Twenty-Six Weeks Ended
June 25, 2017
Compared to the
Twenty-Six Weeks Ended
June 26, 2016
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 25,
2017
|
|
% of
Revenues
|
|
June 26,
2016
|
|
% of
Revenues
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
Revenues
|
$
|
209,760
|
|
|
100
|
%
|
|
$
|
214,013
|
|
|
100
|
%
|
|
$
|
(4,253
|
)
|
|
(2.0
|
)%
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
54,488
|
|
|
26.0
|
%
|
|
55,242
|
|
|
25.8
|
%
|
|
(754
|
)
|
|
(1.4
|
)%
|
|
Labor
|
77,537
|
|
|
37.0
|
%
|
|
79,016
|
|
|
36.9
|
%
|
|
(1,479
|
)
|
|
(1.9
|
)%
|
|
Operating
|
33,785
|
|
|
16.1
|
%
|
|
35,194
|
|
|
16.4
|
%
|
|
(1,409
|
)
|
|
(4.0
|
)%
|
|
Occupancy
|
15,756
|
|
|
7.5
|
%
|
|
15,586
|
|
|
7.3
|
%
|
|
170
|
|
|
1.1
|
%
|
|
General and administrative expenses
|
14,046
|
|
|
6.7
|
%
|
|
13,245
|
|
|
6.2
|
%
|
|
801
|
|
|
6.0
|
%
|
|
Restaurant preopening costs
|
150
|
|
|
0.1
|
%
|
|
514
|
|
|
0.2
|
%
|
|
(364
|
)
|
|
(70.8
|
)%
|
|
Impairment
|
—
|
|
|
—
|
%
|
|
1,249
|
|
|
0.6
|
%
|
|
(1,249
|
)
|
|
-
|
|
|
Depreciation and amortization
|
10,257
|
|
|
4.9
|
%
|
|
11,080
|
|
|
5.2
|
%
|
|
(823
|
)
|
|
(7.4
|
)%
|
|
Total costs and expenses
|
206,019
|
|
|
98.2
|
%
|
|
211,126
|
|
|
98.7
|
%
|
|
(5,107
|
)
|
|
(2.4
|
)%
|
|
Income from operations
|
3,741
|
|
|
1.8
|
%
|
|
2,887
|
|
|
1.3
|
%
|
|
854
|
|
|
29.6
|
%
|
|
Interest expense, net
|
1,040
|
|
|
0.5
|
%
|
|
692
|
|
|
0.3
|
%
|
|
348
|
|
|
50.3
|
%
|
|
Income before income taxes
|
2,701
|
|
|
1.3
|
%
|
|
2,195
|
|
|
1.0
|
%
|
|
506
|
|
|
23.1
|
%
|
|
Income tax expense
|
205
|
|
|
0.1
|
%
|
|
601
|
|
|
0.3
|
%
|
|
(396
|
)
|
|
(65.9
|
)%
|
|
Net income
|
$
|
2,496
|
|
|
1.2
|
%
|
|
$
|
1,594
|
|
|
0.7
|
%
|
|
$
|
902
|
|
|
56.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain percentage amounts may not sum due to rounding. Percentages over 100% are not shown.
|
Revenues.
Revenues
decreased
$4.2 million
, or
2.0%
, to
$209.8 million
for the
twenty-six weeks ended
June 25, 2017
, as compared to
$214.0 million
for the
twenty-six weeks ended
June 26, 2016
. The decrease of
$4.2 million
was primarily due to a decrease in comparable restaurant sales of
1.6%
, or $3.4 million, which was the result of a
3.6%
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
decrease
d
$3.6 million
, or
4.6%
, to
$75.9 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$79.5 million
for the
twenty-six weeks ended
June 26, 2016
. Comparable restaurant sales for the BRAVO! brand restaurants
decrease
d
2.0%
, or
$1.5 million
, to
$73.4 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$74.9 million
for the
twenty-six weeks ended
June 26, 2016
. This
decrease
was due to a decrease guest counts, partially offset by an increase in average check during the first
twenty-six
weeks of
2017
. Revenues for BRAVO! brand restaurants not included in the comparable restaurant base
decrease
d $2.1 million to $2.5 million for the
twenty-six weeks ended
June 25, 2017
as compared to $4.6 million for the
twenty-six weeks ended
June 26, 2016
. The decrease of $2.1 million was primarily due to the impact of two restaurant closures in the third quarter of 2016 and one restaurant closure in the current period. At
June 25, 2017
, there were
48
BRAVO! restaurants included in the comparable restaurant base and
two
BRAVO! restaurants not included in the comparable restaurant base.
For our BRIO brand, restaurant revenues
decrease
d
$0.7 million
, or
0.5%
, to
$133.7 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$134.4 million
for the
twenty-six weeks ended
June 26, 2016
. Comparable restaurant sales for the BRIO brand restaurants
decrease
d
1.4%
, or
$1.9 million
, to
$128.6 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$130.5 million
for the
twenty-six weeks ended
June 26, 2016
. This
decrease
was due to a decrease in guest counts, partially offset by an increase in average check during the first
twenty-six
weeks of
2017
. Revenues for BRIO brand restaurants not included in the comparable restaurant base
increase
d
$1.2 million
to
$5.1 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$3.9 million
for the
twenty-six weeks ended
June 26, 2016
. The increase of
$1.2 million
was primarily due to the opening of three BRIO restaurants in
2016
. At
June 25, 2017
, there were
61
BRIO restaurants included in the comparable restaurant base and
two
BRIO restaurants not included in the comparable restaurant base.
Cost of Sales.
Cost of sales
decreased
approximately
$0.7 million
, or
1.4%
, to
$54.5 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$55.2 million
for the
twenty-six weeks ended
June 26, 2016
. The decrease was primarily due to the additional costs associated with the initial testing and implementation of a new menu at both brands during the second quarter of 2016. As a percentage of revenues, cost of sales
increased
to
26.0%
for the
twenty-six weeks ended
June 25, 2017
as compared to
25.8%
for the
twenty-six weeks ended
June 26, 2016
. As a percentage of revenues, food costs
increased
0.3% to 21.6% for the
twenty-six weeks ended
June 25, 2017
as compared to
21.3%
for the
twenty-six weeks ended
June 26, 2016
. Beverage costs, as a percentage of revenues,
decreased
0.1% to 4.4% for the
twenty-six weeks ended
June 25, 2017
as compared to 4.5% for the
twenty-six weeks ended
June 26, 2016
.
Labor Costs.
Labor costs
decreased
$1.5 million
, or
1.9%
, to
$77.5 million
for the
twenty-six weeks ended
June 25, 2017
, as compared to
$79.0 million
for the
twenty-six weeks ended
June 26, 2016
. This decrease was primarily due to additional training costs associated with the initial testing and implementation of a new menu at both brands during the second quarter of 2016. As a percentage of revenues, labor costs
increased
to
37.0%
for the
twenty-six weeks ended
June 25, 2017
as compared to
36.9%
for the
twenty-six weeks ended
June 26, 2016
. The increase was primarily due the deleveraging resulting from the
decrease
in comparable restaurant sales in the first
twenty-six
weeks of
2017
as compared to the same period in the prior year.
Operating Costs.
Operating costs
decreased
$1.4 million
, or
4.0%
, to
$33.8 million
for the
twenty-six weeks ended
June 25, 2017
, as compared to
$35.2 million
for the
twenty-six weeks ended
June 26, 2016
. This
decrease
was primarily due to a decrease in supplies costs during the
twenty-six weeks ended
June 25, 2017
. As a percentage of revenues, operating costs
decreased
to
16.1%
for the
twenty-six weeks ended
June 25, 2017
as compared to
16.4%
for the
twenty-six weeks ended
June 26, 2016
. This
decrease
was primarily due to a decrease in supplies costs during the
twenty-six
weeks of
2017
as compared to the same period in the prior year.
Occupancy Costs.
Occupancy costs
increased
$0.2 million
, or
1.1%
, to
$15.8 million
for the
twenty-six weeks ended
June 25, 2017
, as compared to
$15.6 million
for the
twenty-six weeks ended
June 26, 2016
. This
increase
was primarily due to a reduction in the amortization of deferred incentives. As a percentage of revenues, occupancy costs
increased
to
7.5%
for the
twenty-six weeks ended
June 25, 2017
as compared to
7.3%
for the
twenty-six weeks ended
June 26, 2016
due to the deleveraging resulting from the
decrease
in comparable restaurant sales in the first
twenty-six
weeks of
2017
as compared to the same period in the prior year.
General and Administrative.
General and administrative expenses
increased
by
$0.8 million
, or
6.0%
, to
$14.0 million
for the
twenty-six weeks ended
June 25, 2017
, as compared to
$13.2 million
for the
twenty-six weeks ended
June 26, 2016
. This increase was primarily due to an increase in litigation costs during the
twenty-six weeks ended
June 25, 2017
. As a percentage of revenues, general and administrative expenses
increased
to
6.7%
for the
twenty-six weeks ended
June 25, 2017
as compared to
6.2%
for the
twenty-six weeks ended
June 26, 2016
, due mainly to an increase in litigation costs as well as the deleveraging resulting from the
decrease
in comparable restaurant sales in the first
twenty-six
weeks of
2017
as compared to the same period in the prior year.
Restaurant Pre-opening Costs.
Pre-opening costs
decreased
by
$0.3 million
to
$0.2 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$0.5 million
for the
twenty-six weeks ended
June 26, 2016
. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the first
twenty-six
weeks of
2017
, we did not open any
restaurants
and had
one
restaurant under construction. In the first
twenty-six
weeks of
2016
, we opened
two
restaurants
and had no
restaurants
under construction.
Impairment.
We review long-lived assets, such as property and equipment and intangibles subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the use of assets, changes in our overall business strategy and significant negative industry or economic trends. Our impairment charges have been incurred as a result of locations that have had lower than anticipated traffic near the restaurant and locations that have opened in areas with lower than normal retail co-tenancy. Based upon our analysis, we did not incur a non-cash impairment charge during the
twenty-six weeks ended
June 25, 2017
. We incurred a non-cash impairment charge of
$1.2 million
during the
twenty-six weeks ended
June 26, 2016
related to one restaurant.
Depreciation and Amortization.
Depreciation and amortization expenses
decreased
$0.8 million
to
$10.3 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$11.1 million
for the
twenty-six weeks ended
June 26, 2016
. This decrease was primarily due to asset impairment charges incurred in 2016. As a percentage of revenues, depreciation and amortization expenses
decrease
d to
4.9%
for the
twenty-six weeks ended
June 25, 2017
as compared to
5.2%
for the
twenty-six weeks ended
June 26, 2016
. The
decrease
, as a percentage of revenues, was due to asset impairment charges incurred in 2016.
.
Net Interest Expense.
Net interest expense increased by
$0.3 million
to
$1.0 million
for the
twenty-six weeks ended
June 25, 2017
as compared to
$0.7 million
and the
twenty-six weeks ended
June 26, 2016
. This increase was primarily due to higher borrowing rates for the
twenty-six weeks ended
June 25, 2017
after giving effect to the Amendment, as compared to the borrowing rates for the
twenty-six weeks ended
June 26, 2016
.
Income Taxes.
Income tax expense decreased
$0.4 million
to
$0.2 million
for the
twenty-six weeks ended
June 25, 2017
as compared to an income tax expense of
$0.6 million
for the
twenty-six weeks ended
June 26, 2016
. The decrease in income tax expense was due to the difference in the estimated annual effective tax rate of approximately 5% for the
twenty-six weeks ended
June 25, 2017
as compared to an estimated annual effective tax rate of approximately 10% for the
twenty-six weeks ended
June 26, 2016
Non-GAAP Measures.
Adjusted net income and Adjusted net income per share are supplemental measures of our performance that are not required or presented in accordance with generally accepted accounting principles, or GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered by themselves or as a substitute for measures of performance prepared in accordance with GAAP.
We calculate these non-GAAP measures by adjusting net income and net income per share for the impact of certain non-comparable items that are reflected in our GAAP results. We believe these adjusted measures provide investors with additional information to facilitate the comparison of our past and present financial results and assist users of the financial statements to better understand our results. We utilize results that both include and exclude the identified items in evaluating our business performance. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will not be affected by certain unusual or non-comparable items.
The following is a reconciliation from net income and net income per share to the corresponding adjusted measures (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 25,
2017
|
|
June 26,
2016
|
|
Net income
|
$
|
2,496
|
|
|
$
|
1,594
|
|
|
Impact from:
|
|
|
|
|
Litigation settlements and expenses, net (1)
|
1,560
|
|
|
—
|
|
|
Asset impairment charges (2)
|
—
|
|
|
1,249
|
|
|
Reserve for uncertain tax positions (3)
|
—
|
|
|
265
|
|
|
Tax expense from excess tax deficiency for option exercises (4)
|
—
|
|
|
134
|
|
|
Income tax expense (5)
|
(78
|
)
|
|
(125
|
)
|
|
Adjusted net income
|
$
|
3,978
|
|
|
$
|
3,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
Diluted
|
|
|
June 25,
2017
|
|
June 26,
2016
|
|
June 25,
2017
|
|
June 26,
2016
|
|
Net income per share
|
$
|
0.16
|
|
|
$
|
0.11
|
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
Impact from:
|
|
|
|
|
|
|
|
|
Litigation settlements and expenses, net (1)
|
0.10
|
|
|
—
|
|
|
0.10
|
|
|
—
|
|
|
Asset impairment charges (2)
|
—
|
|
|
0.08
|
|
|
—
|
|
|
0.08
|
|
|
Reserve for uncertain tax positions (3)
|
—
|
|
|
0.02
|
|
|
—
|
|
|
0.02
|
|
|
Tax expense from excess tax deficiency for option exercises (4)
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.01
|
|
|
Income tax expense (5)
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Adjusted net income per share
|
$
|
0.25
|
|
|
$
|
0.21
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
Weighted average shares outstanding
|
15,144
|
|
|
14,681
|
|
|
15,175
|
|
|
15,331
|
|
______________________
|
|
|
|
1)
|
See Note
6
to our unaudited consolidated financial statements in Part 1, Item 1 of this report for information regarding litigation settlements and expenses recorded during the
twenty-six weeks ended
June 26, 2016
.
|
|
|
|
|
2)
|
Reflects non-cash asset impairment charges for the
twenty-six weeks ended
June 26, 2016
for one restaurant.
|
|
|
|
|
3)
|
During the
twenty-six weeks ended
June 26, 2016
, the Company determined that settlement of the Internal Revenue Service audit of the Company's fiscal year ended December 26, 2010 was more likely than not and recorded a reserve for an uncertain tax position.
|
|
|
|
|
4)
|
Reflects the excess tax deficiency associated with the exercise of stock options during the period.
|
|
|
|
|
5)
|
Reflects the adjustments for income taxes, at our estimated annual effective tax rate, related to accrued liability for current litigation and impairment charges.
|
Liquidity
Our principal sources of cash have been net cash provided by operating activities and borrowings under our revolving credit facility. As of
June 25, 2017
, we had approximately
$0.4 million
in cash and cash equivalents. On August 1, 2017, the Company entered into the Second Amendment to its senior credit facilities. The Second Amendment reduces the amount we may borrow pursuant to our revolving credit facility from $30.0 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) to (i) $20.0 million (including a sublimit cap of up to $4.0 million for letters of credit and up to $10.0 million for swing-line loans) on August 1, 2017, (ii) $15.0 million (including a sublimit cap of up to $4.0 million for letters of credit and up to $10.0 million for swing-line loans) on December 31, 2017, (iii) $15.0 million (including a sublimit cap of up to $3.0 million for letters of credit and up to $10.0 million for swing-line loans) on March 31, 2018 and (iv) $10.0 million (including a sublimit cap of up to $3.0 million for letters of credit and up to $10.0 million for swing-line loans) on June 30, 2018. After giving effect to the Second Amendment, as of
June 25, 2017
, we would have had approximately
$10.4 million
of availability under our revolving credit facility (after giving effect to
$2.9 million
of outstanding letters of credit and
$6.7 million
in outstanding debt under our revolving credit facility).
Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants, existing site remodels 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 revolving credit facility 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 may impact our capacity to borrow money under our revolving credit facility. However, restaurant real estate operating leases are expressly excluded from the restrictions under our revolving credit facility 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
2016
Annual Report on Form 10-K under the heading “Risk Factors.”
The following table presents a summary of our cash flows for the
twenty-six weeks ended
June 25, 2017
and
June 26, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 25,
2017
|
|
June 26,
2016
|
|
Net cash provided by operating activities
|
$
|
7,404
|
|
|
$
|
11,727
|
|
|
Net cash used in investing activities
|
(4,659
|
)
|
|
(7,693
|
)
|
|
Net cash used in financing activities
|
(2,824
|
)
|
|
(4,100
|
)
|
|
Net decrease in cash and cash equivalents
|
(79
|
)
|
|
(66
|
)
|
|
Cash and cash equivalents at beginning of period
|
444
|
|
|
447
|
|
|
Cash and cash equivalents at end of period
|
$
|
365
|
|
|
$
|
381
|
|
Operating Activities.
Net cash
provided by
operating activities was
$7.4 million
for the
twenty-six weeks ended
June 25, 2017
, compared to
$11.7 million
for the
twenty-six weeks ended
June 26, 2016
. Cash receipts from operations, including the net redemption of gift cards, for the first
twenty-six
weeks of
2017
and
2016
were
$204.2 million
and
$212.3 million
, respectively. Cash expenditures for operations during the first
twenty-six
weeks of
2017
and
2016
were
$196.9 million
and
$201.1 million
, respectively.
Investing Activities.
Net cash
used in
investing activities was
$4.7 million
for the
twenty-six
weeks ended
June 25, 2017
, compared to
$7.7 million
for the
twenty-six
weeks ended
June 26, 2016
. We invest cash to purchase property and equipment related to our restaurant expansion plans, which is related to the timing of spending for our new restaurants as well as the number of restaurants that were opened and under construction during
2017
versus
2016
. During the first
twenty-six
weeks of
2017
, we did not open a restaurant and had one restaurant under construction. During the first
twenty-six
weeks of
2016
, we opened two restaurants and did not have any restaurants under construction.
Financing Activities.
Net cash
used in
financing activities was
$2.8 million
for the
twenty-six
weeks ended
June 25, 2017
, compared to net cash
used in
financing activities of
$4.1 million
for the
twenty-six
weeks ended
June 26, 2016
. For the
twenty-six
weeks ended
June 25, 2017
, we had net repayments of $2.8 million on our senior credit facilities. For the
twenty-six
weeks ended
June 26, 2016
, we had net repayments of
$0.6 million
on our revolving credit facility and repurchased
$3.5 million
in treasury stock.
As of
June 25, 2017
, we had no financing transactions, arrangements or other relationships with any related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.
Capital Resources
Future Capital Requirements.
Our capital requirements are primarily dependent upon the pace of our real estate development program and existing site remodeling plans. Our real estate development program and existing site remodeling plans are 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
2017
to be in the range of approximately
$5.5 million
to
$7.5 million
, for a total of
$9.0 million
to
$11.0 million
for the year
2017
. This is primarily related to the opening of one restaurant prior to the end of
2017
as well as normal maintenance related capital expenditures relating to our existing restaurants. In conjunction with this restaurant opening, we anticipate expensing approximately
$0.3 million
to
$0.8 million
in pre-opening costs for the remainder of
2017
for a total of approximately
$0.5 million
to
$1.0 million
for the year
2017
.
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
$58.9 million
at
June 25, 2017
, compared to a net working capital
deficit
of
$55.5 million
at
December 25, 2016
.
On November 5, 2014, the Company entered into the 2014 Credit Agreement with a syndicate of financial institutions and on October 31, 2016, the Company entered into the Amendment. The Amendment redefines the Company's senior credit facilities and provides for (i) a $35.0 million term loan facility, maturing in 2019, and (ii) a revolving credit facility under which the Company may borrow up to $30.0 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 2019. Our senior credit facilities are (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 Amendment also modified the financial tests that the Company is required to meet by removing the maximum consolidated total leverage ratio, revising the minimum consolidated fixed charge coverage ratio, adding a maximum consolidated lease-adjusted leverage ratio and adding a minimum earnings before interest, taxes, depreciation and amortization as defined by the Amendment. In addition to these financial tests, the Amendment places limitations on new restaurant leases until the lease-adjusted leverage ratio meets certain thresholds. At
June 25, 2017
, the Company was in compliance with its applicable financial covenants. Additionally, the Amendment contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, defaults under other material debt, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the senior credit facilities to be in full force and effect, and a change of control of our business.
Borrowings under the senior credit facilities bear interest at the Company’s option of either (i) the Base Rate (as such term is defined in the Amendment) plus the applicable margin of 1.50% to 2.00% or (ii) at a fixed rate for a period of one, two, three or six months equal to the London interbank offered rate, LIBOR, plus the applicable margin of 2.50% to 3.00%. 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. The Amendment requires the Company to make fixed quarterly principal payments of
$1.0 million
under the senior credit facilities. In addition to making fixed quarterly principal payments under the Company’s senior credit facilities, the Company is required to pay an unused facility fee to the lenders equal to 0.30% to 0.50% per annum on the aggregate amount of the unused revolving credit facility, excluding swing-line loans, commencing on October 31, 2016, payable quarterly in arrears. As of
June 25, 2017
, we had an outstanding principal balance of approximately
$32.0 million
on our term loan facility and
$6.7 million
on our revolving credit facility.
On June 2, 2017, the Company received notice from Wells Fargo Bank, as administrative agent under the Amendment, of the occurrence of certain events of default relating to the Company's noncompliance with the maximum lease-adjusted leverage ratio contained in the Amendment. On June 8, 2017, the Company received a waiver of noncompliance with this financial covenant that was effective until July 14, 2017. On July 13, 2017, the Company entered into an amended and restated waiver agreement, which further extended the waiver until August 25, 2017.
On August 1, 2017, the Company entered into the Second Amendment. Among other items, the Second Amendment provides for (a) a permanent waiver of noncompliance related to certain events of default occurring between May 8, 2017 and June 2, 2017; (b) the amendment of the maturity date of the senior credit facilities from November 5, 2019 to December 1, 2018, (c) a reduction of the amount the Company may borrow pursuant to its revolving credit facility from $30.0 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) to (i) $20.0 million (including a sublimit cap of up to $4.0 million for letters of credit and up to $10.0 million for swing-line loans) on August 1, 2017, (ii) $15.0 million (including a sublimit cap of up to $4.0 million for letters of credit and up to $10.0 million for swing-line loans) on December 31, 2017, (iii) $15.0 million (including a sublimit cap of up to $3.0 million for letters of credit and up to $10.0 million for swing-line loans) on March 31, 2018 and (iv) $10.0 million (including a sublimit cap of up to $3.0 million for letters of credit and up to $10.0 million for swing-line loans) on June 30, 2018; and (d) an increase to the fixed quarterly principal payments from $1.0 million per quarter to $2.5 million per quarter beginning on on March 31, 2018. As a result of this requirement, the Company has classified
$7.0 million
of its long-term debt as current in its consolidated balance sheets as of
June 25, 2017
. The Second Amendment also modifies the financial tests that the Company is required to meet by lowering the minimum consolidated fixed charge coverage ratio, raising the maximum consolidated lease-adjusted leverage ratio, and lowering the minimum earnings before interest, taxes, depreciation and amortization (as defined in the Amendment).
We continue to operate in a challenging environment, and our ability to comply with our applicable financial covenants may be affected in the future by economic, industry or business conditions beyond our control. Based on the Company’s forecasts, management believes the Company will be able to maintain compliance with its applicable financial covenants for at least the next twelve months. However, no assurances can be given that we will achieve these forecasts. We base our forecasts on historical experience, industry conditions and various other assumptions related to comparable restaurant sales, average check, guest counts, and cost management that we believe are reasonable. If actual results are below our current forecast by a substantial margin, we may not be able to maintain compliance with our financial covenants. If we are unable to comply with the required covenants and are unable to obtain necessary waivers of non-compliance or additional amendments to the 2014 Credit Agreement, it would have a material adverse effect on our business, financial condition and liquidity.
Management believes expected future cash flow from operations as well as available borrowings under our senior credit facilities will be sufficient to meet liquidity needs for at least the next twelve months; however, no assurances can be given that expected future cash flow levels will be generated and all liquidity needs will be met.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our on-going business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (“VIEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
June 25, 2017
, 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
2016
Annual Report on Form 10-K.