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 31, 2019 and December 30, 2018 and for the thirteen week periods ended March 31, 2019 and April 1, 2018 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 31, 2019, there were 157 Ruth’s Chris Steak House restaurants, including 78 Company-owned restaurants, three restaurants operating under contractual agreements and 76 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. A new franchisee-owned Ruth’s Chris Steak House restaurant was opened in Chongqing, China in February 2019.
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 31, 2019 and April 1, 2018 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 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 30, 2018.
The Company operates on a 52- or 53-week fiscal year ending on the last Sunday in December. The fiscal quarters ended March 31, 2019 and April 1, 2018 each contained thirteen weeks and are referred to herein as the first quarter of fiscal year 2019 and the first quarter of fiscal year 2018, respectively. Fiscal years 2019 and 2018 are both 52-week years.
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 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, and obligations related to gift cards, incentive compensation, workers’ compensation and medical insurance. Actual results could differ from those estimates.
Recent Adopted Accounting Standard
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. The Company adopted this new lease standard on December 31, 2018. See Note 2 for further information about our transition to this new lease standard.
7
(2) Leases
Effective December 31, 2018, the Company adopted Topic 842 using the modified retrospective method for all leases in effect at the date of adoption. This new lease standard requires a lessee to recognize on the balance sheet a liability for future lease obligations and a corresponding right-of-use (ROU) asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. The Company chose the effective date as its initial date of adoption. Consequently, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carry forward prior conclusions regarding lease identification, lease classification and initial indirect costs for existing leases. The Company did not elect the hindsight practical expedient.
In addition to the recognition of a liability for future lease obligations and a corresponding ROU asset, upon adoption, the Company:
|
-
|
Derecognized existing deferred rent and tenant allowance balances totaling $25.4 million.
|
|
-
|
Derecognized existing assets related to below market leases of $758 thousand.
|
|
-
|
Derecognized existing deferred gains on previous sale-leaseback transactions of $1.8 million. The deferred gain associated with this change in accounting was recognized through opening retained earnings as of December 31, 2018.
|
|
-
|
Recognized a retained earnings adjustment of $3.5 million related to the write-off of the ROU asset from a previously impaired Ruth’s Chris Steak House restaurant.
|
|
-
|
Recognized $413 thousand of additional deferred income taxes from the previously mentioned adoption related equity adjustments.
|
The Company did not experience material changes to either the consolidated statements of income or the consolidated statements of cash flows due to the adoption of Topic 842.
The following table summarizes the impacts of adopting Topic 842 on the Company’s condensed consolidated balance sheet as of December 31, 2018 (in thousands):
8
|
|
December 30,
|
|
|
Adjustments Due
|
|
|
|
|
|
|
|
2018
|
|
|
to the Adoption
|
|
|
December 31,
|
|
|
|
As Reported
|
|
|
of ASC 842
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,062
|
|
|
$
|
—
|
|
|
$
|
5,062
|
|
Accounts receivable, less allowance for doubtful accounts
|
|
|
19,476
|
|
|
|
812
|
|
|
|
20,288
|
|
Inventory
|
|
|
9,296
|
|
|
|
—
|
|
|
|
9,296
|
|
Prepaid expenses and other
|
|
|
2,528
|
|
|
|
(2,108
|
)
|
|
|
420
|
|
Total current assets
|
|
|
36,362
|
|
|
|
(1,296
|
)
|
|
|
35,066
|
|
Property and equipment, net of accumulated depreciation
|
|
|
125,991
|
|
|
|
—
|
|
|
|
125,991
|
|
Right of use assets, net of accumulated amortization: operating leases
|
|
|
—
|
|
|
|
166,040
|
|
|
|
166,040
|
|
Goodwill
|
|
|
36,522
|
|
|
|
—
|
|
|
|
36,522
|
|
Franchise rights, net of accumulated amortization
|
|
|
44,919
|
|
|
|
—
|
|
|
|
44,919
|
|
Other intangibles, net of accumulated amortization
|
|
|
4,862
|
|
|
|
(758
|
)
|
|
|
4,104
|
|
Deferred income taxes
|
|
|
5,353
|
|
|
|
413
|
|
|
|
5,766
|
|
Other assets
|
|
|
604
|
|
|
|
—
|
|
|
|
604
|
|
Total assets
|
|
$
|
254,613
|
|
|
$
|
164,399
|
|
|
$
|
419,012
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,273
|
|
|
$
|
—
|
|
|
$
|
10,273
|
|
Accrued payroll
|
|
|
19,475
|
|
|
|
—
|
|
|
|
19,475
|
|
Accrued expenses
|
|
|
10,535
|
|
|
|
—
|
|
|
|
10,535
|
|
Deferred revenue
|
|
|
48,370
|
|
|
|
—
|
|
|
|
48,370
|
|
Current operating lease liabilities
|
|
|
—
|
|
|
|
14,599
|
|
|
|
14,599
|
|
Other current liabilities
|
|
|
6,619
|
|
|
|
(1,698
|
)
|
|
|
4,921
|
|
Total current liabilities
|
|
|
95,272
|
|
|
|
12,901
|
|
|
|
108,173
|
|
Long-term debt
|
|
|
41,000
|
|
|
|
—
|
|
|
|
41,000
|
|
Operating lease liabilities
|
|
|
—
|
|
|
|
178,256
|
|
|
|
178,256
|
|
Deferred rent
|
|
|
23,692
|
|
|
|
(23,692
|
)
|
|
|
—
|
|
Unearned franchise fees
|
|
|
2,680
|
|
|
|
—
|
|
|
|
2,680
|
|
Other liabilities
|
|
|
1,837
|
|
|
|
(1,805
|
)
|
|
|
32
|
|
Total liabilities
|
|
|
164,481
|
|
|
|
165,660
|
|
|
|
330,141
|
|
Commitments and contingencies (Note 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder's equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share; 100,000,000 shares authorized, 29,268,776 shares issued and outstanding at December 30, 2018
|
|
|
293
|
|
|
|
—
|
|
|
|
293
|
|
Additional paid-in capital
|
|
|
61,819
|
|
|
|
—
|
|
|
|
61,819
|
|
Retained earnings
|
|
|
28,020
|
|
|
|
(1,261
|
)
|
|
|
26,759
|
|
Treasury stock, at cost; 71,950 shares at December 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total shareholders' equity
|
|
|
90,132
|
|
|
|
(1,261
|
)
|
|
|
88,871
|
|
Total liabilities and shareholders' equity
|
|
$
|
254,613
|
|
|
$
|
164,399
|
|
|
$
|
419,012
|
|
9
The Company leases restaurant facilities and equipment. The Company determines whether an arrangement is or contains a lease at contrac
t 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 pre
sent 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 valu
e of future minimum lease payments, the Company estimates incremental secured borrowing rates based on the information available at the lease commencement dates, or the transition date at adoption. The expected lease terms include options to extend when i
t is reasonably certain the Company will exercise the options up to a total term of 20 years. For financial reporting purposes, minimum rent payments are expensed on a straight-line basis over the lives of the leases. Additionally, incentives received fr
om landlords used to fund leasehold improvements reduce the ROU assets related to those leases and are amortized as reductions to rent 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
.
At March 31, 2019, 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 payments 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. The weighted average term and discount rate for operating leases is 12.5 years and 5.1%, respectively.
The components of lease expense are as follows (in thousands):
|
|
|
|
13 Weeks Ended
|
|
|
|
Classification
|
|
March 31, 2019
|
|
Operating lease cost
|
|
Restaurant operating expenses and General and adminstrative costs
|
|
$
|
6,380
|
|
Variable lease cost
|
|
Restaurant operating expenses and General and adminstrative costs
|
|
|
2,757
|
|
Total lease cost
|
|
|
|
$
|
9,137
|
|
As of March 31, 2019, maturities of lease liabilities are summarized as follows (in thousands):
|
Operating Leases
|
|
2019, excluding the quarter ended March 31, 2019
|
$
|
19,655
|
|
2020
|
|
24,886
|
|
2021
|
|
23,259
|
|
2022
|
|
22,112
|
|
2023
|
|
19,183
|
|
Thereafter
|
|
159,124
|
|
Total future minimum rental commitments
|
$
|
268,219
|
|
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018, and under the previous lease accounting prior to the adoption of ASC 842, future minimum annual rental commitments for operating leases as of December 30, 2018 were as follows (in thousands):
|
Operating Leases
|
|
2019
|
$
|
25,767
|
|
2020
|
|
24,177
|
|
2021
|
|
22,520
|
|
2022
|
|
21,388
|
|
2023
|
|
18,858
|
|
Thereafter
|
|
154,661
|
|
Total future minimum rental commitments
|
$
|
267,371
|
|
10
Supplemental cash flow information related to leases for the first quarter of 2019 was as follows (in thousands):
|
|
13 Weeks Ended
|
|
|
|
March 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
6,524
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
4,055
|
|
(3) Revenue
In the following tables, the Company’s revenue is disaggregated by major component for each category on the consolidated statements of income (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended March 31, 2019:
|
|
Domestic
|
|
|
International
|
|
|
Total Revenue
|
|
Restaurant sales
|
|
$
|
112,986
|
|
|
$
|
—
|
|
|
$
|
112,986
|
|
Franchise income
|
|
|
3,819
|
|
|
|
739
|
|
|
|
4,558
|
|
Other operating income
|
|
|
2,197
|
|
|
|
—
|
|
|
|
2,197
|
|
Total revenue
|
|
$
|
119,002
|
|
|
$
|
739
|
|
|
$
|
119,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2018:
|
|
Domestic
|
|
|
International
|
|
|
Total Revenue
|
|
Restaurant sales
|
|
$
|
110,364
|
|
|
$
|
—
|
|
|
$
|
110,364
|
|
Franchise income
|
|
|
3,703
|
|
|
|
714
|
|
|
|
4,417
|
|
Other operating income
|
|
|
1,745
|
|
|
|
—
|
|
|
|
1,745
|
|
Total revenue
|
|
$
|
115,812
|
|
|
$
|
714
|
|
|
$
|
116,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information about receivables and deferred revenue liabilities from contracts with customers (in thousands).
|
|
March 31,
|
|
|
December 30,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable, less allowance for doubtful accounts 2019 - $111; 2018 - $322
|
|
$
|
11,121
|
|
|
$
|
18,336
|
|
Deferred revenue
|
|
$
|
42,506
|
|
|
$
|
48,370
|
|
Unearned franchise fees
|
|
$
|
2,855
|
|
|
$
|
2,680
|
|
Significant changes in the deferred revenue balance and the unearned franchise fees balance during the first thirteen weeks of fiscal year 2019 are presented in the following table (in thousands).
|
|
Deferred
|
|
|
Unearned
|
|
|
|
Revenue
|
|
|
Franchise Fees
|
|
Balance at December 30, 2018
|
|
$
|
48,370
|
|
|
$
|
2,680
|
|
Decreases in the beginning balance from gift card redemptions
|
|
|
(12,663
|
)
|
|
|
—
|
|
Increases due to proceeds received, excluding amounts recognized during the period
|
|
|
6,613
|
|
|
|
—
|
|
Decreases due to recognition of franchise development and opening fees
|
|
|
—
|
|
|
|
(125
|
)
|
Increases due to proceeds received for franchise development and opening fees
|
|
|
—
|
|
|
|
300
|
|
Other
|
|
|
186
|
|
|
|
—
|
|
Balance at March 31, 2019
|
|
$
|
42,506
|
|
|
$
|
2,855
|
|
11
(4) Long-term Debt
Long-term debt consists of the following (in thousands):
|
|
March 31,
|
|
|
December 30,
|
|
|
|
2019
|
|
|
2018
|
|
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
39,000
|
|
|
$
|
41,000
|
|
Less current maturities
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
39,000
|
|
|
$
|
41,000
|
|
As of March 31, 2019, the Company had $39.0 million of outstanding indebtedness under its senior credit facility with approximately $46.8 million of borrowings available, net of outstanding letters of credit of approximately $4.2 million. As of March 31, 2019, 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 1.6%. In addition, the fee on the Company’s senior credit facility was 0.2%.
On February 2, 2017, the Company entered into a credit agreement with Wells Fargo Bank, National Association as administrative agent, and certain other lenders (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $90.0 million with a $5.0 million subfacility for letters of credit and a $5.0 million subfacility for swingline loans. Subject to the satisfaction of certain conditions and lender consent, the revolving credit facility may be increased up to a maximum of $150.0 million. The Credit Agreement has a maturity date of February 2, 2022. At the Company’s option, revolving loans may bear interest at (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 applicable margin is based on the Company’s actual leverage ratio, ranging (a) from 1.50% to 2.25% above the applicable LIBOR rate or (b) at the Company’s option, from 0.50% to 1.25% above the applicable base rate.
The Credit Agreement contains customary representations and affirmative and negative covenants (including limitations on indebtedness and liens) as well as financial covenants requiring a minimum fixed coverage charge ratio and limiting the Company’s consolidated leverage ratio. The 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 under the Credit Agreement and the lenders’ commitments may be terminated. The obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries (the Guarantors), 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.
(5) Shareholders’ Equity
In October 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $60 million of outstanding common stock from time to time. The share repurchase program replaced the previous share repurchase program announced in April 2016, which was terminated. During the first thirteen weeks of fiscal year 2019, 25,787 shares were repurchased at an aggregate cost of $568 thousand, or an average cost of $22.03 per share. As of March 31, 2019, $31.5 million remained available for future purchases under the share repurchase program.
The Company’s Board of Directors declared the following dividends during the periods presented (amounts in thousands, except per share amounts):
Declaration Date
|
|
Dividend per Share
|
|
|
Record Date
|
|
Total Amount
|
|
|
Payment Date
|
Fiscal Year 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
February 22, 2019
|
|
$
|
0.13
|
|
|
March 7, 2019
|
|
$
|
3,967
|
|
|
March 21, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
February 21, 2018
|
|
$
|
0.11
|
|
|
March 8, 2018
|
|
$
|
3,390
|
|
|
March 22, 2018
|
Subsequent to the end of the first quarter of fiscal year 2019, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.13 per common and restricted share, or approximately $4.0 million in the aggregate based on the number of shares currently outstanding, payable on June 6, 2019 to stockholders of record as of the close of business on May 23, 2019.
12
Outstanding unvested restricted stock is not included in common stock outstanding amounts. Restricted stock
awards
outstanding as of
Ma
rch
3
1
, 201
9
aggregated
1,071,188
shares.
Restricted stock units outstanding as of March 31, 2019 aggregated 22,864 shares.
(6) 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 31, 2019 and December 30, 2018 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying amount of this debt is a reasonable estimate of its fair value (Level 2).
As of March 31, 2019, and December 30, 2018, the Company had no assets or liabilities measured on a recurring or nonrecurring basis subject to the disclosure requirements of “Fair Value Measurements and Disclosures,” FASB ASC Topic 820.
(7) Segment Information
The Company has two reportable segments – the Company-owned steakhouse segment and the franchise operations segment. The Company does not rely on any major customers as a source of revenue. The Company-owned Ruth’s Chris Steak House restaurants, all of which are located in North America, operate within the full-service dining industry, providing similar products to similar customers. Revenues are derived principally from food and beverage sales. As of March 31, 2019, (i) the Company-owned steakhouse restaurant segment included 78 Ruth’s Chris Steak House restaurants and three Ruth’s Chris Steak House restaurants operating under contractual agreements and (ii) the franchise operations segment included 76 franchisee-owned Ruth’s Chris Steak House restaurants. Segment profits for the Company-owned steakhouse restaurant segments equal segment revenues less segment expenses. Segment revenues for the Company-owned steakhouse restaurants include restaurant sales, management agreement income and other restaurant income. Gift card breakage revenue is not allocated to operating segments. Not all operating expenses are allocated to operating segments. Segment expenses for the Company-owned steakhouse segment include food and beverage costs and restaurant operating expenses. No other operating costs are allocated to the Company-owned steakhouse segment for the purpose of determining segment profits because such costs are not directly related to the operation of individual restaurants. The accounting policies applicable to each segment are consistent with the policies used to prepare the consolidated financial statements. The profit of the franchise operations segment equals franchise income, which consists of franchise royalty fees and franchise opening fees. No costs are allocated to the franchise operations segment.
13
Segment information related to the Company’s two reportable business segments follows (in thousands):
|
|
13 Weeks Ended
|
|
|
|
|
March 31,
|
|
|
April 1,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Company-owned steakhouse restaurants
|
|
$
|
114,184
|
|
|
$
|
111,203
|
|
|
Franchise operations
|
|
|
4,558
|
|
|
|
4,417
|
|
|
Unallocated other revenue and revenue discounts
|
|
|
999
|
|
|
|
906
|
|
|
Total revenues
|
|
$
|
119,741
|
|
|
$
|
116,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits:
|
|
|
|
|
|
|
|
|
|
Company-owned steakhouse restaurants
|
|
$
|
28,733
|
|
|
$
|
28,119
|
|
|
Franchise operations
|
|
|
4,558
|
|
|
|
4,417
|
|
|
Total segment profit
|
|
|
33,291
|
|
|
|
32,536
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating income
|
|
|
999
|
|
|
|
906
|
|
|
Marketing and advertising expenses
|
|
|
(3,629
|
)
|
|
|
(3,477
|
)
|
|
General and administrative costs
|
|
|
(8,751
|
)
|
|
|
(8,976
|
)
|
|
Depreciation and amortization expenses
|
|
|
(4,969
|
)
|
|
|
(4,461
|
)
|
|
Pre-opening costs
|
|
|
(98
|
)
|
|
|
(140
|
)
|
|
Interest expense, net
|
|
|
(405
|
)
|
|
|
(380
|
)
|
|
Other income
|
|
|
2
|
|
|
|
12
|
|
|
Income from continuing operations before income tax expense
|
|
$
|
16,440
|
|
|
$
|
16,020
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Company-owned steakhouse restaurants
|
|
$
|
5,096
|
|
|
$
|
4,879
|
|
|
Corporate assets
|
|
|
764
|
|
|
|
626
|
|
|
Total capital expenditures
|
|
$
|
5,860
|
|
|
$
|
5,505
|
|
|
|
|
March 31,
|
|
|
December 30,
|
|
|
|
2019
|
|
|
2018
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Company-owned steakhouse restaurants
|
|
$
|
390,772
|
|
|
$
|
233,446
|
|
Franchise operations
|
|
|
2,243
|
|
|
|
2,911
|
|
Corporate assets - unallocated
|
|
|
11,337
|
|
|
|
12,903
|
|
Deferred income taxes - unallocated
|
|
|
5,671
|
|
|
|
5,353
|
|
Total assets
|
|
$
|
410,023
|
|
|
$
|
254,613
|
|
(8) Stock-Based Employee Compensation
On May 15, 2018, the Company’s stockholders approved a new 2018 Omnibus Incentive Plan (“2018 Plan”) which replaces the Amended and Restated 2005 Equity Incentive Plan (“2005 Plan”), which expired on May 30, 2018. The 2018 Plan authorizes 2.5 million shares reserved for future grants. Awards that were previously awarded under the 2005 Plan that are forfeited or cancelled in the future will be made available for grant or issuance under the 2018 Plan. The 1,649,394 shares that were authorized but unissued under the 2005 Plan as of May 15, 2018 were cancelled. As of March 31, 2019, there were 5,073 shares of common stock issuable upon exercise of currently outstanding options, and 751,737 currently outstanding unvested restricted stock awards under the 2005 Plan. As of March 31, 2019, there were 319,451 currently outstanding unvested restricted stock awards and 22,864 restricted stock units under the 2018 Plan. As of March 31, 2019, the 2018 Plan has 2,314,607 shares available for future grants. During the first thirteen weeks of fiscal year 2019, the Company issued 211,610 restricted stock awards and units to directors, officers and other employees of the Company. Of the 211,610 restricted stock awards and units issued during the first thirteen weeks of fiscal year 2019, 36,749 shares will vest in fiscal year 2020, 133,104 shares will vest in fiscal year 2021 and 41,757 shares will vest in fiscal year 2022. Total stock compensation expense recognized during the first thirteen weeks of fiscal years 2019 and 2018 was $2.0 million and $1.8 million, respectively.
14
(9) Income Taxes
Income tax expense differs from amounts computed by applying the federal statutory income tax rate to income from continuing operations before income taxes as follows:
|
|
13 Weeks Ended
|
|
|
|
March 31,
|
|
|
April 1,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax expense at statutory rates
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
3.8
|
%
|
|
|
3.2
|
%
|
Federal employment tax credits
|
|
|
(8.9
|
%)
|
|
|
(9.2
|
%)
|
Non-deductible executive compensation
|
|
|
1.9
|
%
|
|
|
1.2
|
%
|
Other
|
|
|
(2.4
|
%)
|
|
|
(1.3
|
%)
|
Effective tax rate
|
|
|
15.4
|
%
|
|
|
14.9
|
%
|
The Company utilizes the federal FICA tip credit to reduce its periodic federal income tax expense. A restaurant company employer may claim a credit against the company’s federal income taxes for FICA taxes paid on certain tip wages (the FICA tip credit). The credit against income tax liability is for the full amount of eligible FICA taxes. Employers cannot deduct from taxable income the amount of FICA taxes taken into account in determining the credit.
The Company files consolidated and separate income tax returns in the United States federal jurisdiction and many state jurisdictions, respectively. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations for years before 2014.
(10) Earnings Per Share
The following table sets forth the computation of earnings per share (amounts in thousands, except share and per share amounts):
|
|
13 Weeks Ended
|
|
|
|
March 31,
|
|
|
April 1,
|
|
|
|
2019
|
|
|
2018
|
|
Income from continuing operations
|
|
$
|
13,911
|
|
|
$
|
13,636
|
|
Income from discontinued operations, net of income taxes
|
|
|
—
|
|
|
|
10
|
|
Net income
|
|
$
|
13,911
|
|
|
$
|
13,646
|
|
Shares:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding - basic
|
|
|
29,275,501
|
|
|
|
29,689,870
|
|
Weighted average number of common shares
outstanding - diluted
|
|
|
29,903,511
|
|
|
|
30,384,180
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.48
|
|
|
$
|
0.46
|
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Basic earnings per common share
|
|
$
|
0.48
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Diluted earnings per common share
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Diluted earnings per share for the first quarter of fiscal year 2019 and 2018 excludes restricted shares of 27,788 and 1,185, respectively, which were outstanding during the period but were anti-dilutive and had a weighted average exercise price of $0 per share.
15
(11) Commitments and Contingencies
The Company is subject to various claims, possible legal actions and other matters arising in the normal course of business. Management does not expect disposition of these other matters to have a material adverse effect on the financial position, results of operations or liquidity of the Company. The Company expenses legal fees as incurred.
The legislation and regulations related to tax and unclaimed property matters are complex and subject to varying interpretations by both government authorities and taxpayers. The Company remits a variety of taxes and fees to various governmental authorities, including excise taxes, property taxes, sales and use taxes, and payroll taxes. The taxes and fees remitted by the Company are subject to review and audit by the applicable governmental authorities which could assert claims for additional assessments. Although management believes that the tax positions are reasonable and consequently there are no accrued liabilities for claims which may be asserted, various taxing authorities may challenge certain of the positions taken by the Company which may result in additional liability for taxes and interest. These tax positions are reviewed periodically based on the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the identification of new tax contingencies, or the rendering of relevant court decisions. An unfavorable resolution of assessments by a governmental authority could negatively impact the Company’s results of operations and cash flows in future periods.
The Company is subject to unclaimed or abandoned property (escheat) laws which require the Company to turn over to certain state governmental authorities the property of others held by the Company that has been unclaimed for specified periods of time. The Company is subject to audit by individual U.S. states with regard to its escheatment practices.
On February 26, 2018, a former restaurant hourly employee filed a class action lawsuit in the Superior Court of the State of California for the County of Riverside, alleging that the Company violated the California Labor Code and California Business and Professions Code, by failing to pay minimum wages, pay overtime wages, permit required meal and rest breaks and provide accurate wage statements, among other claims. This lawsuit seeks unspecified penalties under the California’s Private Attorney’s General Act in addition to other monetary payments (Quiroz Guerrero v. Ruth’s Hospitality Group, Inc., et al.; Case No RIC1804127). Although the ultimate outcome of this matter, including any possible loss, cannot be predicted or reasonably estimated at this time, we intend to vigorously defend this matter.
The Company currently buys a majority of its beef from two suppliers. Although there are a limited number of beef suppliers, management believes that other suppliers could provide similar product on comparable terms. A change in suppliers, however, could cause supply shortages and a possible loss of sales, which would affect operating results adversely.
(12) Subsequent Events
On May 1, 2019 the Company entered into an asset purchase agreement with Marsha Brown Restaurants, L.P., Marsha Brown Restaurants, Inc., M.R. Brown, Inc., M.R. Brown Development Corp. and Ophelia May LLC (collectively, the “Sellers”) to acquire two franchised Ruth’s Chris Steak House restaurants in Philadelphia, PA and one in Garden City, NY as well as development rights for these territories for a cash purchase price of $19.0 million, subject to certain adjustments. The transaction has been approved by our Board of Directors and is subject to the satisfaction of customary closing conditions and may be terminated by the Company or the Sellers if closing has not occurred on or before 90 days following the date of the asset purchase agreement.