10-Q 1 dfrg-20130903x10q.htm FORM 10-Q aaddba668a5c424

 

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 September 3, 2013

OR

 

¨

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

For the transition period from                      to                     

Commission File Number 001-35611

 

 

Del Frisco’s Restaurant Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

Delaware

 

20-8453116

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

930 S. Kimball Ave., Suite 100,

Southlake, TX

 

76092

(Address of principal executive offices)

 

(Zip code)

 

(817) 601-3421

(Registrant’s telephone number, including area code)

 

 

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 definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x   (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 October 8, 2013, the latest practicable date, 23,814,692 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.

 

 


 

 

Table of Contents:

 

 

 

 

 

 

 

 

 

 

 

Part I – Financial Information 

  

 

3

  

Item 1. Financial Statements 

  

 

3

  

Condensed Consolidated Balance Sheets 

  

 

3

  

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) 

  

 

4

  

Condensed Consolidated Statement of Changes in Stockholders’ Equity 

  

 

5

  

Condensed Consolidated Statements of Cash Flows 

  

 

6

  

Notes to Condensed Consolidated Financial Statements 

  

 

7

  

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

  

 

15

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

  

 

19

  

Item 4. Controls and Procedures 

  

 

19

  

 

 

Part II – Other Information 

  

 

19

  

Item 1. Legal Proceedings 

  

 

19

  

Item 1A. Risk Factors 

  

 

19

  

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

  

 

19

  

Item 3. Defaults Upon Senior Securities 

  

 

19

  

Item 4. Mine Safety Disclosures 

  

 

19

  

Item 5. Other Information 

  

 

19

  

Item 6. Exhibits 

  

 

19

  

 

 

Signatures 

  

 

19

  

 

 

2


 

PART I

FINANCIAL INFORMATION

  Item 1.

Financial Statements

DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 3,

 

December 25,

 

2013

 

2012

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

8,711 

 

$

10,763 

Restricted cash

 

215 

 

 

215 

Inventory

 

12,555 

 

 

12,103 

Income taxes receivable

 

1,993 

 

 

 —

Deferred income taxes

 

2,672 

 

 

2,067 

Lease incentives receivable

 

2,205 

 

 

3,092 

Prepaid expenses and other

 

3,259 

 

 

4,758 

Total current assets

 

31,610 

 

 

32,998 

Property and equipment, net

 

115,786 

 

 

105,568 

Goodwill

 

75,365 

 

 

75,365 

Intangible assets, net

 

36,343 

 

 

36,391 

Deferred compensation plan investments

 

9,591 

 

 

7,802 

Other assets

 

268 

 

 

261 

Total assets

$

268,963 

 

$

258,385 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

4,974 

 

$

8,804 

Accrued payroll

 

4,331 

 

 

6,262 

Accrued self-insurance

 

1,799 

 

 

1,662 

Deferred revenue

 

8,017 

 

 

10,314 

Income taxes payable

 

 —

 

 

1,768 

Other current liabilities

 

4,042 

 

 

4,943 

Total current liabilities

 

23,163 

 

 

33,753 

Long-term debt

 

 —

 

 

 —

Deferred rent obligations

 

24,385 

 

 

22,644 

Deferred tax liabilities

 

14,823 

 

 

10,792 

Other liabilities

 

14,507 

 

 

13,295 

Total liabilities

 

76,878 

 

 

80,484 

Commitments and contingencies

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding at December 25, 2012 or September 3, 2013 (unaudited)

 

 —

 

 

 —

Common stock, $0.001 par value, 190,000,000 shares authorized, 23,794,667 and 23,811,692 shares issued and outstanding at December 25, 2012, and September 3, 2013 (unaudited), respectively

 

24 

 

 

24 

Additional paid in capital

 

126,174 

 

 

119,610 

Retained earnings

 

65,887 

 

 

58,267 

Accumulated other comprehensive income

 

 —

 

 

 —

Total stockholders' equity

 

192,085 

 

 

177,901 

Total liabilities and stockholders' equity

$

268,963 

 

$

258,385 

 

See notes to condensed consolidated financial statements.

3


 

DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)—Unaudited

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended

 

36 Weeks Ended

 

September 3,

 

September 4,

 

September 3,

 

September 4,

 

2013

 

2012

 

2013

 

2012

Revenues

$

54,183 

 

$

47,887 

 

$

174,345 

 

$

151,565 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Costs of sales

 

16,187 

 

 

14,526 

 

 

52,721 

 

 

46,489 

Restaurant operating expenses

 

25,693 

 

 

22,167 

 

 

79,147 

 

 

65,945 

Marketing and advertising costs

 

1,336 

 

 

1,127 

 

 

3,592 

 

 

3,133 

Pre-opening costs

 

835 

 

 

1,129 

 

 

1,754 

 

 

2,031 

General and administrative costs

 

4,174 

 

 

3,292 

 

 

12,112 

 

 

8,692 

Management and accounting fees paid to related party

 

 —

 

 

56 

 

 

 —

 

 

1,252 

Asset advisory agreement termination fee

 

 —

 

 

3,000 

 

 

 —

 

 

3,000 

Secondary public offering costs

 

381 

 

 

 —

 

 

793 

 

 

 —

Public offering transaction bonuses

 

3,705 

 

 

1,462 

 

 

5,510 

 

 

1,462 

Depreciation and amortization

 

2,631 

 

 

2,051 

 

 

7,637 

 

 

5,622 

Operating income (loss)

 

(759)

 

 

(923)

 

 

11,079 

 

 

13,939 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8)

 

 

(619)

 

 

(56)

 

 

(2,847)

Write-off of debt issuance costs

 

 —

 

 

(1,649)

 

 

 —

 

 

(1,649)

Other  

 

(56)

 

 

(14)

 

 

(56)

 

 

51 

Income (loss) from continuing operations before income taxes

 

(823)

 

 

(3,205)

 

 

10,967 

 

 

9,494 

Income tax expense (benefit)

 

(443)

 

 

(1,411)

 

 

3,347 

 

 

2,762 

Income (loss) from continuing operations

$

(380)

 

$

(1,794)

 

$

7,620 

 

$

6,732 

Discontinued operations, net of income tax benefit

 

 —

 

 

(628)

 

 

 —

 

 

(543)

Net income (loss)

$

(380)

 

$

(2,422)

 

$

7,620 

 

$

6,189 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.02)

 

$

(0.09)

 

$

0.32 

 

$

0.36 

Discontinued operations

 

0.00 

 

 

(0.03)

 

 

0.00 

 

 

(0.03)

Basic income (loss) per share

$

(0.02)

 

$

(0.12)

 

$

0.32 

 

$

0.33 

Diluted income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.02)

 

$

(0.09)

 

$

0.32 

 

$

0.36 

Discontinued operations

 

0.00 

 

 

(0.03)

 

 

0.00 

 

 

(0.03)

Diluted income (loss) per share

$

(0.02)

 

$

(0.12)

 

$

0.32 

 

$

0.33 

Shares used in computing net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

23,801,335 

 

 

20,825,619 

 

 

23,796,890 

 

 

18,938,318 

Diluted

 

23,937,488 

 

 

20,825,619 

 

 

23,848,946 

 

 

18,938,318 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

$

(380)

 

$

(2,422)

 

$

7,620 

 

$

6,189 

 

See notes to condensed consolidated financial statements.

 

4


 

 

DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity—Unaudited

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Common Stock

 

Additional Paid

 

Retained

 

Comprehensive

 

 

 

 

Shares

 

Par Value

 

In Captial

 

Earnings

 

Income

 

Total 

Balance at December 27, 2011

17,994,667 

 

$

18 

 

$

51,341 

 

$

44,513 

 

$

 —

 

$

95,872 

Comprehensive income

 —

 

 

 —

 

 

 —

 

 

6,189 

 

 

 —

 

 

6,189 

Share-based compensation costs

 —

 

 

 —

 

 

103 

 

 

 —

 

 

 —

 

 

103 

Issuance of common stock for initial public offering net of fees and issuance costs

5,800,000 

 

 

 

 

66,453 

 

 

 —

 

 

 —

 

 

66,459 

Contribution by majority shareholder (see Note 5)

 —

 

 

 —

 

 

1,440 

 

 

 —

 

 

 —

 

 

1,440 

Balance at September 4, 2012

23,794,667 

 

$

24 

 

$

119,337 

 

$

50,702 

 

$

 —

 

$

170,063 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 25, 2012

23,794,667 

 

$

24 

 

$

119,610 

 

$

58,267 

 

$

 —

 

$

177,901 

Comprehensive income

 —

 

 

 —

 

 

 —

 

 

7,620 

 

 

 —

 

 

7,620 

Share-based compensation costs

 —

 

 

 —

 

 

871 

 

 

 —

 

 

 —

 

 

871 

Stock option exercises, including tax effects

17,025 

 

 

 —

 

 

262 

 

 

 —

 

 

 —

 

 

262 

Contribution by majority shareholder (see Note 5)

 —

 

 

 —

 

 

5,431 

 

 

 —

 

 

 —

 

 

5,431 

Balance at September 3, 2013

23,811,692 

 

$

24 

 

$

126,174 

 

$

65,887 

 

$

 —

 

$

192,085 

 

See notes to condensed consolidated financial statements.

 

5


 

 

DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows—Unaudited

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 Weeks Ended

 

September 3,

 

September 4,

 

2013

 

2012

Cash flows from operating activities:

 

 

 

 

 

Net income

$

7,620 

 

$

6,189 

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

 

 

 

 

 

Depreciation and amortization

 

7,637 

 

 

5,758 

Loss on disposal of restaurant property

 

58 

 

 

103 

Write-off of goodwill associated with disposed restaurant property

 

 —

 

 

738 

Write-off of deferred debt issuance costs

 

 —

 

 

1,649 

Loan cost amortization

 

12 

 

 

219 

Non-cash equity based compensation

 

871 

 

 

103 

Deferred income taxes

 

3,426 

 

 

204 

Amortization of deferred lease incentives

 

(345)

 

 

(164)

Changes in operating assets and liabilities:

 

 

 

 

 

Inventories

 

(452)

 

 

(79)

Lease incentives receivable

 

1,987 

 

 

241 

Other assets

 

440 

 

 

(320)

Accounts payable

 

(3,830)

 

 

(1,642)

Income taxes

 

(4,151)

 

 

(2,090)

Deferred rent obligations

 

941 

 

 

2,510 

Other liabilities

 

(4,075)

 

 

(1,111)

Net cash provided by operating activities

 

10,139 

 

 

12,308 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

1,682 

Purchases of property and equipment

 

(17,797)

 

 

(19,475)

Other

 

(92)

 

 

(156)

Net cash used in investing activities

 

(17,884)

 

 

(17,949)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock, net of underwriter fees and issuance costs

 

 —

 

 

67,278 

Proceeds from long-term debt

 

 —

 

 

 —

Payments of long-term debt

 

 —

 

 

(70,000)

Contribution from majority shareholder

 

5,431 

 

 

 —

Proceeds from exercise of stock options

 

262 

 

 

 —

Net cash provided by (used in) financing activities

 

5,693 

 

 

(2,722)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(2,052)

 

 

(8,363)

Cash and cash equivalents at beginning of period

 

10,763 

 

 

14,119 

Cash and cash equivalents at end of period

$

8,711 

 

$

5,756 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest

$

55 

 

$

3,087 

Income taxes

$

3,984 

 

$

4,387 

 

See notes to condensed consolidated financial statements.

6


 

DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

 

 

1.

BUSINESS AND BASIS OF PRESENTATION

As of September 3, 2013, Del Frisco’s Restaurant Group, Inc. (the “Company”) owned and operated 36 restaurants under the concept names of Del Frisco’s Double Eagle Steak House (“Del Frisco’s”), Sullivan’s Steakhouse (“Sullivan’s”), and Del Frisco’s Grille (“Grille”). Of the 36 restaurants the Company operated at the end of the period covered by this report, there were ten Del Frisco’s restaurants, 19 Sullivan’s restaurants and seven Grille restaurants in operation in 19 states throughout the United States of America. Two new Grille locations opened during the 36 weeks ended September 3, 2013 in Houston, Texas and Santa Monica, California.

The accompanying unaudited condensed 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 12 and 36 weeks ended September 3, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Certain amounts from the prior years have been reclassified to conform with the fiscal 2013 presentation. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes for the fiscal year ended December 25, 2012 included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 25, 2012 filed with the SEC on February 26, 2013, as amended on June 14, 2013.

The Company operates on a 52- or 53-week fiscal year ending the last Tuesday in December. The fiscal quarters ended September 3, 2013 and September 4, 2012 each contained 12 weeks and are referred to herein as the third quarter of fiscal year 2013 and the third quarter of fiscal year 2012, respectively. Fiscal year 2013 will be a 53-week fiscal year and fiscal year 2012 was a 52-week fiscal year.

 

 

2.

PUBLIC OFFERINGS

On July 25, 2013, a secondary public offering of the Company’s common stock was completed by the Company’s majority shareholder (along with its affiliates and associates, excluding the Company and other companies that it or they own as a result of their investment activities, “Lone Star Fund”). The selling shareholder sold 6,000,000 previously outstanding shares. In addition, on August 6, 2013, the shareholder sold an additional 900,000 shares of common stock to cover over-allotments related to the July 25, 2013 offering. The Company did not receive any proceeds from the offering. The selling shareholder paid all of the underwriting discounts and commissions associated with the sale of the shares; however, the Company incurred $0.4 million in costs and registration expenses related to this offering. At the completion of this offering and the exercise of the underwriters over-allotment option, Lone Star Fund owned approximately 6.2 million shares of common stock, or approximately 26.0% of the Company’s outstanding shares.

On March 7, 2013, a secondary public offering of the Company’s common stock was completed by Lone Star Fund. The selling shareholder sold 4,750,000 previously outstanding shares. In addition, on April 10, 2013, the shareholder sold an additional 150,000 shares of common stock to cover over-allotments related to the March 7, 2013 offering. The Company did not receive any proceeds from the offering. The selling shareholder paid all of the underwriting discounts and commissions associated with the sale of the shares; however, the Company incurred $0.4 million in costs and registration expenses related to this offering.

On July 26, 2012, the Company priced a $75.4 million initial public offering (“IPO”) of 5.8 million shares of common stock at $13.00 per share. On July 27, 2012, the Company’s common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFRG.” Upon the August 1, 2012 closing of the IPO, the Company received net proceeds of approximately $70.1 million, reflecting approximately $5.3 million of underwriting discounts and commissions. Additionally, the Company incurred approximately $3.7 million in offering costs that reduced the net proceeds available to additional paid in capital. At the completion of the IPO, Lone Star Fund owned approximately 18.0 million shares of common stock, or approximately 75.6% of the Company’s outstanding shares.

Prior to the IPO closing, the Company converted from a limited liability company to a corporation and in connection therewith, the Company’s then-outstanding membership interests were converted into approximately 18.0 million shares of Company common stock (the “Conversion”). All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the Conversion. As part of the IPO, the Company established its authorized shares at 10,000,000 shares of preferred stock, $0.001 par value per share, and 190,000,000 shares of common stock, $0.001 par value per share. At August 1, 2012, the closing date of the IPO, the Company had a total of approximately 23.8 million common shares issued and outstanding.

 

The Company used a portion of the net proceeds from the IPO to repay $61.0 million of amounts outstanding under its credit facility on August 1, 2012. In addition, the Company used $3.0 million of the net proceeds to make a one-time payment to Lone Star Fund in consideration for the termination of an asset advisory agreement upon consummation of the IPO, which is reflected as an operating expense in the condensed consolidated statements of comprehensive income. In conjunction with the repayment of amounts outstanding under the credit facility, the Company wrote-off approximately $1.6 million in unamortized debt issuance costs in the third quarter of fiscal 2012.

 

 

7


 

 

 

3.

EARNINGS PER SHARE

 

Basic earnings per share (“EPS”) data is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS data is computed based on the weighted average number of shares of common stock outstanding, including all potentially issuable shares of common stock. Diluted EPS for the 12 and 36 weeks ended September 3, 2013 excludes options to purchase 396,047 and 233,829 shares of common stock, respectively, which were outstanding during the periods, but were antidilutive. Diluted EPS for the 12 and 36 weeks ended September 4, 2012, excludes stock options of 745,000 shares, which were outstanding during the period but were anti-dilutive.

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended

 

36 Weeks Ended

 

September 3,

 

September 4,

 

September 3,

 

September 4,

 

2013

 

2012

 

2013

 

2012

Income (loss) from continuing operations                     

$

(380)

 

$

(1,794)

 

$

7,620 

 

$

6,732 

Discontinued operations, net of income tax benefit

 

 —

 

 

(628)

 

 

 —

 

 

(543)

Net income (loss)

$

(380)

 

$

(2,422)

 

$

7,620 

 

$

6,189 

Shares:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

23,801,335 

 

 

20,825,619 

 

 

23,796,890 

 

 

18,938,318 

Dilutive shares

 

136,153 

 

 

 —

 

 

52,056 

 

 

 —

Total Diluted Shares

 

23,937,488 

 

 

20,825,619 

 

 

23,848,946 

 

 

18,938,318 

Basic income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.02)

 

$

(0.09)

 

$

0.32 

 

$

0.36 

Discontinued operations

 

0.00 

 

 

(0.03)

 

 

0.00 

 

 

(0.03)

Basic income (loss) per share

$

(0.02)

 

$

(0.12)

 

$

0.32 

 

$

0.33 

Diluted income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.02)

 

$

(0.09)

 

$

0.32 

 

$

0.36 

Discontinued operations

 

0.00 

 

 

(0.03)

 

 

0.00 

 

 

(0.03)

Diluted income (loss) per share

$

(0.02)

 

$

(0.12)

 

$

0.32 

 

$

0.33 

 

 

 

 

 

 

 

 

 

 

 

4.

STOCK-BASED EMPLOYEE COMPENSATION

 

2012 Long-Term Equity Incentive Plan

On July 16, 2012, the Company adopted the Del Frisco’s Restaurant Group, Inc. 2012 Long-Term Equity Incentive Plan (the “2012 Plan”), which allows the Company to grant stock options, restricted stock, restricted stock units, deferred stock units and other equity-based awards to directors, officers, key employees and other key individuals performing services for the Company. The 2012 Plan provides for granting of options to purchase shares of common stock at an exercise price not less than the fair value of the stock on the date of grant. Options are exercisable at various periods ranging from one to four years from the date of grant. The 2012 Plan has 2,232,800 shares authorized for issuance under the plan. There were 1,517,975 shares of common stock issuable upon exercise of outstanding options at September 3, 2013 and 714,825 shares available for future grants.

The following table details the Company’s total stock option compensation cost during the 12 and 36 weeks ended September 3, 2013 and September 4, 2012 as well as where the costs were expensed (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended

 

36 Weeks Ended

 

September 3,

 

September 4,

 

September 3,

 

September 4,

 

2013

 

2012

 

2013

 

2012

Restaurant operating expenses

$

79 

 

$

22 

 

$

171 

 

$

22 

General and administrative costs

 

322 

 

 

81 

 

 

696 

 

 

81 

Total stock compensation cost

$

401 

 

$

103 

 

$

867 

 

$

103 

 

 

8


 

 

The following table summarizes stock option activity during the 36 week period ended September 3, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 Weeks Ended September 3, 2013

 

Shares

 

Weighted average exercise price

 

Weighted average Remaining Contractual Term

 

Aggregate Intrinsic Value ($000's)

Outstanding at beginning of year

 

825,000 

 

 

13.09 

 

 

 

 

 

 

Granted

 

765,500 

 

 

20.82 

 

 

 

 

 

 

Exercised

 

(17,025)

 

 

13.00 

 

 

 

 

 

 

Forfeited

 

(55,500)

 

 

13.65 

 

 

 

 

 

 

Outstanding at end of period

 

1,517,975 

 

 

16.97 

 

 

9.4 years

 

 

4,779 

Options exercisable at end of period

 

156,600 

 

 

13.00 

 

 

8.9 years

 

 

965 

 

A summary of the status of non-vested shares as of September 3, 2013 and changes during the 36 weeks ended September 3, 2013 is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

36 Weeks Ended

 

September 3, 2013

 

Shares

 

Weighted average Grant-Date Fair Value

Non-vested shares at beginning of year

825,000 

 

$

4.93 

Granted

765,500 

 

 

8.30 

Vested

(173,625)

 

 

4.82 

Forfeited

(55,500)

 

 

5.21 

Non-vested shares at end of period

1,361,375 

 

$

6.83 

 

As of September 3, 2013, there was $8.7 million of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a period of approximately 3.4 years. The following table details the values from and assumptions for the Black-Scholes option pricing model for stock options issued during the 36 weeks ended September 3, 2013 and September 4, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

2012

Weighted average grant date fair value

$8.30

 

 

$4.82

Weighted average risk-free interest rate

1.44%

 

 

0.58%

Weighted average expected life

5.49 years

 

 

5.4 years

Weighted average volatility

41.65%

 

 

40.21%

Expected dividend

 —

 

 

 —

 

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award. The assumptions above represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. The expected term of options granted is based on a representative peer group with similar employee groups and expected behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury constant maturities rate in effect at the time of grant. The Company utilized a weighted rate for expected volatility based on a representative peer group with a similar expected term of options granted. Outstanding options granted under the 2012 Plan are subject to a four year vesting period and have a ten year maximum contractual term.

In addition, the Company is required to estimate the expected forfeiture rate and only recognizes expense for those shares expected to vest. If the actual forfeiture rate is materially different from the Company’s estimate, the share-based compensation expense could be materially different.

 

 

 

9


 

5.

RELATED PARTY TRANSACTIONS

In connection with the IPO, as well as the March and July 2013 secondary public offerings, certain executives of the Company earned transaction bonuses totaling approximately $1.5 million, $1.8 million and $3.7 million, respectively. These bonuses were earned under letter agreements, as amended, with LSF5 Wagon Holdings, LLC, an affiliate of Lone Star Fund (“Wagon”), in which certain executives of the Company were eligible to receive a transaction bonus upon the occurrence of an eligible transaction. Wagon is responsible for funding any transaction bonuses under these agreements, including those paid in connection with the IPO as well as the March and July 2013 secondary public offerings. As these bonuses were contingent upon employment with the Company, the Company is required to record the expense of these bonuses and recognize the funding by Wagon as additional paid in capital. The $1.5 million related to the IPO was recorded as an expense to the Company and capital contribution by Wagon in the third quarter of fiscal 2012. The $1.8 million related to the March 2013 secondary public offering was recorded as an expense to the Company and capital contribution by Wagon in the first quarter of fiscal 2013. The $3.7 million related to the July 2013 secondary public offering was recorded as an expense to the Company and capital contribution by Wagon in the third quarter of fiscal 2013.  

In July 2012, the Company entered into a Transition Services Agreement with an affiliate of Lone Star Fund to provide certain limited support services, including legal and risk management, until the Company can complete transition of these functions to internal or third-party resources. This agreement was terminated in July 2013. General and administrative expenses include charges of approximately $5,000 and $30,000 for these services for the 12 and 36 weeks ended September 3, 2013, respectively, and $24,000 for the 12 and 36 weeks ended September 4, 2012, primarily for legal services.

 

 

 

 

6.

LONG-TERM DEBT

 

On October 15, 2012 the Company entered into a new credit facility that provides for a three-year unsecured revolving credit facility of up to $25.0 million. Borrowings under the new credit facility bear interest at a rate of LIBOR plus 1.50%. The Company is required to pay a commitment fee equal to 0.25% per annum on the available but unused revolving credit facility. The credit facility is guaranteed by certain subsidiaries of the Company. The credit facility contains various financial covenants, including a maximum ratio of total indebtedness to EBITDA and minimum fixed charge coverage, both as defined in the credit agreement. The credit facility also contains covenants restricting certain corporate actions, including asset dispositions, acquisitions, the payment of dividends, the incurrence of indebtedness and providing financing or other transactions with affiliates. The Company was in compliance with all of the debt covenants as of September 3, 2013 and December 25, 2012.

As of September 3, 2013 and December 25, 2012, there were no outstanding borrowings on the Company’s revolving credit facility. Under the revolving loan commitment, the Company had approximately $24.2 million of borrowings available under its revolving credit facility, with  $761,000 in outstanding letters of credit commitments drawn on the facility.

 

 

7.

INCOME TAXES

The effective income tax benefit rate for the 12 weeks ended September 3, 2013 was 53.8% compared to an effective income tax benefit rate of 44.0% for the 12 weeks ended September 4, 2012. The effective income tax rate for the 36 weeks ended September 3, 2013 was 30.5% compared to an effective income tax rate of 29.1% for the 36 weeks ended September 4, 2012. The factors that cause the effective tax rates to vary from the federal statutory rate of 35% include the impact of FICA tip and other credits, partially offset by state income taxes and certain non-deductible expenses. The increase in the effective tax rate for the 36 weeks ended September 3, 2013 is primarily attributable to the asset advisory agreement termination fee described in Note 2, which was treated as a discrete transaction in the third quarter of 2012 and reduced income before income taxes and increased the impact of the FICA tip and other credits.

Additionally, in the second quarter of fiscal 2013, the Company determined that a deferred tax asset of $0.5 million recorded in the fourth quarter of fiscal 2012 relating to local income tax net operating loss carryforwards was not realizable, as the related net operating losses originated in years from which the carryforward period had expired.  The Company corrected the deferred tax asset account resulting in a non-cash $0.5 million cumulative adjustment to record additional income tax expense in the second quarter of fiscal 2013. The adjustment did not impact historical cash flows and will not impact the timing of future income tax payments. Prior years’ financial statements were not restated as the impact of these issues was immaterial to previously reported results for any individual prior year and 2012.

 

10


 

 

 

8.

FAIR VALUE MEASUREMENT

Under GAAP, the Company is required to measure certain assets and liabilities at fair value, or to disclose the fair value of certain assets and liabilities recorded at cost. Pursuant to these fair value measurement and disclosure requirements, fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including the Company’s own credit risk. Each fair value measurement is reported in one of the following three levels:

Level 1—valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2—valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

 

The following table presents our financial assets and liabilities measured at fair value on a recurring basis at September 3, 2013 and December 25, 2012, respectively (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

Level

 

September 3, 2013

 

December 25, 2012

Deferred compensation plan investments (life insurance policies)

 

2

 

$

9,591 

 

$

5,586 

Deferred compensation plan investments (mutual funds)

 

1

 

$

 —

 

$

2,216 

Deferred compensation plan liabilities

 

2

 

$

(10,017)

 

$

(8,415)

 

There were no transfers among levels within the fair-value hierarchy during the first three quarters of fiscal 2013 and fiscal 2012. The carrying value of the Company’s cash and cash equivalents and restricted cash approximate fair value because of their short term nature, and are classified within Level 1 of the fair value hierarchy. The carrying value of the Company’s accounts payable approximate fair value because of their short term nature, and are classified within Level 2 of the fair value hierarchy.

 

 

9.

SEGMENT REPORTING

The Company operates the Del Frisco’s, Sullivan’s, and Grille brands as operating segments. The restaurant concepts operate solely in the U.S. within the full-service dining industry, providing similar products to similar customers. Sales from external customers are derived principally from food and beverage sales, and the Company does not rely on any major customers as a source of sales. The restaurant concepts also possess similar economic characteristics, resulting in similar long-term expected financial performance characteristics. However, as Del Frisco’s restaurants typically have higher revenues, driven by their larger physical presence and higher average check, the Del Frisco’s, Sullivan’s, and Grille operating segments have varying operating income and restaurant-level EBITDA margins due to the leveraging of higher revenues on certain fixed operating costs such as management labor, rent, utilities, and building maintenance.

11


 

The following tables present information about reportable segments for the 12 and 36 weeks ended September 3, 2013 and September 4, 2012 and as of September 3, 2013 and September 4, 2012, respectively. (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended September 3, 2013

 

Del Frisco's

 

Sullivan's

 

Grille

 

Corporate

 

Consolidated

Revenues

$

28,786 

 

$

16,061 

 

$

9,336 

 

$

 —

 

$

54,183 

Restaurant-level EBITDA

 

7,799 

 

 

1,605 

 

 

1,563 

 

 

 —

 

 

10,967 

Capital expenditures

 

867 

 

 

537 

 

 

5,883 

 

 

280 

 

 

7,567 

Property and equipment

 

72,572 

 

 

43,662 

 

 

39,517 

 

 

1,722 

 

 

157,473 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended September 4, 2012

 

Del Frisco's

 

Sullivan's

 

Grille

 

Corporate

 

Consolidated

Revenues

$

25,188 

 

$

17,174 

 

$

5,525 

 

$

 —

 

$

47,887 

Restaurant-level EBITDA

 

6,711 

 

 

2,480 

 

 

876 

 

 

 —

 

 

10,067 

Capital expenditures

 

3,282 

 

 

477 

 

 

3,122 

 

 

160 

 

 

7,041 

Property and equipment

 

61,042 

 

 

41,470 

 

 

21,734 

 

 

1,365 

 

 

125,611 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 Weeks Ended September 3, 2013

 

Del Frisco's

 

Sullivan's

 

Grille

 

Corporate

 

Consolidated

Revenues

$

93,685 

 

$

54,146 

 

$

26,514 

 

$

 —

 

$

174,345 

Restaurant-level EBITDA

 

26,134 

 

 

7,819 

 

 

4,932 

 

 

 —

 

 

38,885 

Capital expenditures

 

2,287 

 

 

1,488 

 

 

13,695 

 

 

327 

 

 

17,797 

Property and equipment

 

72,572 

 

 

43,662 

 

 

39,517 

 

 

1,722 

 

 

157,473 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 Weeks Ended September 4, 2012

 

Del Frisco's

 

Sullivan's

 

Grille

 

Corporate

 

Consolidated

Revenues

$

81,288 

 

$

56,468 

 

$

13,809 

 

$

 —

 

$

151,565 

Restaurant-level EBITDA

 

22,766 

 

 

10,261 

 

 

2,971 

 

 

 —

 

 

35,998 

Capital expenditures

 

4,623 

 

 

2,781 

 

 

11,763 

 

 

308 

 

 

19,475 

Property and equipment

 

61,042 

 

 

41,470 

 

 

21,734 

 

 

1,365 

 

 

125,611 

 

12


 

In addition to using consolidated results in evaluating the Company’s performance and allocating its resources, the Company’s chief operating decision maker uses restaurant-level EBITDA, which is not a measure defined by GAAP. The Company defines restaurant-level EBITDA as operating income before pre-opening costs, general and administrative expenses, management and accounting fees paid to related party, asset advisory agreement termination fees, secondary public offering costs, public offering transaction bonuses, and depreciation and amortization. Pre-opening costs are excluded because they vary in timing and magnitude and are not related to the health of ongoing operations. General and administrative expenses and management and accounting fees paid to related party are only included in the Company’s consolidated financial results as they are generally not specifically identifiable to individual operating segments as these costs relate to supporting all of the restaurant operations of the Company and the extension of the Company’s concepts into new markets. Public offering costs, transaction bonuses, and depreciation and amortization are excluded because they are not ongoing controllable cash expenses and they are not related to the health of ongoing operations. Property and equipment is the only balance sheet measure used by the Company’s chief operating decision maker in allocating resources. See table below (in thousands) for a reconciliation of restaurant-level EBITDA to operating income from continuing operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended

 

36 Weeks Ended

 

September 3, 2013

 

September 4, 2012

 

September 3, 2013

 

September 4, 2012

Restaurant-level EBITDA

$

10,967 

 

$

10,067 

 

$

38,885 

 

$

35,998 

Less:

 

 

 

 

 

 

 

 

 

 

 

Pre-opening costs

 

835 

 

 

1,129 

 

 

1,754 

 

 

2,031 

General and administrative

 

4,174 

 

 

3,292 

 

 

12,112 

 

 

8,692 

Management and accounting fees
paid to related party

 

 —

 

 

56 

 

 

 —

 

 

1,252 

Asset advisory agreement termination fee

 

 —

 

 

3,000 

 

 

 —

 

 

3,000 

Public offering costs

 

381 

 

 

 —

 

 

793 

 

 

 —

Public offering transaction bonuses

 

3,705 

 

 

1,462 

 

 

5,510 

 

 

1,462 

Depreciation and amortization

 

2,631 

 

 

2,051 

 

 

7,637 

 

 

5,622 

Operating income (loss)

$

(759)

 

$

(923)

 

$

11,079 

 

$

13,939 

 

 

 

 

 

 

 

 

 

10.

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 condensed 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.

Prior to the acquisition of the Company by Lone Star Fund, the Company guaranteed certain lease payments of related parties in connection with the leasing of real estate for restaurant locations. As of December 25, 2012 and September 3, 2013, the Company was responsible as guarantor for five of these leases. The leases expire at various times through 2016. These guarantees will require payment by the Company only in an event of default by the related party where it is unable to make the required lease payments. Management believes that any future payments required under these guarantees will not be significant. At December 25, 2012 and September 3, 2013 the maximum potential amount of future lease payments the Company could be required to make as a result of the guarantees was approximately $2.0 million and $1.6 million, respectively.

At December 25, 2012 and September 3, 2013, the Company had outstanding letters of credit of $976,000, of which $761,000 were drawn on the Company’s credit facility (see Note 6, Long-Term Debt ) and $215,000 were collateralized by restricted cash. The letters of credit typically act as guarantee of payment to certain third parties in accordance with specified terms and conditions.

 

 

13


 

 

 

 

11.

DISCONTINUED OPERATIONS

 

On June 30, 2012, the Company closed its Dallas Sullivan’s location and on July 2, 2012, the Company completed the sale of the real property to a third party. The Company determined that this closure met the criteria for classification as discontinued operations. As a result, all historical operating results as well as the loss on the sale of this property are reflected within discontinued operations in the condensed consolidated statements of comprehensive income for all periods presented. Loss from discontinued operations, net of tax is comprised of the following for the 12 and 36 weeks ended September 4, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended

 

36 Weeks Ended

 

September 4,

 

September 4,

 

2012

 

2012

Revenues

$

182 

 

$

1,505 

Loss before income tax

 

(844)

 

 

(805)

Income tax benefit

 

216 

 

 

262 

Loss from discontinued operations, net of income tax expense

$

(628)

 

$

(543)

 

 

 

 

 

 

 

 

 

 

12.

SUBSEQUENT EVENTS

 

On October 9, 2013, the Company announced that the Board of Directors approved a common stock repurchase program. Under this program, the Company may from time to time purchase up to $10 million of its outstanding common stock. The common stock repurchases will be made at the Company’s discretion in the open market depending on share price, market conditions and other factors. The common stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares.

 

 

14


 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Statement

Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Although we believe the expectations reflected in any forward looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2012, filed February 26, 2013 and amended on June 14, 2013, or the 2012 10-K, as well as other factors that may affect our business, results of operations, or financial condition. Forward looking statements in this report speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward looking statements, whether as a result of new information,  future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward looking statements contained in this report will, in fact, transpire.

Overview

Del Frisco’s Restaurant Group develops, owns and operates three contemporary, high-end, complementary restaurants: Del Frisco’s Double Eagle Steak House, or Del Frisco’s, Sullivan’s Steakhouse, or Sullivan’s, and Del Frisco’s Grille, or the Grille. We currently operate 37 restaurants in 20 states. Of the 36 restaurants we operated as of the end of the period covered by this report, there were ten Del Frisco’s restaurants, 19 Sullivan’s restaurants and seven Grille restaurants. During the first three fiscal quarters of 2013, we opened two new Grilles located in Houston, Texas and Santa Monica, California. Subsequent to the end of the third quarter, we opened a new Grille restaurant in Palm Beach, Florida.

Unless the context otherwise indicates, all references to “we,” “our,” “us,” or the “Company” refer to Del Frisco’s Restaurant Group, Inc. and its subsidiaries.

Our Growth Strategies and Outlook. Our growth model is comprised of the following three primary drivers:

 

 

 

Pursue Disciplined Restaurant Growth. We believe that there are significant opportunities to grow our concepts on a nationwide basis in both existing and new markets where we believe we can generate attractive unit-level economics. We are presented with many development opportunities and we carefully evaluate each opportunity to determine that sites selected for development have a high probability of meeting our return on investment targets. Our disciplined growth strategy includes accepting only those sites that we believe present attractive rent and tenant allowance structures as well as reasonable construction costs given the sales potential of the site. We believe our concepts’ complementary market positioning and ability to coexist in the same markets, coupled with our flexible unit models, will allow us to expand each of our three concepts into a greater number of locations.

 

 

 

 

Grow Existing Revenue. We will continue to pursue opportunities to increase the sales and average check at our existing restaurants, pursue targeted local marketing efforts and evaluate operational initiatives, including growth in private dining, designed to increase restaurant unit volumes.

 

 

 

 

Maintain Margins Throughout Our Growth. We will continue to aggressively protect our margins using economies of scale, including marketing and purchasing synergies between our concepts and leveraging our corporate infrastructure as we continue to open new restaurants.

 

We believe there are opportunities to open four to six restaurants annually, generally composed of one Del Frisco’s and three to five Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term.

 

15


 

 

Performance Indicators. We use the following key metrics in evaluating the performance of our restaurants:

 

 

 

Comparable Restaurant Sales. We consider a restaurant to be comparable during the first full fiscal period following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time. Changes in comparable sales reflect changes in customer count trends as well as changes in average check. Our comparable restaurant base consisted of 27 and 30 restaurants at September 4, 2012 and September 3, 2013, respectively.

 

 

 

 

Average Check. Average check is calculated by dividing total restaurant sales by customer counts for a given time period. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in customers’ preferences, the effectiveness of menu changes and price increases and per customer expenditures.

 

 

 

 

Average Unit Volume. Average unit volume, or AUV, consists of the average sales of our restaurants over a certain period of time. This measure is calculated by dividing total restaurant sales within a period by the number of restaurants operating during the relevant period. This indicator assists management in measuring changes in customer traffic, pricing and development of our concepts.

 

 

 

 

Customer Counts. Customer counts are measured by the number of entrées ordered at our restaurants over a given time period.

 

 

 

 

Restaurant-Level EBITDA Margin. Restaurant-level EBITDA margin represents net income before interest, taxes and depreciation and amortization plus the sum of certain non-operating expenses, including pre-opening costs, management fees and expenses, asset advisory agreement termination fees, general and administrative expenses, secondary public offering costs, and public offering transaction bonuses, as a percentage of our revenues. By monitoring and controlling our restaurant-level EBITDA margins, we can gauge the overall profitability of our core restaurant operations. See Note 9, Segment Reporting in the notes to our condensed consolidated financial statements for additional information on restaurant-level EBITDA margin.

 

Our business is subject to seasonal fluctuations. Historically, the percentage of our annual revenues earned during the first and fourth fiscal quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season, respectively. In addition, our first, second and third quarters each contain 12 operating weeks with the fourth quarter containing 16 or 17 operating weeks. As many of our operating expenses have a fixed component, our operating income and operating income margin have historically varied significantly from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year.

 

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Results of Operations

The following table shows our operating results (in thousands), as well as our operating results as a percentage of revenues, for the 12 and 36 weeks ended September 3, 2013 and September 4, 2012.