share repurchases prior to the plan’s expiration on December 28, 2014.  

Item 3.
Defaults Upon Senior Securities
None.
 
Item 4.
Mine Safety Disclosures
Not applicable.
 
Item 5.
Other Information
None.
 

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Item 6.
Exhibits
The following exhibits are filed or furnished with this Quarterly Report:

EXHIBIT INDEX
Exhibit
Number
 
Description
 
 
 
11
 
Computation of Per Share Earnings (included in the notes to the Condensed Notes to Unaudited Consolidated Financial Statements 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

- 18 -

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: April 30, 2014
 
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)

- 19 -

Bravo Brio Restaurant Group, Inc. Reports