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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 28, 2021

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 000-51485

 

Ruth’s Hospitality Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

72-1060618

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1030 W. Canton Avenue, Suite 100,

Winter Park, FL

32789

(Address of principal executive offices)

(Zip code)

(407) 333-7440

Registrant’s telephone number, including area code

None

Former name, former address and former fiscal year, if changed since last report

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

RUTH

Nasdaq

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated Filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  

 

The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 34,990,319, which includes 623,139 shares of unvested restricted stock.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

Page

Part I — Financial Information

 

3

 

 

 

 

Item 1

Financial Statements:

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 28, 2021 and December 27, 2020

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Thirteen Week Periods ended March 28, 2021 and March 29, 2020

 

4

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen Week Periods ended March 28, 2021 and March 29, 2020

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Thirteen Week Periods ended March 28, 2021 and March 29, 2020

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2

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

 

16

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

21

 

 

 

 

Item 4

Controls and Procedures

 

22

 

 

 

Part II — Other Information

 

23

 

 

 

 

Item 1

Legal Proceedings

 

23

 

 

 

 

Item 1A

Risk Factors

 

23

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

Item 3

Defaults Upon Senior Securities

 

23

 

 

 

 

Item 4

Mine Safety Disclosures

 

23

 

 

 

 

Item 5

Other Information

 

23

 

 

 

 

Item 6

Exhibits

 

24

 

 

 

 

Signatures

 

25

 

2


 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets—Unaudited

(Amounts in thousands, except share and per share data)

 

 

 

March 28,

 

 

December 27,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,318

 

 

$

95,402

 

Accounts receivable, less allowance for doubtful accounts 2021 - $266; 2020 - $322

 

 

16,296

 

 

 

24,309

 

Inventory

 

 

7,188

 

 

 

6,930

 

Prepaid expenses and other

 

 

2,860

 

 

 

3,653

 

Total current assets

 

 

138,662

 

 

 

130,294

 

Property and equipment, net of accumulated depreciation 2021 - $181,747; 2020 -

   $177,277

 

 

115,745

 

 

 

119,887

 

Operating lease right of use assets

 

 

185,789

 

 

 

188,386

 

Goodwill

 

 

45,549

 

 

 

45,549

 

Franchise rights, net of accumulated amortization 2021 - $7,095; 2020 - $6,534

 

 

43,923

 

 

 

44,484

 

Other intangibles, net of accumulated amortization 2021 - $1,601; 2020 - $1,569

 

 

4,082

 

 

 

4,114

 

Deferred income taxes

 

 

8,009

 

 

 

8,616

 

Other assets

 

 

1,355

 

 

 

1,344

 

Total assets

 

$

543,114

 

 

$

542,674

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,262

 

 

 

4,101

 

Accrued payroll

 

 

12,740

 

 

 

15,344

 

Accrued expenses

 

 

6,220

 

 

 

6,449

 

Deferred revenue

 

 

54,569

 

 

 

59,030

 

Current operating lease liabilities

 

 

20,022

 

 

 

20,854

 

Other current liabilities

 

 

3,338

 

 

 

2,543

 

Total current liabilities

 

 

103,151

 

 

 

108,321

 

Long-term debt

 

 

115,000

 

 

 

115,000

 

Operating lease liabilities

 

 

206,434

 

 

 

209,654

 

Unearned franchise fees

 

 

2,128

 

 

 

2,186

 

Other liabilities

 

 

69

 

 

 

69

 

Total liabilities

 

 

426,782

 

 

 

435,230

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $.01 per share; 100,000,000 shares authorized, 34,384,707

   shares issued and outstanding at March 28, 2021, 34,256,921 shares issued and

   outstanding at December 27, 2020

 

 

344

 

 

 

343

 

Additional paid-in capital

 

 

83,186

 

 

 

83,424

 

Retained earnings

 

 

32,802

 

 

 

23,677

 

Treasury stock, at cost; 71,950 shares at March 28, 2021 and December 27, 2020

 

 

 

 

 

 

Total shareholders' equity

 

 

116,332

 

 

 

107,444

 

Total liabilities and shareholders' equity

 

$

543,114

 

 

$

542,674

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations—Unaudited

(Amounts in thousands, except share and per share data)

 

 

 

13 Weeks Ended

 

 

 

March 28,

 

 

March 29,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Restaurant sales

 

$

81,636

 

 

$

103,040

 

Franchise income

 

 

3,792

 

 

 

3,626

 

Other operating income

 

 

1,855

 

 

 

1,870

 

Total revenues

 

 

87,283

 

 

 

108,536

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

22,921

 

 

 

30,626

 

Restaurant operating expenses

 

 

37,583

 

 

 

55,554

 

Marketing and advertising

 

 

1,993

 

 

 

3,438

 

General and administrative costs

 

 

7,196

 

 

 

8,031

 

Depreciation and amortization expenses

 

 

5,063

 

 

 

5,822

 

Pre-opening costs

 

 

445

 

 

 

477

 

Loss on impairment

 

 

 

 

 

8,697

 

Total costs and expenses

 

 

75,201

 

 

 

112,645

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

12,082

 

 

 

(4,109

)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,303

)

 

 

(628

)

Other

 

 

44

 

 

 

33

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

10,823

 

 

 

(4,704

)

Income tax expense (benefit)

 

 

1,698

 

 

 

(886

)

Net income (loss)

 

$

9,125

 

 

$

(3,818

)

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.27

 

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$

0.26

 

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

Shares used in computing earnings (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

 

34,282,733

 

 

 

28,287,261

 

Diluted

 

 

34,599,764

 

 

 

28,287,261

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 

 

$

0.15

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity—Unaudited  

(Amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Treasury Stock

 

 

Shareholders'

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Value

 

 

Equity

 

Balance at December 27, 2020

 

 

34,257

 

 

$

343

 

 

$

83,424

 

 

$

23,677

 

 

 

72

 

 

$

 

 

$

107,444

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,125

 

 

 

 

 

 

 

 

 

9,125

 

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

128

 

 

 

1

 

 

 

(1,802

)

 

 

 

 

 

 

 

 

 

 

 

(1,801

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,564

 

 

 

 

 

 

 

 

 

 

 

 

1,564

 

Balance at March 28, 2021

 

 

34,385

 

 

$

344

 

 

$

83,186

 

 

$

32,802

 

 

 

72

 

 

$

 

 

$

116,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Treasury Stock

 

 

Shareholders'

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Value

 

 

Equity

 

Balance at December 29, 2019

 

 

28,419

 

 

$

284

 

 

$

40,462

 

 

$

53,399

 

 

 

72

 

 

$

 

 

$

94,145

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,818

)

 

 

 

 

 

 

 

 

(3,818

)

Cash dividends, $0.15 per common share

 

 

 

 

 

 

 

 

 

 

 

(4,428

)

 

 

 

 

 

 

 

 

(4,428

)

Repurchase of common stock

 

 

(902

)

 

 

(9

)

 

 

(13,217

)

 

 

 

 

 

 

 

 

 

 

 

(13,226

)

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

100

 

 

 

1

 

 

 

(659

)

 

 

 

 

 

 

 

 

 

 

 

(658

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

 

 

 

 

 

 

2,065

 

Balance at March 29, 2020

 

 

27,617

 

 

$

276

 

 

$

28,652

 

 

$

45,153

 

 

 

72

 

 

$

 

 

$

74,081

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows—Unaudited

(Amounts in thousands)

 

 

 

13 Weeks Ended

 

 

 

March 28,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

9,125

 

 

$

(3,818

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,063

 

 

 

5,822

 

Deferred income taxes

 

 

607

 

 

 

(1,973

)

Non-cash interest expense

 

 

108

 

 

 

24

 

Loss on impairment

 

 

 

 

 

8,697

 

Stock-based compensation expense

 

 

1,564

 

 

 

2,065

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,013

 

 

 

17,076

 

Inventories

 

 

(258

)

 

 

1,174

 

Prepaid expenses and other

 

 

794

 

 

 

139

 

Other assets

 

 

11

 

 

 

 

Accounts payable and accrued expenses

 

 

(430

)

 

 

(21,333

)

Deferred revenue

 

 

(4,461

)

 

 

(5,453

)

Operating lease liabilities and assets

 

 

(1,454

)

 

 

3,119

 

Other liabilities

 

 

526

 

 

 

1,026

 

Net cash provided by operating activities

 

 

19,208

 

 

 

6,565

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(359

)

 

 

(3,928

)

Net cash used in investing activities

 

 

(359

)

 

 

(3,928

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal borrowings on long-term debt

 

 

 

 

 

85,000

 

Principal repayments on long-term debt

 

 

 

 

 

(4,000

)

Repurchase of common stock

 

 

 

 

 

(13,226

)

Cash dividend payments

 

 

 

 

 

(4,428

)

Tax payments from the vesting of restricted stock and option exercises

 

 

(1,801

)

 

 

(658

)

Deferred financing costs

 

 

(132

)

 

 

(100

)

Net cash (used in) provided by financing activities

 

 

(1,933

)

 

 

62,588

 

Net increase in cash and cash equivalents

 

 

16,916

 

 

 

65,225

 

Cash and cash equivalents at beginning of period

 

 

95,402

 

 

 

5,567

 

Cash and cash equivalents at end of period

 

$

112,318

 

 

$

70,792

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of capitalized interest

 

$

1,345

 

 

$

554

 

Income taxes

 

$

39

 

 

$

75

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued acquisition of property and equipment

 

$

46

 

 

$

4,190

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

(1) The Company and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ruth’s Hospitality Group, Inc. and its subsidiaries (collectively, the Company) as of March 28, 2021 and December 27, 2020 and for the thirteen week periods ended March 28, 2021 and March 29, 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The condensed consolidated financial statements include the financial statements of Ruth’s Hospitality Group, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

Ruth’s Hospitality Group, Inc. is a restaurant company focused on the upscale dining segment. Ruth’s Hospitality Group, Inc. operates Company-owned Ruth’s Chris Steak House restaurants and sells franchise rights to Ruth’s Chris Steak House franchisees giving the franchisees the exclusive right to operate similar restaurants in a particular area designated in the franchise agreement. As of March 28, 2021, there were 149 Ruth’s Chris Steak House restaurants, including 74 Company-owned restaurants, three restaurants operating under contractual agreements and 72 franchisee-owned restaurants, including 21 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Singapore and Taiwan. All Company-owned restaurants are located in the United States.  Subsequent to the end of the quarter, the Ruth’s Chris Steak House located in Bellevue, WA permanently closed.

The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. The interim results of operations for the periods ended March 28, 2021 and March 29, 2020 are not necessarily indicative of the results that may be achieved for the full year. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2020.

The Company operates on a 52- or 53-week fiscal year ending on the last Sunday in December. The fiscal quarters ended March 28, 2021 and March 29, 2020 each contained thirteen weeks and are referred to herein as the first quarter of fiscal year 2021 and the first quarter of fiscal year 2020, respectively. Fiscal years 2021 and 2020 are both 52-week years.

COVID-19 Impact

In March 2020 the World Health Organization declared the novel coronavirus 2019 (COVID-19) a pandemic and the United States declared it a National Public Health Emergency, which has resulted in a significant reduction in revenue at the Company’s restaurants due to mandatory restaurant closures, capacity limitations, social distancing guidelines or other restrictions mandated by governments across the world, including federal, state and local governments in the United States.  As a result of these developments, the Company has experienced a significant negative impact on its revenues, results of operations and cash flows compared to periods prior to the onset of the pandemic. During the first quarter of fiscal year 2021, many jurisdictions began lifting operating restrictions, and by the end of the quarter, most of the Company’s restaurants were operating with open dining rooms. As of March 28, 2021, 75 of the 77 Company-owned and -managed restaurants were open, which included 74 restaurants offering limited capacity dining service and one restaurant offering to-go and delivery service only. This is an unprecedented event in the Company’s history, and it is uncertain how the conditions surrounding COVID-19 will continue to change.

7


Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reporting of revenue and expenses during the periods presented to prepare these condensed consolidated financial statements in conformity with GAAP. Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, goodwill, franchise rights, operating lease right of use assets and obligations related to gift cards, income taxes, operating lease liabilities, incentive compensation, workers’ compensation and medical insurance. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In December 2019 the FASB issued ASU 2019-12, Income Taxes (Topic 740).  This update modifies Topic 740 to simplify the accounting for income taxes.  The Company adopted this new standard on December 28, 2020.  The adoption of ASU 2019-12 did not have a significant impact on the Company’s financial reporting.

(2) Fair Value Measurements

The carrying amounts of cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair values due to their short duration. Borrowings classified as long-term debt as of March 28, 2021 and December 27, 2020 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying value, plus unpaid interest and deferred financing costs of $844 thousand at March 28, 2021, represents a reasonable estimate of FV (Level 2).

The Company did not have any non-financial assets measured at fair value on a non-recurring basis as of March 28, 2021. The Company’s non-financial assets measured at fair value on a non-recurring basis as of December 27, 2020 were as follows (in thousands):

 

 

Fair Value as of December 27, 2020

 

 

Significant Other Observable Inputs (Level 2)

 

 

Significant Unobservable Inputs (Level 3)

 

 

Total Losses on Impairment

 

Long-lived assets

 

$

1,708

 

 

$

1,708

 

 

$

 

 

$

12,736

 

Territory rights

 

$

 

 

$

 

 

$

 

 

$

3,101

 

 

(3) Leases

The Company leases restaurant facilities and equipment.  The Company determines whether an arrangement is or contains a lease at contract inception.  The Company’s leases are all classified as operating leases, which are included as ROU assets and operating lease liabilities in the Company’s condensed consolidated balance sheet.  Operating lease liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date.  ROU assets are measured based on the operating lease liabilities adjusted for lease incentives, initial indirect costs and impairments of operating lease assets.  Minimum lease payments include only the fixed lease components of the agreements, as well as any variable rate payments that depend on an index, which are measured initially using the index at the lease commencement dates.  To determine the present value of future minimum lease payments, the Company estimates incremental borrowing rates based on the information available at the lease commencement dates, or amendment date for contract modifications.  The Company estimates its incremental borrowing rates by determining the synthetic credit rating of the Company using quantitative and qualitative analysis and then adjusting the synthetic credit rating to a collateralized credit rating.  A spread curve is then developed using the U.S. corporate bond yield curve of the same credit rating and the U.S. Treasury curve to determine the rate for different terms.  The expected lease terms include options to extend when it is reasonably certain the Company will exercise the options up to a total term of 20 years.  Total lease cost is expensed on a straight-line basis over the life of a lease.  Additionally, incentives received from landlords used to fund leasehold improvements reduce the ROU assets related to those leases and are amortized as reductions to lease expense over the lives of the leases.  Variable lease payments that do not depend on a rate or index, payments associated with non-lease components and short-term rentals (leases with terms less than 12 months) are expensed as incurred.

On April 10, 2020, the FASB issued a staff Q&A (the “Staff Q&A”) to provide guidance on its remarks at the April 8, 2020 Board meeting about accounting for rent concessions resulting from the COVID-19 pandemic.  The Staff Q&A affirmed the discussion at the April 8, 2020 meeting by allowing entities to forgo performing the lease-by-lease legal analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions as long as the concessions are related to COVID-19 and the changes to the lease do not result in a substantial increase in the rights of the lessor or

8


the obligations of the lessee.  In addition, the Staff Q&A affirmed that entities may make an election to account for eligible concessions, regardless of their form, either by (1) applying the modification framework for these concessions in accordance with Topic 842 or (2) accounting for the concessions as if they were made under the enforceable rights included in the original agreement.  

Due to the impacts of the COVID-19 pandemic, the Company initiated negotiations with its landlords to modify its restaurant lease agreements.  During the first quarter of 2021, the Company amended 13 leases.  Where applicable, the Company has elected to account for eligible lease concessions as if they were made under the enforceable rights included in the original agreement pursuant to the Staff Q&A.

As of March 28, 2021, all of the Company-owned Ruth’s Chris Steak House restaurants operated in leased premises, with the exception of the restaurant in Ft. Lauderdale, FL, which is an owned property, and the restaurants in Anaheim, CA, Lake Mary, FL, Princeton, NJ and South Barrington, IL, which operate on leased land.  The leases generally provide for minimum annual rental payments with scheduled minimum rent payment increases during the terms of the leases.  Certain leases also provide for rent deferral during the initial term, lease incentives in the form of tenant allowances to fund leasehold improvements, and/or contingent rent provisions based on the sales at the underlying restaurants.  Most of the Company’s restaurant leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years or more.  The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.  As of March 28, 2021, the weighted average remaining lease term and discount rate for operating leases is 13.1 years and 5.2%, respectively.

The components of lease expense are as follows (in thousands):

 

 

 

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

Classification

 

March 28, 2021

 

 

March 29, 2020

 

Operating lease cost

 

Restaurant operating expenses and general and administrative costs

 

$

6,509

 

 

$

7,152

 

Variable lease cost

 

Restaurant operating expenses and general and administrative costs

 

 

2,945

 

 

 

2,726

 

Total lease cost

 

 

 

$

9,454

 

 

$

9,878

 

 

As of March 28, 2021, maturities of lease liabilities are summarized as follows (in thousands):

 

Operating Leases

 

2021, excluding first thirteen weeks ended March 28, 2021

$

23,877

 

2022

 

26,895

 

2023

 

24,834

 

2024

 

24,380

 

2025

 

22,951

 

Thereafter

 

192,755

 

Total future minimum rental commitments

 

315,692

 

Imputed interest

 

(89,236

)

 

$

226,456

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

6,580

 

 

$

6,507

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

 

Operating leases

 

$

1,092

 

 

$

3,820

 

Additionally, as of March 28, 2021, the Company has executed two leases for new Ruth’s Chris Steak House Restaurant locations with undiscounted fixed payments over the initial term of $12.1 million.  These leases will commence when the landlords make the properties available to the Company.  These leases are expected to commence during the next 18 months.  Both signed leases are expected to have an economic lease term of 20 years.  The Company will assess the reasonably certain lease term at the lease commencement date.

 

(4) Revenue

In the following tables, the Company’s revenue is disaggregated by major component for each category on the consolidated statements of operations (in thousands).

 

9


 

13 Weeks Ended March 28, 2021:

 

Domestic

 

 

International

 

 

Total Revenue

 

Restaurant sales

 

$

81,636

 

 

$

 

 

$

81,636

 

Franchise income

 

 

3,328

 

 

 

464

 

 

 

3,792

 

Other operating income

 

 

1,855

 

 

 

 

 

 

1,855

 

Total revenue

 

$

86,819

 

 

$

464

 

 

$

87,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 Weeks Ended March 29, 2020:

 

Domestic

 

 

International

 

 

Total Revenue

 

Restaurant sales

 

$

103,040

 

 

$

 

 

$

103,040

 

Franchise income

 

 

3,059

 

 

 

567

 

 

 

3,626

 

Other operating income

 

 

1,870

 

 

 

 

 

 

1,870

 

Total revenue

 

$

107,969

 

 

$

567

 

 

$

108,536

 

 

 

The following table provides information about receivables and deferred revenue liabilities from contracts with customers (in thousands).

 

 

 

March 28,

 

 

December 27,

 

 

 

2021

 

 

2020

 

Accounts receivable, less allowance for doubtful accounts 2021 - $266; 2020 - $322

 

$

10,208

 

 

$

16,578

 

Deferred revenue

 

$

54,569

 

 

$

59,030

 

Unearned franchise fees

 

$

2,128

 

 

$

2,186

 

 

Significant changes in the deferred revenue balance and the unearned franchise fees balance during the first thirteen weeks of fiscal year 2021 are presented in the following table (in thousands).

 

 

 

Deferred

 

 

Unearned

 

 

 

Revenue

 

 

Franchise Fees

 

Balance at December 27, 2020

 

$

59,030

 

 

$

2,186

 

Decreases in the beginning balance from gift card redemptions

 

 

(10,668

)

 

 

 

Increases due to proceeds received, excluding amounts recognized during the period

 

 

6,200

 

 

 

 

Decreases due to recognition of franchise development and opening fees

 

 

 

 

 

(58

)

Increases due to proceeds received for franchise development and opening fees

 

 

 

 

 

 

Other

 

 

7

 

 

 

 

Balance at March 28, 2021

 

$

54,569

 

 

$

2,128

 

 

Significant changes in the deferred revenue balance and the unearned franchise fees balance during the first thirteen weeks of fiscal year 2020 are presented in the following table (in thousands).

 

 

 

Deferred

 

 

Unearned

 

 

 

Revenue

 

 

Franchise Fees

 

Balance at December 29, 2019

 

$

52,856

 

 

$

2,489

 

Decreases in the beginning balance from gift card redemptions

 

 

(11,522

)

 

 

 

Increases due to proceeds received, excluding amounts recognized during the period

 

 

6,115

 

 

 

 

Decreases due to recognition of franchise development and opening fees

 

 

 

 

 

(59

)

Increases due to proceeds received for franchise development and opening fees

 

 

 

 

 

 

Other

 

 

(46

)

 

 

 

Balance at March 29, 2020

 

$

47,403

 

 

$

2,430

 

 

10


 

 

(5) Long-term Debt

Long-term debt consists of the following (in thousands):

 

 

March 28,

 

 

December 27,

 

 

 

2021

 

 

2020

 

Senior Credit Facility:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

115,000

 

 

$

115,000

 

Less current maturities

 

 

 

 

 

 

 

 

$

115,000

 

 

$

115,000

 

 

As of March 28, 2021, the Company had $115.0 million of outstanding indebtedness under its senior credit facility with approximately $330 thousand of borrowings available, net of outstanding letters of credit of approximately $4.7 million. As of March 28, 2021, the weighted average interest rate on the Company’s outstanding debt was 4.0% and the weighted average interest rate on its outstanding letters of credit was 3.1%.  In addition, the fee on the Company’s unused senior credit facility was 0.4%.

On February 2, 2017, the Company entered into a senior credit facility pursuant to a credit agreement with Wells Fargo Bank, National Association as administrative agent, and certain other lenders (as amended, as of the end of the fiscal year 2020, the “Credit Agreement”).  The Credit Agreement provides for a revolving credit facility of $120.0 million with a $5.0 million subfacility of letters of credit and a $5.0 million subfacility for swingline loans. The Credit Agreement has a maturity date of February 2, 2023.

On January 28, 2021 the Company entered into a Sixth Amendment to Credit Agreement (“Sixth Amendment” and the Credit Agreement as amended by the Sixth Amendment, the “Amended Credit Agreement”), which makes certain amendments to the Credit Agreement.  The Sixth Amendment provides for a $10.0 million commitment reduction from the $120.0 million available under the Credit Agreement, so that the Amended Credit Agreement provides for a $110.0 revolving credit facility.  The commitment reduction was effective as of March 29, 2021, the first day of the Company’s second quarter of fiscal year 2021.  Like the Credit Agreement, the Amended Credit Agreement has a $5.0 million subfacility of letters of credit and a $5.0 million subfacility for swingline loans.

The Amended Credit Agreement contains customary representations and affirmative and negative covenants (including limitations on indebtedness and liens) as well as financial covenants, as described below, requiring a minimum fixed coverage charge ratio as defined in the Amended Credit Agreement (“Fixed Charge Coverage Ratio”) limiting the Company’s actual leverage ratio as defined in the Amended Credit Agreement (“Consolidated Leverage Ratio”) and requiring the Company to hold a certain specified amount of cash.  The Amended Credit Agreement also contains events of default customary for credit facilities of this type (with customary grace periods, as applicable), including nonpayment of principal or interest when due; material incorrectness of representations and warranties when made; breach of covenants; bankruptcy and insolvency; unsatisfied ERISA obligations; unstayed material judgment beyond specified periods; default under other material indebtedness; and certain changes of control of the Company. If any event of default occurs and is not cured within the applicable grace period or waived, the outstanding loans may be accelerated by lenders holding a majority of the commitments and the lenders’ commitments may be terminated. The obligations under the Amended Credit Agreement are guaranteed by certain of the Company’s subsidiaries and are secured by a lien on substantially all of the Company’s personal property assets other than any equity interest in current and future subsidiaries of the Company.

From January 28, 2021 until the Calculation Date for the fiscal quarter ending December 26, 2021, interest rates on loans under the Amended Credit Agreement are 3.00% and 2.00% above the LIBOR Rate and Base Rate, respectively, and the fee for the daily unused availability under the revolving credit facility is 0.40%. Prior to January 28, 2021, interest rates on loans under the Credit Agreement during the first quarter of fiscal year 2021 were 2.75% and 1.75% above the LIBOR Rate and Base Rate, respectively, and the fee for the daily unused availability under the revolving credit facility is 0.40%. The term “Calculation Date” means the date five (5) business days after the day on which the Company provides a compliance certificate required for its most recently ended fiscal quarter.  Thereafter, and in accordance with the Amended Credit Agreement, interest rate margins and the fee for the unused commitment will be calculated based on the Consolidated Leverage Ratio, and at the Company’s option, revolving loans may bear interest at either:

 

(i)

LIBOR, plus an applicable margin, or

 

(ii)

the highest of (a) the rate publicly announced by Wells Fargo as its prime rate, (b) the average published federal funds rate in effect on such day plus 0.50% and (c) one month LIBOR plus 1.00%, plus an applicable margin (the rate described in this clause (ii) prior to adding the applicable margin, the “Base Rate”).  

The applicable margin is based on the Company’s Consolidated Leverage Ratio, ranging (a) from 1.50% to 2.50% above the applicable LIBOR rate or (b) 0.50% to 1.50% above the applicable Base Rate.  

Among the covenant obligations with which the Company must comply, the Amended Credit Agreement requires the Company to comply with the following:

11


 

Minimum aggregate cash holding requirements through June 2021 in an amount equal to the following amount for each month set forth below:

 

January  2021

$50,000,000

February 2021

$50,000,000

March 2021

$50,000,000

April 2021

$40,000,000

May 2021

$40,000,000

June 2021

$40,000,000

 

Commencing with the fiscal quarter ending June 27, 2021, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00 on an annualized basis, which will exclude the impact of fiscal year 2020 and first fiscal quarter of 2021, through the end of fiscal year 2021, and on an actual basis thereafter.

 

Commencing with the second fiscal quarter ending June 27, 2021, a Consolidated Leverage Ratio not to exceed the following thresholds for the periods indicated:

 

Period

Maximum Ratio

The last day of the second Fiscal Quarter of the 2021 Fiscal Year

5.00 to 1.00

The last day of the third Fiscal Quarter of the 2021 Fiscal Year

4.50 to 1.00

The last day of the fourth Fiscal Quarter of the 2021 Fiscal Year

4.00 to 1.00

The last day of the first Fiscal Quarter of the 2022 Fiscal Year and thereafter

3.00 to 1.00

 

For purposes of calculating required compliance with the maximum ratio, the Consolidated Leverage Ratio will be calculated on an annualized basis, which will exclude the impact of fiscal year 2020 and first fiscal quarter of 2021, through the end of fiscal year 2021, and on an actual basis thereafter.  

 

Under the Amended Credit Agreement, the Fixed Charge Coverage Ratio and Consolidated Leverage Ratio requirements remain in effect through maturity of the loan on February 2, 2023, but the minimum cash holding requirement ends in June 2021.  The Sixth Amendment limits non-maintenance capital expenditures by the Company and its subsidiaries to no more than $5.0 million during fiscal year 2021.  The Company and its subsidiaries may fund such non-maintenance capital expenditures during fiscal year 2021 with (i) 75% of consolidated EBITDA earned during a fiscal quarter in excess of $7.5 million (“Capital Expenditure Basket Amount”) and/or (ii) net cash proceeds from the sale-leaseback of a real property located in Florida.  If the Company and its subsidiaries do not use the entire Capital Expenditure Basket Amount in any fiscal quarter, such unutilized amount may be carried forward to increase the aggregate amount of consolidated capital expenditures permitted to be made until the Company can demonstrate that the Consolidated Leverage Ratio is less than 2.50 to 1.00 for the period of four fiscal quarters most recently ended.

Beginning in fiscal year 2022, the Amended Credit Agreement provides that the Company and its subsidiaries may make capital expenditures in any fiscal year in an amount equal to 75% of consolidated EBITDA for the immediately preceding fiscal year when the Consolidated Leverage Ratio is equal to or greater than 1.50 to 1.0, but less than 2.50 to 1.0.  When the Consolidated Leverage Ratio is less than 1.50 to 1.0, the Company and its subsidiaries may make capital expenditures in an unlimited amount.  For purposes of determining to what extent capital expenditures may be made, the Consolidated Leverage Ratio will be calculated on an actual basis rather than on an annualized basis.

The Company currently is prohibited from paying any dividends or repurchasing any shares of its common stock if the Company cannot demonstrate that its Consolidated Leverage Ratio is less than 2.50 to 1.00 (both before and after giving effect to the proposed repurchase or dividend).

Subsequent to the end of the first fiscal quarter 2021, the Company entered into a Seventh Amendment to Credit Agreement (“Seventh Amendment”), which amends its existing $110.0 million Amended Credit Agreement.  The Seventh Amendment increases the permitted growth-related capital expenditures from $5.0 million to $20.0 million in fiscal year 2021.  Beginning in fiscal year 2022, requirements for growth capital expenditures revert back to the terms in the Amended Credit Agreement when the Consolidated Leverage Ratio is  less than 2.50 to 1.00, and growth capital expenditures will  not be permitted if the Consolidated Leverage Ratio is  greater than 2.50 to 1.00.  The Seventh Amendment requires that the Consolidated Leverage Ratio not exceed the following thresholds for the periods indicated:

 

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Period

Maximum Ratio

The last day of the second Fiscal Quarter of the 2021 Fiscal Year

4.00 to 1.00

The last day of the third Fiscal Quarter of the 2021 Fiscal Year

3.50 to 1.00

The last day of the fourth Fiscal Quarter of the 2021 Fiscal Year and thereafter

3.00 to 1.00

 

Under the Seventh Amendment, the Fixed Charge Coverage Ratio thresholds remain the same as required under the Amended Credit Agreement. Both the Consolidated Leverage Ratio and the Fixed Charge Coverage Ratio will be calculated under the Seventh Amendment by including the results from the first quarter of fiscal year 2021.

 

From May 4, 2021 until the Calculation Date for the fiscal quarter ending June 27, 2021, interest rates on loans under the Seventh Amendment are 2.50% and 1.50% above the LIBOR Rate and Base Rate, respectively, and the fee for the daily unused availability under the revolving credit facility is 0.40%.  Thereafter, interest rate margins and the fee for the unused commitment will be calculated based on the Consolidated Leverage Ratio in accordance with the Credit Agreement.

(6) Shareholders’ Equity

In October 2019, the Company’s Board of Directors approved a new share repurchase program u