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EXCEL - IDEA: XBRL DOCUMENT - Bravo Brio Restaurant Group, Inc.Financial_Report.xls
EX-31.(A) - SECTION 302 CEO CERTIFICATION - Bravo Brio Restaurant Group, Inc.ex-31aq12015.htm
EX-31.(B) - SECTION 302 CFO CERTIFICATION - Bravo Brio Restaurant Group, Inc.ex-31bq12015.htm
EX-32.(A) - SECTION 906 CEO AND CFO CERTIFICATION - Bravo Brio Restaurant Group, Inc.ex-32aq12015.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 29, 2015
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 May 1, 2015, the latest practicable date, 15,197,931 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 29, 2015 AND DECEMBER 28, 2014
(Dollars in thousands)
 
 
March 29,
2015
 
December 28,
2014
 
(Unaudited)
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
357

 
$
427

Accounts receivable
6,734

 
7,079

Tenant improvement allowance receivable
1,009

 
1,613

Inventories
2,810

 
3,132

Deferred income taxes, net
3,180

 
3,459

Prepaid expenses and other current assets
1,814

 
2,179

Total current assets
15,904

 
17,889

Property and equipment — net
181,360

 
178,877

Deferred income taxes — net
50,708

 
50,872

Other assets — net
4,096

 
4,125

Total assets
$
252,068

 
$
251,763

Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Trade and construction payables
$
15,600

 
$
13,238

Accrued expenses
22,592

 
25,975

Deferred lease incentives
7,787

 
7,694

Deferred gift card revenue
10,278

 
12,783

Total current liabilities
56,257

 
59,690

Deferred lease incentives
59,474

 
59,475

Long-term debt
57,100

 
56,000

Other long-term liabilities
23,001

 
22,814

Commitments and contingencies (Note 6)

 

Stockholders’ equity
 
 
 
Common shares, no par value per share— authorized 100,000,000 shares; 20,270,065 shares issued at March 29, 2015 and 20,177,174 shares issued at December 28, 2014
199,637

 
199,718

Preferred shares, no par value per share— authorized 5,000,000 shares; issued and outstanding, 0 shares at March 29, 2015 and December 28, 2014

 

Treasury shares, 5,083,281 shares at March 29, 2015 and December 28, 2014
(72,997
)
 
(72,997
)
Retained deficit
(70,404
)
 
(72,937
)
Total stockholders’ equity
56,236

 
53,784

Total liabilities and stockholders’ equity
$
252,068

 
$
251,763

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 29, 2015 AND MARCH 30, 2014 (UNAUDITED)
(in thousands except per share data)
 
 
Thirteen Weeks Ended
 
March 29,
2015
 
March 30,
2014
Revenues
$
108,169

 
$
102,648

Costs and expenses
 
 
 
Cost of sales
27,906

 
26,510

Labor
38,850

 
36,564

Operating
17,522

 
16,813

Occupancy
8,082

 
7,414

General and administrative expenses
5,782

 
5,738

Restaurant preopening costs
937

 
348

Depreciation and amortization
5,438

 
5,010

Total costs and expenses
104,517

 
98,397

Income from operations
3,652

 
4,251

Interest expense, net
405

 
256

Income before income taxes
3,247

 
3,995

Income tax expense
714

 
1,118

Net income
$
2,533

 
$
2,877

Net income per basic share
0.17

 
0.15

Net income per diluted share
0.16

 
0.14

Weighted average shares outstanding-basic
15,122

 
19,314

Weighted average shares outstanding-diluted
15,870

 
20,165

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 29, 2015 (UNAUDITED)
(Dollars in thousands)
 
 
Common Shares
 
Retained
 
Treasury Stock
 
Stockholders’
 
Shares
 
Amount
 
Deficit
 
Shares
 
Amount
 
Equity
Balance — December 28, 2014
20,177,174

 
$
199,718

 
$
(72,937
)
 
(5,083,281
)
 
$
(72,997
)
 
$
53,784

Net income

 

 
2,533

 

 

 
2,533

Share-based compensation costs

 
393

 

 

 

 
393

Proceeds from the exercise of stock options
27,294

 
39

 

 

 

 
39

Issuance of shares of restricted stock
94,952

 

 

 

 

 

Excess tax deficiency from share based payments, net

 
(120
)
 

 

 

 
(120
)
Shares withheld from restricted stock vesting for minimum tax withholdings
(29,355
)
 
(393
)
 

 

 

 
(393
)
Balance — March 29, 2015
20,270,065

 
$
199,637

 
$
(70,404
)
 
(5,083,281
)
 
$
(72,997
)
 
$
56,236

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 29, 2015 AND MARCH 30, 2014
(UNAUDITED)
(Dollars in thousands)
 
 
Thirteen Weeks Ended
 
March 29,
2015
 
March 30,
2014
Cash flows from operating activities:
 
 
 
Net income
$
2,533

 
$
2,877

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,457

 
5,104

Loss on disposals of property and equipment
52

 
75

Amortization of deferred lease incentives
(1,760
)
 
(1,726
)
Share-based compensation costs
393

 
610

Deferred income taxes
443

 
568

Changes in assets and liabilities:
 
 
 
Accounts and tenant improvement allowance receivables
949

 
2,939

Inventories
322

 
252

Prepaid expenses and other current assets
365

 
428

Trade and construction payables
1,481

 
95

Deferred lease incentives
1,852

 
751

Deferred gift card revenue
(2,505
)
 
(2,899
)
Other accrued expenses
(3,503
)
 
(1,128
)
Other — net
189

 
23

Net cash provided by operating activities
6,268

 
7,969

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(7,084
)
 
(3,089
)
Net cash used in investing activities
(7,084
)
 
(3,089
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt
153,100

 

Payments on long-term debt
(152,000
)
 
(4,520
)
Proceeds from the exercise of stock options
39

 
15

Excess tax benefit related to share based payments

 
6

Shares withheld from restricted stock vesting for minimum tax withholdings
(393
)
 
(286
)
Repurchase of treasury shares

 
(4,005
)
Net cash provided by/(used in) financing activities
746

 
(8,790
)
Net decrease in cash and cash equivalents
(70
)
 
(3,910
)
Cash and cash equivalents — beginning of period
427

 
7,640

Cash and cash equivalents — end of period
$
357

 
$
3,730

Supplemental disclosures of cash flow information:
 
 
 
Interest paid
362

 
154

Income taxes paid
24

 
355

Property financed by trade and construction payables
2,337

 
1,542

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 29, 2015, Bravo Brio Restaurant Group, Inc. (the “Company”) operated 113 restaurants under the trade names “Bravo! Cucina Italiana®,” “Brio Tuscan Grille,” and “Bon Vie®.” Of the 113 restaurants the Company operates, there are 51 Bravo! Cucina Italiana® restaurants, 61 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. The operating results included herein are not necessarily indicative of results for any other interim period or for the full fiscal year.
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 28, 2014 filed with the SEC on March 6, 2015 (the “2014 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 29,
2015
 
March 30,
2014
Net income
$
2,533

 
$
2,877

Weighted average common shares outstanding
15,122

 
19,314

Effect of dilutive securities:
 
 
 
Stock options
745

 
804

Restricted stock
3

 
47

Weighted average common and potentially issuable common shares outstanding—diluted
15,870

 
20,165

Basic net income per common share
$
0.17

 
$
0.15

Diluted net income per common share
$
0.16

 
$
0.14


Shares of common stock equivalents of 0.2 million and 0.3 million were excluded from the diluted calculation due to their anti-dilutive effect for the thirteen weeks ended March 29, 2015 and March 30, 2014, respectively.



- 7 -

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

3.
LONG-TERM DEBT
On November 5, 2014, the Company entered into a credit agreement (the "2014 Credit Agreement") with a syndicate of financial institutions. The 2014 Credit Agreement provides for a revolving credit facility under which the Company may borrow up to $100.0 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 November 2019.
Under the 2014 Credit Agreement, the Company may increase the revolving credit facility by up to $25.0 million if no event of default exists and certain other requirements are satisfied. Borrowings under the revolving credit facility bear interest at the Company’s option of either (i) the Base Rate (as such term is defined in the 2014 Credit Agreement) plus the applicable margin of 0.50% to 1.50% 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 1.50% to 2.50%. In addition, the Company is required to pay an unused facility fee to the lenders equal to 0.20% to 0.35% per annum on the aggregate amount of the unused revolving credit facility, excluding swing-line loans, commencing on November 5, 2014, payable quarterly in arrears. Borrowings under the Company’s revolving credit facility are collateralized by a first priority interest in substantially all assets of the Company and its subsidiaries. As of March 29, 2015, we had an outstanding balance of $57.1 million on our revolving credit facility.
The 2014 Credit Agreement provides for bank guarantees 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 29, 2015, 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 initial public offering, 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 29, 2015 is summarized as follows:
 
 
Number
of Shares
 
Weighted Average
Exercise Price
Outstanding at December 28, 2014
840,658

 
$
1.45

Exercised
(27,294
)
 
$
1.45

Granted

 
$

Forfeited

 
$

Outstanding at March 29, 2015
813,364

 
$
1.45

Exercisable at March 29, 2015
813,364

 
$
1.45

At March 29, 2015, the weighted-average remaining contractual term of options outstanding was approximately 1.7 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 29, 2015 was $10.6 million.

- 8 -


Stock Incentive Plan
Restricted stock activity for the thirteen weeks ended March 29, 2015 is summarized as follows:
 
 
Number of
Shares
 
Weighted-
Average Grant
Date Fair  Value
Outstanding at December 28, 2014
294,749

 
$
16.22

Granted

 
$

Vested
(94,952
)
 
$
16.62

Forfeited
(10,000
)
 
$
16.78

Outstanding at March 29, 2015
189,797

 
$
15.99

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 2015, stock compensation costs related to shares of restricted stock were approximately $0.4 million. As of March 29, 2015, total unrecognized stock-based compensation expense related to non-vested shares of restricted stock was approximately $2.7 million taking into account potential forfeitures, which is expected to be recognized over a weighted average period of approximately 2.2 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 29,355 shares and 18,525 shares of stock towards the minimum statutory tax withholdings which the Company recorded as a reduction in common shares in an amount of approximately $0.4 million and $0.3 million, for the thirteen weeks ended March 29, 2015 and March 30, 2014, respectively.

5.
INCOME TAXES
The Company’s consolidated balance sheets at March 29, 2015 and December 28, 2014 include net deferred tax assets of $53.9 million and $54.3 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 2014 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 2014 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 2014 and the first quarter of 2015. Increases and decreases in guest traffic can have a significant impact on our financial results. In recent years, we have faced uncertain economic conditions, which have resulted in changes to our guests’ discretionary spending. To adjust for 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 29, 2015 Compared to the Thirteen Weeks Ended March 30, 2014
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 29, 2015
 
% of
Revenues
 
March 30, 2014
 
% of
Revenues
 
Change
 
% Change
 
(dollars in thousands)
Revenues
$
108,169

 
100.0
%
 
$
102,648

 
100
%
 
$
5,521

 
5.4
 %
Cost and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
27,906

 
25.8
%
 
26,510

 
25.8
%
 
1,396

 
5.3
 %
Labor
38,850

 
35.9
%
 
36,564

 
35.6
%
 
2,286

 
6.3
 %
Operating
17,522

 
16.2
%
 
16,813

 
16.4
%
 
709

 
4.2
 %
Occupancy
8,082

 
7.5
%
 
7,414

 
7.2
%
 
668

 
9.0
 %
General and administrative expenses
5,782

 
5.3
%
 
5,738

 
5.6
%
 
44

 
0.8
 %
Restaurant pre-opening costs
937

 
0.9
%
 
348

 
0.3
%
 
589

 
-

Depreciation and amortization
5,438

 
5.0
%
 
5,010

 
4.9
%
 
428

 
8.5
 %
Total costs and expenses
104,517

 
96.6
%
 
98,397

 
95.9
%
 
6,120

 
6.2
 %
Income from operations
3,652

 
3.4
%
 
4,251

 
4.1
%
 
(599
)
 
(14.1
)%
Net interest expense
405

 
0.4
%
 
256

 
0.2
%
 
149

 
58.2
 %
Income before income taxes
3,247

 
3.0
%
 
3,995

 
3.9
%
 
(748
)
 
(18.7
)%
Income tax expense
714

 
0.7
%
 
1,118

 
1.1
%
 
(404
)
 
(36.1
)%
Net income
$
2,533

 
2.3
%
 
$
2,877

 
2.8
%
 
$
(344
)
 
(12.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Certain percentage amounts may not sum due to rounding.
Revenues. Revenues increased $5.6 million, or 5.4%, to $108.2 million for the thirteen weeks ended March 29, 2015, as compared to $102.6 million for the thirteen weeks ended March 30, 2014. The increase of $5.6 million was primarily due to a net additional 60 operating weeks provided by six company owned restaurants opened, less the impact of two restaurant closures, in the last three quarters of 2014 and two restaurants opened in the first quarter of 2015. Partially offsetting the effect of this increase in operating weeks was a decrease in comparable sales of 1.2% or $1.2 million, which was the result of a 3.2% decrease in guest counts and a 2.0% increase in average check. We consider a restaurant to be part of the comparable restaurant base in the first full quarter following the eighteenth month of operations.
For our BRAVO! brand, restaurant revenues increased $3.2 million, or 8.6%, to $40.3 million for the thirteen weeks ended March 29, 2015 as compared to $37.1 million for the thirteen weeks ended March 30, 2014. Comparable sales for the BRAVO! brand restaurants decreased 1.7%, or $0.7 million, to $35.7 million for the thirteen weeks ended March 29, 2015 as compared to $36.4 million for the thirteen weeks ended March 30, 2014 due to a decrease in guest counts. Revenues for BRAVO! brand restaurants not included in the comparable restaurant base increased $3.8 million to $4.6 million for the thirteen weeks ended March 29, 2015 as compared to $0.8 million for the thirteen weeks ended March 30, 2014. The increase of $3.8 million was primarily due to the opening of three BRAVO! restaurants in the last three quarters of 2014 and two BRAVO! restaurants in the current year. At March 29, 2015, there were 45 BRAVO! restaurants included in the comparable restaurant base and six BRAVO! restaurants not included in the comparable restaurant base.
For our BRIO brand, restaurant revenues increased $2.4 million, or 3.7%, to $67.9 million for the thirteen weeks ended March 29, 2015 as compared to $65.5 million for the thirteen weeks ended March 30, 2014. Comparable sales for the BRIO brand restaurants decreased 1.0%, or $0.6 million, to $59.8 million for the thirteen weeks ended March 29, 2015 as compared to $60.4 million for the thirteen weeks ended March 30, 2014 due to a decrease in guest counts, partially offset by an increase in average check. Revenues for BRIO brand restaurants not included in the comparable restaurant base increased $3.0 million to $8.0 million for the thirteen weeks ended March 29, 2015 as compared to $5.0 million for the thirteen weeks ended March 30, 2014. The increase of $3.0 million was primarily due to the opening of three BRIO restaurants, partially offset by the closure of two BRIO restaurants in the last three quarters of 2014. At March 29, 2015, there were 54 BRIO restaurants included in the comparable restaurant base and seven BRIO restaurants not included in the comparable restaurant base.


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Cost of Sales. Cost of sales increased $1.4 million, or 5.3%, to $27.9 million for the thirteen weeks ended March 29, 2015 as compared to $26.5 million for the thirteen weeks ended March 30, 2014. The increase was primarily due to the net additional 60 operating weeks as well as a slight increase in commodity costs. As a percentage of revenues, cost of sales remained flat at 25.8% for the thirteen weeks ended March 29, 2015 and March 30, 2014. As a percentage of revenues, food costs decreased 0.1% to 21.1% for the thirteen weeks ended March 29, 2015 as compared to 21.2% for the thirteen weeks ended March 30, 2014. Beverage costs increased to 4.7% for the thirteen weeks ended March 29, 2015 as compared to 4.6% for the thirteen weeks ended March 30, 2014.
Labor Costs. Labor costs increased $2.2 million, or 6.3%, to $38.8 million for the thirteen weeks ended March 29, 2015 as compared to $36.6 million for the thirteen weeks ended March 30, 2014. As a percentage of revenues, labor costs increased to 35.9% for the thirteen weeks ended March 29, 2015, from 35.6% for the thirteen weeks ended March 30, 2014. The increase was primarily due to increased health insurance expenses resulting from the enactment of the Patient Protection and Affordable Care Act.
Operating Costs. Operating costs increased $0.7 million, or 4.2%, to $17.5 million for the thirteen weeks ended March 29, 2015 as compared to $16.8 million for the thirteen weeks ended March 30, 2014. This increase was primarily due to the impact of a net additional 60 operating weeks in 2015 as compared to 2014. As a percentage of revenues, operating costs decreased to 16.2% for the thirteen weeks ended March 29, 2015 as compared to 16.4% for the thirteen weeks ended March 30, 2014 primarily due to the timing of advertising expenses during 2015 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs increased $0.7 million, or 9.0%, to $8.1 million for the thirteen weeks ended March 29, 2015 as compared to $7.4 million for the thirteen weeks ended March 30, 2014 due to the opening of six new restaurants in the last three quarters of 2014 and two new restaurants in the first quarter of 2015. As a percentage of revenues, occupancy costs increased to 7.5% for the thirteen weeks ended March 29, 2015 as compared to 7.2% for the thirteen weeks ended March 30, 2014 due to a reduction in the amortization of tenant improvement allowances related to certain mature restaurants in the current period and the impact of store closures in fiscal year 2014 as well as the deleveraging resulting from the decrease in comparable sales in 2015.
General and Administrative. General and administrative expenses increased by $0.1 million, or 0.8%, to $5.8 million for the thirteen weeks ended March 29, 2015, as compared to $5.7 million for the thirteen weeks ended March 30, 2014. As a percentage of revenues, general and administrative expenses decreased to 5.3% for the thirteen weeks ended March 29, 2015 as compared to 5.6% for the thirteen weeks ended March 30, 2014 due mainly to the increase in consolidated revenues in 2015 resulting from a net additional 60 operating weeks.
Restaurant Pre-opening Costs. Pre-opening costs increased by $0.6 million, to $0.9 million for the thirteen weeks ended March 29, 2015, as compared to $0.3 million for the thirteen weeks ended March 30, 2014. 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 29, 2015, we opened two restaurants and had three restaurants under construction. During the thirteen weeks ended March 30, 2014, we did not open a restaurant and had three restaurants under construction.

Depreciation and Amortization. Depreciation and amortization expenses increased by $0.4 million, to $5.4 million for the thirteen weeks ended March 29, 2015 as compared to $5.0 million for the thirteen weeks ended March 30, 2014. As a percentage of revenues, depreciation and amortization expenses increased to 5.0% for the thirteen weeks ended March 29, 2015 as compared to 4.9% for the thirteen weeks ended March 30, 2014. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the quarter.
Net Interest Expense. Net interest expense increased to $0.4 million for the thirteen weeks ended March 29, 2015. This increase was due to higher average outstanding debt during the thirteen weeks ended March 29, 2015 as compared to the same period in the prior year resulting from borrowings made to fund the repurchase of $50.6 million of the Company's common shares in the fourth quarter of 2014.
Income Taxes. Income tax expense decreased $0.4 million to $0.7 million for the thirteen weeks ended March 29, 2015 as compared to $1.1 million for the thirteen weeks ended March 30, 2014. The decrease in tax expense was due to lower income before income taxes and the adjustment of the estimated annual effective tax rate to approximately 22% during the thirteen weeks ended March 29, 2015 as compared to 28% for the thirteen weeks ended March 30, 2014.


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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 29, 2015, we had approximately $0.4 million in cash and cash equivalents and approximately $40.5 million of availability under our revolving credit facility (after giving effect to $2.4 million of outstanding letters of credit and $57.1 million in outstanding debt under our revolving credit facility at March 29, 2015). Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants and investment in our corporate and information technology infrastructures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our senior credit facilities and expected landlord lease incentives will be sufficient to finance our planned capital expenditures and other operating activities 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 2014 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 29, 2015 and March 30, 2014 (dollars in thousands):
 
 
Thirteen Weeks Ended
 
March 29,
2015
 
March 30,
2014
Net cash provided by operating activities
$
6,268

 
$
7,969

Net cash used in investing activities
(7,084
)
 
(3,089
)
Net cash provided by/(used in) financing activities
746

 
(8,790
)
Net decrease in cash and cash equivalents
(70
)
 
(3,910
)
Cash and cash equivalents at beginning of period
427

 
7,640

Cash and cash equivalents at end of period
$
357

 
$
3,730

Operating Activities. Net cash provided by operating activities was $6.3 million for the thirteen weeks ended March 29, 2015, compared to net cash provided by operating activities of $8.0 million for the thirteen weeks ended March 30, 2014. The decrease in net cash provided by operating activities in the first thirteen weeks of 2015 was due to the timing of payroll tax payments in the thirteen weeks ended March 29, 2015 compared to the thirteen weeks ended March 30, 2014. Cash receipts from operations for the first thirteen weeks of 2015 and 2014 were, including the net redemption of gift cards, $105.7 million and $99.9 million, respectively. Cash expenditures from operations during the first thirteen weeks of 2015 and 2014 were $101.8 million and $93.8 million, respectively.
Investing Activities. Net cash used in investing activities was $7.1 million for the thirteen weeks ended March 29, 2015, compared to $3.1 million for the thirteen weeks ended March 30, 2014. We invest cash to purchase property and equipment related to our restaurant expansion plans. The increase 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 2015 versus 2014. During the first thirteen weeks of 2015, we opened two restaurants and had three additional restaurants under construction. In the first thirteen weeks of 2014, we did not open a restaurant and had three restaurants under construction.
Financing Activities. Net cash provided by financing activities was $0.7 million for the thirteen weeks ended March 29, 2015, compared to net cash used in financing activities of $8.8 million for the thirteen weeks ended March 30, 2014. For the thirteen weeks ended March 29, 2015, the Company had net borrowings of $1.1 million on its revolving credit facility. For the thirteen weeks ended March 30, 2014, $4.5 million was used to pay down long-term debt and $4.0 million was used to repurchase Company shares as part of our stock buyback program.
As of March 29, 2015, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.

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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 2015 to be in the range of approximately $11.0 million to $13.0 million, for a total of $16.0 million to $18.0 million for the year. This is primarily related to the opening of three additional restaurants in the last three quarters of 2015, the start of construction of restaurants to be opened in early 2016, as well as normal maintenance related capital expenditures relating to our existing restaurants. In conjunction with these restaurant openings, the Company anticipates expensing approximately $2.1 million to $2.6 million in pre-opening costs for the remainder of 2015 for a total of $3.0 million to $3.5 million for the 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 $40.4 million at March 29, 2015, compared to a net working capital deficit of $41.8 million at December 28, 2014.
On November 5, 2014, the Company entered into the 2014 Credit Agreement with a syndicate of financial institutions. The 2014 Credit Agreement provides for a revolving credit facility under which the Company may borrow up to $100.0 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 November 2019. Under the 2014 Credit Agreement, the Company may increase the revolving credit facility by up to $25.0 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 and (iii) secured by a pledge of all of the capital stock of our subsidiaries. The 2014 Credit Agreement also requires the Company to meet financial tests, including a maximum consolidated total leverage ratio and a minimum consolidated fixed charge coverage ratio. At March 29, 2015, the Company was in compliance with its applicable financial covenants. Additionally, the 2014 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 revolving credit facility to be in full force and effect, and a change of control of our business.
Borrowings under the 2014 Credit Agreement bear interest at the Company’s option of either (i) the Base Rate (as such term is defined in the 2014 Credit Agreement) plus the applicable margin of 0.50% to 1.50% 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 1.50% to 2.50%. The applicable margins with respect to our revolving credit facility vary from time to time in accordance with agreed upon pricing grids based on our consolidated total leverage ratio. Swing-line loans under our revolving credit facility bear interest only at the Base Rate plus the applicable margin. Interest on loans based upon the 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, the Company is required to pay an unused facility fee to the lenders equal to 0.20% to 0.35% per annum on the aggregate amount of the unused revolving credit facility, excluding swing-line loans, commencing on November 5, 2014, payable quarterly in arrears. As of March 29, 2015, we had an outstanding balance of $57.1 million on our revolving credit facility.
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 cash flow from operations as well as available borrowings under its revolving credit facility will be sufficient to meet the Company’s liquidity needs over the same period.

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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 29, 2015, 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 2014 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
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Additionally, this guidance expands related disclosure requirements. The pronouncement is effective for annual and interim reporting periods beginning after December 15, 2016. Early application is not permitted. This update permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact this guidance will have on our consolidated financial statements as well as the expected adoption method.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). This update requires an entity to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability as opposed to an asset. Amortization of the costs will continue to be reported as interest expense. The update is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued, and the new guidance would be applied retrospectively to all prior periods presented. The adoption of this standard update is not expected to have a material impact on our consolidated financial statements.




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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 revolving credit facility, which is payable at variable rates.
At March 29, 2015, we had $57.1 million outstanding on our revolving credit 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 $71,000 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 unaudited 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 2014 Annual Report on Form 10-K.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.
Defaults Upon Senior Securities
None.
 
Item 4.
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 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: May 4, 2015
 
Bravo Brio Restaurant Group, Inc.
 
 
 
By:
 
/s/ Saed Mohseni
 
 
Saed Mohseni
 
 
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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