EDGAR 10-K Filing

Company CIK: 1324272
Filing Year: 2022
Filename: 1324272_10-K_2022_0001564590-22-006647.json

---

ITEM 1. BUSINESS
Item 1.
BUSINESS
Introduction
Ruth’s Hospitality Group, Inc. develops and operates fine dining restaurants under the trade name Ruth’s Chris Steak House. As of December 26, 2021, there were 150 Ruth’s Chris Steak House restaurants, including 73 Company-owned restaurants, three restaurants operating under contractual agreements and 74 franchisee-owned restaurants, including 23 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Philippines, Singapore and Taiwan.
On July 29, 2019, we completed the acquisition of substantially all of the assets of three franchisee-owned Ruth’s Chris Steak House restaurants located in Philadelphia, PA, King of Prussia, PA and Garden City, NY (the “MBR Franchise Acquisition”) for a cash purchase price of $18.6 million. The acquisition was funded with debt through the Company’s senior credit facility. The results of operations, financial position and cash flows of the MBR Franchise Acquisition are included in our consolidated financial statements as of the date of the acquisition. For additional information, see Note 3 of the consolidated financial statements.
The Company has a 52/53-week fiscal year ending the last Sunday in December. Fiscal years 2021, 2020, and 2019 each had 52 weeks. The 2021 fiscal year ended December 26, 2021, the 2020 fiscal year ended December 27, 2020, and the 2019 fiscal year ended December 29, 2019.
The following description of the Company’s business should be read in conjunction with the information in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K and the consolidated financial statements included in this Annual Report on Form 10-K.
Background
Ruth’s Hospitality Group, Inc. is a Delaware corporation formerly known as Ruth’s Chris Steak House, Inc. The Company was founded in 1965 when Ruth Fertel mortgaged her home for $22 thousand to purchase “Chris Steak House,” a 60-seat restaurant located near the New Orleans Fair Grounds racetrack. After a fire destroyed the original restaurant, Ruth relocated her restaurant to a new 160-seat facility nearby. As the terms of the original purchase prevented the use of the “Chris Steak House” name at a new restaurant, Ruth added her name to that of the original restaurant-thus creating the “Ruth’s Chris Steak House” brand.
The Company’s expansion began in 1972, when Ruth opened a second restaurant in Metairie, a suburb of New Orleans. In 1976, the first franchisee-owned Ruth’s Chris Steak House opened in Baton Rouge, Louisiana. In 2005, the Company and certain selling shareholders completed an initial public offering of the Company’s common stock, which is currently listed on the Nasdaq Global Select Market under the ticker symbol “RUTH”.
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 experienced a significant negative impact on its revenues, results of operations and cash flows. As of December 26, 2021, all of the Company-owned and managed Ruth’s Chris Steak House restaurant dining rooms were open and its revenues, results of operations and cash flows were approaching levels comparable to periods prior to the pandemic.
For further information on the impact of COVID-19 and actions taken by the Company in response to the pandemic, see Note 1 of the consolidated financial statements.
Ruth’s Chris Steak House
With 150 restaurants as of December 26, 2021, Ruth’s Chris Steak House is one of the largest upscale steakhouse companies in the world. The menu features a broad selection of high-quality USDA Prime and Choice grade steaks and other premium offerings served in Ruth’s Chris’ signature fashion -“sizzling”- complemented by other traditional menu items inspired by its New Orleans heritage. Ruth’s Chris complements its distinctive food offerings with an award-winning wine list.
The Ruth’s Chris brand reflects its 56-year commitment to the core values instilled by its founder, Ruth Fertel, of caring for guests by delivering the highest quality food, beverages and genuine hospitality in a warm and inviting atmosphere.
Strengths
The Company believes that the key strengths of its business model are the following:
Premier Upscale Steakhouse Brand
The Ruth’s Chris Steak House brand is one of the strongest in the upscale steakhouse segment of the restaurant industry, with high levels of brand awareness.
Appealing Dining Experience
At Ruth’s Chris restaurants, the Company seeks to exceed guests’ expectations by offering high-quality food with warm, friendly service. The Company’s entire restaurant team is dedicated to ensuring that guests enjoy a superior dining experience. The Company’s team-based approach to table service is designed to enhance the frequency of guest contact and speed of service without intruding on the guest experience.
Strategy
Historically, the Company’s strategy is to deliver a total return to shareholders by maintaining a healthy core business, growing with a disciplined investment approach and returning excess capital to shareholders. The Company strives to maintain a healthy core business by growing sales through traffic, managing operating margins and leveraging its infrastructure. In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic and the United States declared it a National Public Health Emergency, which resulted in us focusing on a shorter-term strategy that preserved liquidity and maximized restaurant operating income. The Company has returned to a balanced strategy that is focused on maintaining a healthy balance sheet and a healthy core business, being disciplined in evaluating future growth opportunities and returning excess capital to shareholders. The Company evaluates disciplined growth opportunities in markets with attractive sales attributes and solid financial returns. The Company believes that its franchisee program is a point of competitive differentiation and looks to grow its franchisee-owned restaurant locations as well. From time to time, the Company may also consider acquiring franchisee-owned restaurants at terms that it believes are beneficial to the Company.
Improve Sales/Profitability
The Company strives to improve sales and profitability by focusing on:
•
Ensuring food quality through consistent preparation and presentation;
•
Expanding its brand appeal through continued menu innovation and facility remodels;
•
Developing enhanced digital capabilities across commercial and operational platforms;
•
Increasing brand awareness through enhanced media advertising at the national and local levels;
•
Enhancing and/or developing innovative marketing programs through its website (e.g., www.ruthschris.com), social media, digital media and email communication;
•
Creating and/or growing revenue opportunities via Ruth’s Anywhere, Private Dining, the sale of Gift Cards and opening for lunch in selected markets; and
•
Opening new restaurants.
Expand Relationships with New and Existing Franchisees and Others
The Company intends to grow its franchising business by expanding the rights of existing franchisees to open new restaurants and potentially developing relationships with a limited number of new franchisees. The Company believes that building relationships with quality franchisees is a cost-effective way to grow and strengthen the Ruth’s Chris brand and generate additional revenues. The Company intends to continue to focus on providing operational guidance to its franchisees, including the sharing of “best practices” from Company-owned Ruth’s Chris restaurants.
In fiscal year 2021 two new franchisee-owned restaurants were opened in Manila, Philippines and Changsha, China. In fiscal year 2020 no new franchisee-owned restaurants were opened. In fiscal year 2019 one franchisee-owned restaurant opened in Chongquing, China.
The Company and its franchise and licensing partners have opened or relocated nine new Ruth’s Chris Steak Houses worldwide during the three-year period ended December 2021.
Menu
The Ruth’s Chris menu features a broad selection of high-quality USDA Prime grade steaks and other premium offerings served in Ruth’s Chris signature fashion-“sizzling” on a 500 degree plate and topped with butter and fresh parsley-complemented by other classic American steakhouse menu items. USDA Prime is the highest meat grade level, which refers to the superior quality and evenly distributed marbling that enhances the flavor of the steak. The Ruth’s Chris menu also includes premium quality chicken, crab, fish, lamb chops, lobster and shrimp.
The Ruth’s Chris restaurants offer a variety of appetizer items, including New Orleans-style barbequed shrimp, mushrooms stuffed with crabmeat, spicy shrimp, chilled seafood tower and sizzling crab cakes, as well as four different salads. Our restaurants also offer a variety of potatoes and vegetables as side dishes. For dessert, crème brûlée, traditional bread pudding with whiskey sauce, chocolate sin cake, cheesecake and other selections are available. As part of the Company’s response to COVID-19 and ongoing supply challenges, our restaurants maintain a flexible menu to maximize restaurant efficiency and reduce waste.
The Company’s wine list features bottles typically ranging in price from $46 to over $1,000. Individual restaurants may supplement their 175 - 225 bottle core wine list with approximately 20 additional selections that reflect local market tastes. Most of the Company’s Ruth’s Chris restaurants also offer over 17-22 wines-by-the-glass, 10 handcrafted cocktails and numerous beers, premium liquors and alcoholic dessert drinks.
Dinner entrees are generally priced from $35 to $99. Ruth’s Chris is predominately open during dinner hours with only a limited number of restaurants open for lunch. The lunch menu offers entrees generally ranging in price from $14 to $29 and features their signature steaks. The blended guest check average at Ruth’s Chris was approximately $89 during fiscal year 2021 with food sales representing 81% of the guest check and the remainder represented by beverage sales. While the Ruth’s Chris core menu is similar at all of its restaurants, the Company seasonally introduces new items such as limited time and prix fixe offerings that allow it to give its guests additional choices while taking advantage of fresh sourcing and advantageous cost opportunities.
Restaurant Operations and Management
The Ruth’s Chris Chief Executive Officer, Chief Operating Officer and Vice President of Operations have primary responsibility for managing Company-owned restaurants and participate in analyzing restaurant-level performance and strategic planning. The Company has seven regional vice presidents who oversee restaurant operations at Company-owned restaurants, one vice president to whom the regional vice presidents report and one vice president who has oversight responsibility for franchisee-owned restaurants. In addition, restaurant education and training is overseen by a regional staff dedicated to the ongoing training and development of customer service employees and kitchen staff.
A typical Company-owned restaurant employs four to five managers, including a general manager, two front-of-the-house managers and an executive chef. The Company-owned restaurants also typically have approximately 57 hourly employees. Staffing levels at Company-owned restaurants have been lower in fiscal year 2021 due to the impacts of the COVID-19 pandemic and efficiency measures implemented by the Company.
Purchasing
The Company’s ability to maintain consistent quality throughout its restaurants depends in part upon its ability to acquire food and other supplies from reliable sources in accordance with its specifications. Purchasing at the restaurant level is directed primarily by the
executive chef, who is trained in the Company’s purchasing philosophy and specifications, and who works with regional and corporate managers to ensure consistent sourcing of fish, produce and other supplies.
During fiscal year 2021, the Company purchased substantially all the beef it used in Company-owned Ruth’s Chris restaurants from two vendors, Sysco Specialty Meat Group (a subsidiary of Sysco) and Stock Yards Packing (a subsidiary of US Foods). Each vendor supplied about half of the Company’s beef requirements. In addition, the Company has a distribution arrangement with a national food and restaurant supply distributor, Distribution Market Advantage, Inc. (DMA), which purchases products for the Company from various suppliers and through which all the Company-owned Ruth’s Chris Steak House restaurants receive a significant portion of their food supplies.
Quality Control
The Company strives to maintain quality and consistency in its Company-owned restaurants through careful training and supervision of personnel and standards established for food and beverage preparation, maintenance of facilities and conduct of personnel. The primary goal of the Company’s training and supervision programs is to ensure that its employees display the characteristics of its brand and values that distinguish it from its competitors. Restaurant managers in Company-owned restaurants must complete a training program that is typically seven to eight weeks long, during which they are instructed in multiple areas of restaurant management, including food quality and preparation, guest service, alcoholic beverage service, liquor regulation compliance and employee relations. Restaurant managers also receive operations manuals relating to food and beverage preparation and restaurant operations. Restaurant managers are certified by the National Restaurant Association Educational Foundation for food safety.
In addition to our internal quality control measures, the Ruth’s Chris Steak House restaurants also employ an independent third-party food safety firm to ensure proper training, food safety and the achievement of the highest standards for cleanliness throughout the restaurant through routine quarterly unannounced inspections. The Company instructs chefs and assistants on safety, sanitation, housekeeping, repair and maintenance, product and service specifications, ordering and receiving food products and quality assurance. At the Ruth’s Chris restaurants, the executive chef, together with the restaurant managers, oversees a line check system of quality control and must complete a quality assurance checklist verifying the flavor, presentation and proper temperature of the food and beverages.
Marketing and Promotions
The goals of the Company’s marketing efforts are to increase restaurant sales by attracting new guests, increasing the frequency of visits by current guests, enhancing the guest experience, driving innovation, improving brand recognition in new markets or markets where it intends to open a restaurant and to communicate the overall uniqueness, value and quality exemplified by the restaurants. The Company uses multiple media channels to accomplish these goals and complements its national advertising with targeted local media such as print, digital media, influencer marketing, search engine marketing, satellite radio and outdoor billboards.
Advertising
In fiscal year 2021, the Company spent $13.5 million, or 3.1% of its revenues, in total marketing and advertising expenditures, which included spending on data and digital initiatives, in-store gift card promotion, traditional public relations, social media and influencer marketing. During fiscal year 2021, the Company’s online strategy also included an emphasis on continued website improvement and personalized and targeted emails with special offers and announcements, as well as emails regarding off-premise dining options, holiday offers and personalized birthday and anniversary invitations. In fiscal year 2021, Ruth’s Chris Steak House continued its participation in a co-branded campaign with the American Express Membership Rewards program and the American Express Gold Card partnership. The Company’s franchisees also conduct their own local media and advertising plans.
Gift Cards
The Company sells Ruth’s Chris gift cards at most of its Ruth’s Chris Steak House restaurants, including franchises, on its website and through its toll-free number. E-gift cards, which may be purchased on the Company’s e-commerce gift card website, are emailed directly to the recipient and are redeemable in the same manner as physical gift cards. Ruth’s Chris gift cards are also sold in third-party retail outlets and are available through redemption of American Express Membership Rewards points. Offering gift cards at third-party retailers and e-gift cards gives Ruth’s Chris the opportunity to maximize last-minute gift-giving and address its patrons’ requests for convenient, immediate purchases. Ruth’s Chris patrons frequently purchase gift cards for holidays, including Christmas, Hanukkah, Valentine’s Day, Mother’s Day and Father’s Day, and other special occasions. In fiscal year 2021, Company and franchise sales of Ruth’s Chris gift cards aggregated approximately $72.6 million system-wide, compared to $49.4 million in fiscal year 2020. Ruth’s Chris gift cards are redeemable at both Company and franchisee-owned Ruth’s Chris restaurants.
Franchise Program and Relationship
Under the Company’s franchise program, the Company offers certain services and licensing rights to the franchisee to help maintain consistency in system-wide operations. The Company’s services include training of personnel, construction assistance, providing the new franchisee with standardized operating procedures and manuals, business and financial forms, consulting with the new franchisee on purchasing and supplies and performing supervisory quality control services. The Company conducts reviews of its franchisee-owned restaurants to ensure compliance with its standards.
As of December 26, 2021, the Company’s 74 franchisee-owned Ruth’s Chris restaurants are owned by 25 franchisees with the three largest franchisees owning 34 restaurants in total.
Under the Company’s current franchise program, each franchise arrangement consists of a development agreement, if multiple restaurants are to be developed, with a separate franchise agreement executed for each restaurant. The Company’s current form of development agreement grants exclusive rights to a franchisee to develop a minimum number of restaurants in a defined area, typically during a three-to-five-year period. Individual franchise agreements govern the operation of each restaurant opened and have a 20-year term with two renewal options each for additional ten-year terms if certain conditions are met. The Company’s current form of franchise agreement requires franchisees to pay a 5% royalty on gross revenues plus up to a 1% advertising fee applied to national advertising expenditures. All of the franchisee-owned locations experienced disruptions to their business from COVID-19, and as a result, the Company waived franchise royalty requirements until their dining rooms were re-opened. As of December 26, 2021, each of the franchisee-owned Ruth’s Chris restaurant dining rooms were open.
Under the Company’s current form of development agreement, and unless agreed otherwise, the Company collects a $50 thousand development fee, which is credited toward the $150 thousand franchise fee, for each restaurant the franchisee has rights to develop. Under the Company’s current form of the franchise agreement, it collects up to $150 thousand of the full franchise fee at the time of executing the franchise agreement for each restaurant. If one restaurant is to be developed, a single unit franchise agreement is executed, and the $150 thousand franchise fee is collected at signing.
Information Systems and Restaurant Reporting
Each of the Company’s restaurants use computerized point-of-sale systems, which are designed to promote operating efficiency, provide corporate management timely access to financial and marketing data and reduce restaurant and corporate administrative time and expense. These systems record each order and print the food requests in the kitchen for the cooks to prepare. The data captured for use by operations and corporate management includes gross sales amounts, cash and credit card receipts and quantities of each menu item sold. Sales and receipts information is generally transmitted to the corporate office daily.
The Company’s corporate systems provide management with operating reports that show Company-owned restaurant performance comparisons with budget and prior year results. These systems allow the Company to monitor Company-owned restaurant sales, food and beverage costs, labor expense and other restaurant trends on a regular basis.
Service Marks
The Company has registered the main service marks “Ruth’s Chris” and its “Ruth’s Chris Steak House, U.S. Prime & Design” logo, as well as other service marks used by its restaurants, with the United States Patent and Trademark Office and in the foreign countries in which its restaurants operate. The Company has also registered in other foreign countries in anticipation of new store openings within those countries. The Company is not aware of any infringing uses that could materially affect its business. The Company believes that its service marks are valuable to the operation of its restaurants and are important to its marketing strategy.
Seasonality
The Company’s business is subject to seasonal fluctuations. Historically, the percentage of its annual revenues earned during the first and fourth fiscal quarters have been higher relative to other quarters due, in large part, to increased restaurant sales during the year-end holiday season and the popularity of dining out in the fall and winter months. The impact of COVID-19 resulted in higher revenue during the first fiscal quarter of 2020 compared to other quarters in fiscal year 2020 which was atypical compared to prior year results. During the fiscal year 2021 the Company experienced a decline in revenues during the first fiscal quarter due to pandemic-related dining room restrictions.
Human Capital
Our approach to Human Capital is defined by our strong culture of taking care of people, which reflect our roots in the single steak house started by Ruth Fertel over fifty-five years ago, define the essence of Ruth’s Chris Steak House, and determine how we take care of each of Our People: Guests, Team Members, Franchise Owners, Vendor Partners, Community, and Investors.
None of the Company’s employees (our “Team Members”) are covered by a collective bargaining agreement. In response to the COVID-19 pandemic, and the resulting temporary closures of, or state and local government-imposed capacity restrictions on, our restaurants, many of our hourly Team Members were placed on temporary furlough. As of December 26, 2021, most of the furloughed Team Members were rehired and the Company employed 4,527 persons, of whom 367 were salaried and 4,160 were hourly personnel, who were employed in the positions set forth in the table below.
Functional Area
Number of
Employees
Senior Officers / Corporate VPs / Operations VPs
General Managers
Managers
Regional Corporate Chefs / Executive Chefs
Non-Salaried Restaurant Staff
4,127
Corporate Salaried
Corporate Non-salaried
Total number of employees
4,527
We believe the stability of our leadership team is a critical driver of our ability to steward the Company’s brand and to deliver consistently the brand standards and experiences our Guests expect. The average tenure of our Field Leadership (VP Level) is approximately sixteen years, the average tenure of our Restaurant Leadership (General Managers and Chefs) is greater than nine years, and the average tenure of our home office leadership is nine years. In addition, 21% of our General Managers and approximately 29% of our Chefs have been with the Company for more than fifteen years.
Our diverse team reflects our commitment to attracting, retaining, and developing a workforce that reflects the communities in which we live and work. Across the Company, approximately 53% of our Team Members are racially or ethnically diverse and 34% identify as female. Of our Named Executive Officers 80% identify as female and 63% of our Board of Directors identify as female. Consistent with our commitment to diversity, we hired a Director of Diversity and Inclusion in November of 2020.
We believe that providing competitive benefits to our Team Members is integral to ensuring we achieve our goal of attracting and retaining the best team in the industry. As such, we offer our Team Members competitive pay and health care benefits. Hourly Team Members are eligible for health care and vacation benefits after one year of service if they average 24 hours of work and receive company-paid life insurance when meeting the same criteria. As part of our commitment to our Team Members’ health and well-being during the global pandemic, the Company paid both the Employer and Employee portions of health care premiums for our furloughed Team Members while their restaurants were closed or operating take-out and delivery only through the third quarter of fiscal year 2020.
Our commitment to our Team Members does not stop with providing competitive pay and benefits. In 2005, following the impact of Hurricane Katrina, we created the RUTHS Fund to support our Team Members experiencing hardship. The RUTHS Fund is supported primarily by home office and field Team Member contributions. Over the course of 2020 and 2021 the fund paid out $766 thousand in grants benefiting over 680 of our Team Members who applied for support.
Finally, the COVID-19 pandemic provided us with the opportunity to reinforce our commitment to the health and safety of our people. A sample of additional steps we are taking to keep our Team Members and guests safe include: increased sanitation processes, enhanced COVID-19 safety training and certification of our hourly and management team, voluntary capacity restrictions in select markets to protect our Team Members and guests, and daily health screenings of all restaurant Team Members. The impact of this increased vigilance was an average weekly exclusion rate (the number of Team Members excluded from work divided by the total number of Team Members working) of less than 1% over fiscal year 2021.
Government Regulation
The Company is subject to extensive federal, state and local government regulation, including regulations relating to public health and safety, zoning and fire codes and the sale of alcoholic beverages and food. The Company maintains the necessary restaurant, alcoholic beverage and retail licenses, permits and approvals. Federal and state laws govern the Company’s relationship with its employees, including laws relating to minimum wage requirements, overtime, tips, tip credits and working conditions. A significant number of the
Company’s hourly employees are paid at rates related to federal or state minimum wage. During 2021, governmental entities acted to increase minimum wage rates in several jurisdictions where Company-owned restaurants are located, and further increases are anticipated to take effect in coming years.
The Company is subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. The Company is subject to laws and regulations requiring disclosure of calorie, fat, trans fat, salt and allergen content. Beginning in May 2018, the Patient Protection and Affordable Care Act of 2010 (“ACA”) has required restaurant companies, such as the Company, to disclose calorie information on their menus. The Food and Drug Administration has rules to implement this provision that require restaurants to post the number of calories for most items on menus or menu boards and to make available more detailed nutrition information upon request. A number of states, counties and cities have also enacted menu labeling laws requiring restaurant companies, such as the Company, to disclose certain nutrition information on their menus, or have enacted legislation restricting the use of certain types of ingredients in restaurants some of which are preempted by the federal law. Many of the current requirements are inconsistent or are interpreted differently from one jurisdiction to another.
The Company maintains an employee benefits program that provides self-insured and insured coverage to employees that meet the applicable requirements under the program. Employees can elect to enroll dependents that meet eligibility criteria. Coverage includes health, dental, vision, short- and long-term disability, life insurance and other voluntary ancillary benefits. Employees share in the cost of other coverage at varying levels. The Company has historically funded a majority of the cost of employee health benefits. The ACA requires that employers offer health care coverage that is qualified and affordable. Coverage must be offered to all “full-time” employees, as defined by the ACA. The Company routinely reviews its health benefit plans to assure conformity with the ACA. The hours of service eligibility criteria the Company requires for health benefits are lower than required under the ACA. Approximately 62% of eligible employees elect to participate in the Company’s health benefit plans.
The offer and sale of franchises are subject to regulation by the U.S. Federal Trade Commission (“FTC”) and many states. The FTC requires that the Company furnish to prospective franchisees a franchise disclosure document containing prescribed information. A number of states also regulate the sale of franchises and require state registration of franchise offerings and the delivery of a franchise disclosure document to prospective franchisees. The Company’s noncompliance could result in governmental enforcement actions seeking a civil or criminal penalty, rescission of a franchise, and loss of its ability to offer and sell franchises in a state, or a private lawsuit seeking rescission, damages and legal fees.
Competition
The restaurant business is highly competitive and highly fragmented, and the number, size and strength of the Company’s competitors vary widely by region. The Company believes that restaurant competition is based on, among other things, quality of food products, customer service, reputation, restaurant location, atmosphere, name recognition and price. The Company’s restaurants compete with a number of upscale steakhouses within their markets, both locally owned restaurants and restaurants within regional or national chains. The principal upscale steakhouses with which the Company competes are Fleming’s, The Capital Grille, Smith & Wollensky, The Palm, Del Frisco’s Double Eagle Steakhouse, Fogo de Chão, Morton’s The Steakhouse, Eddie V’s and other local fine dining restaurants. The Company’s competitors may be better established in certain of the Company’s existing markets and/or markets into which the Company intends to expand.
Available Information
The Company maintains a website at www.rhgi.com. The Company makes available free of charge, through the investor relations section of its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Such information is available on the Company’s website as soon as reasonably practicable after it is filed with the SEC. Additionally, the Company’s Code of Ethics may be accessed within the Investor Relations section of its website. Information found on the Company’s website is not part of this Annual Report on Form 10-K or any other report filed with the SEC.

---

ITEM 1A. RISK FACTORS
Item 1A.
RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company and its business. Additional risks and uncertainties not presently known to us or that the Company currently deems immaterial may also impair its business operations. If any of these certain risks and uncertainties were to actually occur, the Company’s business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the Company’s common stock could decline and its investors may lose all or part of their investment. These risks and uncertainties include the following:
Risks Related to Our Ability to Operate and Grow Our Business
The COVID-19 outbreak has disrupted and is expected to continue to disrupt our business, which has and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
The government responses related to COVID-19 across the world and our Company’s responses to the outbreak have disrupted and will continue to disrupt our business. In the United States, containment efforts to slow the transmission of the virus that have been mandated by federal, state and local governments, include encouraging individuals to practice social distancing, restricting gathering in groups, and, in some areas, completely restricting individuals from non-essential movements outside of their homes. In response to the COVID-19 outbreak and these changing conditions, we closed the dining rooms in each of our Company-owned and managed restaurants during the month of April 2020 and transitioned our services to take-out and delivery operations in 69% of our restaurants. As of December 26, 2021, all 76 Company-owned and -managed restaurant dining rooms were open. If the COVID-19 pandemic reaccelerates and federal, state and local governments impose restrictions again, we may again be forced to close some or all of our dining rooms, which would cause us to lose revenue and incur additional expenses. We have closed certain restaurants, modified work hours for our Team Members and identified and implemented cost savings measures throughout our operations. The COVID-19 outbreak and these responses have affected and will continue to adversely affect our revenue and operating margin and we cannot predict how long the outbreak will last or what other government responses may occur.
Our operations could be further disrupted if large numbers of our employees or members of our senior management team are diagnosed with COVID-19. If a significant percentage of our workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. Team Members might seek and find other employment during business interruptions, which could materially adversely affect our ability to properly staff our restaurants with experienced Team Members when the business interruptions abate or end.
Our suppliers could be adversely impacted by the COVID-19 outbreak. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such supply interruptions.
As of December 26, 2021, we were engaged in legal proceedings with five landlords. We have pursued or continue to pursue these matters vigorously but there can be no assurance that we will prevail in litigation.
We have transitioned some of our employees, primarily home office support functions, to work remotely in an effort to mitigate the spread of COVID-19. We are prepared to operate in this manner for the foreseeable future, if necessary. While we have business continuity procedures in place to guide our response to a crisis, our attention may be diverted away from normal operations and our resources may be constrained.
Additional government regulations or legislation due to COVID-19, in addition to decisions we have made and may make in the future, relating to the compensation of and benefit offerings for our restaurant Team Members could also have an adverse effect on our business. We cannot predict the types of additional government regulations or legislation that may be passed relating to employee compensation due to the COVID-19 outbreak.
We could experience other potential impacts due to the COVID-19 pandemic that are not completely known at this time, including, but not limited to, charges from potential adjustments and impairment charges to the carrying amount of goodwill, indefinite-lived intangible assets and long-lived assets. We have incurred impairment charges and could incur additional impairment charges in the future. Our actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely though not exclusively on the duration of the disruption to our business.
A lack of availability of suitable locations for new restaurants, the inability to renew leases at existing restaurants on similar terms and conditions, or a decline in the quality of the locations of our current restaurants may adversely affect our sales and results of operations.
The success of our restaurants depends in large part on their locations. All but one of our Company-owned restaurant premises are leased. If we do not renew leases when the lease terms expire, or if we are unable to renew leases on favorable terms and conditions, our operating results could be negatively impacted. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could also result in reduced sales in those restaurants. Desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation. In addition, construction costs for new locations may fluctuate. The occurrence of one or more of these events could have a significant adverse effect on our sales and results of operations.
Our strategy to open franchisee-owned restaurants subjects us to extensive government regulation, compliance with which might increase our investment costs and restrict our growth.
We are subject to the rules and regulations of the FTC and various international and state laws regulating the offer and sale of franchises. The FTC requires that we furnish to prospective franchisees a franchise disclosure document containing prescribed information and can restrict our ability to sell franchises. A number of states also regulate the sale of franchises and require the obtaining of a permit and/or registration of the franchise disclosure document with state authorities and the delivery of the franchise disclosure document to prospective franchisees. Non-compliance with those laws could result in governmental enforcement actions seeking a civil or criminal penalty, rescission of a franchise, and loss of our ability to offer and sell franchises in a state, or a private lawsuit seeking rescission, damages and legal fees, which could have a material adverse effect on our business.
The terms of our senior credit agreement may restrict our ability to operate our business and to pursue our business strategies.
Our senior credit agreement contains, and any agreements governing future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us. Our senior credit agreement, which was entered into on February 2, 2017 and was amended and restated on October 18, 2021, limits our ability, among other things, to:
•
pay dividends or purchase stock in excess of the limits permitted under the credit facility;
•
borrow money or issue guarantees;
•
make investments;
•
use assets as security in other transactions;
•
sell assets or merge with or into other companies;
•
enter into transactions with affiliates; and
•
create or permit restrictions on our subsidiaries’ ability to make payments to us.
Our ability to engage in these types of transactions is limited even if we believe that a specific transaction would contribute to our future growth or improve our operating results. Our senior credit agreement also requires us to maintain compliance with certain financial ratios. Our ability to comply with these ratios may be affected by events outside of our control. Any non-compliance would result in a default under our senior credit agreement and could result in our lenders declaring our senior debt immediately due and payable, which would have a material adverse effect on our financial position, consolidated results of operations and liquidity.
We pay interest under our senior credit agreement based on the London Interbank Offered Rate (“LIBOR”). On March 5, 2021, the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one week and two month USD settings; and (b) immediately after June 30, 2023, in the case of the remaining USD settings. The U.S. Federal Reserve (the “Federal Reserve”) has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate. While our senior credit agreement includes a mechanism for an alternate rate to LIBOR, there can be no assurances as to whether such alternative base rate will be more or less favorable than LIBOR, and there is no guarantee that the discontinuance of LIBOR will not result in financial market disruptions or significant increases in benchmark interest rates or borrowing costs, any of which may have an adverse effect on us. The Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities, as its preferred alternative rate for LIBOR and will work to minimize the impact of any LIBOR transition. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.
We depend on external sources of capital, which may not be available in the future.
Historically, we have relied upon external sources of capital to fund our working capital and other requirements. Currently, we utilize our senior credit agreement to fund a portion of our working capital and other financing requirements. Any non-compliance with any restrictive or financial covenants in our senior credit agreement could result in a default and could result in our lenders declaring our senior debt immediately due and payable, which would have a material adverse effect on our financial position, consolidated results of operations and liquidity.
If we are required to seek other sources of capital, additional capital may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our current and potential future earnings. Furthermore, additional equity offerings may result in substantial dilution of stockholders’ interests. If we are unable
to access sufficient capital or enter into financing arrangements on favorable terms in the future, our financial condition and results of operations may be materially adversely affected.
Food safety and food-borne illness concerns throughout the supply chain may have an adverse effect on our business.
Food safety is a top priority, and we dedicate substantial resources to ensuring that our customers enjoy safe, quality food products. However, food safety risks are common throughout the restaurant industry and cannot be eliminated. Food safety issues could be caused by food suppliers, distributors or franchisees and, as a result, be out of our control. In addition, regardless of the source or cause, any report of food-borne illness such as E. coli, norovirus, hepatitis A, trichinosis, shigella, typhoid fever or salmonella, and other food safety issues including food tampering or contamination, at one of our restaurants could adversely affect the reputation of our brand and have a negative impact on our sales. Even instances of food-borne illness, food tampering or other food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
If our vendors or distributors do not deliver food and beverages in a timely manner we may experience supply shortages and/or increased food and beverage costs.
Our ability to maintain consistent quality throughout Company-owned restaurants depends in part upon our ability to purchase USDA Prime and Choice grade beef, seafood and other food products in accordance with our rigid specifications. During fiscal year 2021, the country experienced supply disruptions due to workforce COVID-19 infections, workforce constraints, transportation and logistics issues and high consumer demand. The Company did not experience any major disruption during the fiscal year 2021 and was able to purchase substantially all of the beef used in Company-owned Ruth’s Chris restaurants from two vendors, Sysco Specialty Meat Group (a subsidiary of Sysco) and Stock Yards Packing (a subsidiary of US Foods). Each vendor supplied about half of the Company’s beef requirements.
In addition, we currently have a long-term distribution arrangement with a national food and restaurant supply distributor, DMA, which purchases products for us from various suppliers, and through which each of our Company-owned Ruth’s Chris Steak House restaurants receive a significant portion of their food supplies. Consolidation in our supply chain due to mergers and acquisitions may change the relationships we have with our existing vendors and distributors and/or result in fewer alternative supply sources for purchasing our food supplies, which could result in an increase in prices. If for any reason our vendors or distributors cease doing business with us, we could experience supply shortages in certain Company-owned restaurants and could be required to purchase supplies at higher prices until we are able to secure an alternative supply source. Any delay we experience in replacing vendors or distributors on acceptable terms could increase food costs or, in extreme cases, require us to temporarily remove items from the menu at one or more Company-owned restaurants.
Labor shortages or increases in labor costs could slow our growth or harm our business.
Our success depends in part upon our ability to continue to attract, motivate and retain employees with the qualifications to succeed in our industry and the motivation to apply our core service philosophy, including regional operational managers, restaurant general managers and chefs. If we are unable to continue to recruit and retain sufficiently qualified individuals, our business and growth could be adversely affected. Competition for these employees could require us to pay higher wages, which could result in higher labor costs.
In addition, we have a substantial number of hourly employees who are paid wage rates at or based on the federal or state minimum wage and who rely on tips as a large portion of their income. Governmental entities have acted to increase minimum wage rates in several jurisdictions where Company-owned restaurants are located. The federal minimum wage may be increased and there likely will be additional minimum wage increases implemented in other states in which we operate or seek to operate. Likewise, changes to existing tip credit laws (which dictate the amounts an employer is permitted to assume an employee receives in tips when calculating the employee’s hourly wage for minimum wage compliance purposes) continue to be proposed and implemented at both the federal and state government levels. As federal and/or state minimum wage rates increase and allowable tip credits decrease, we may need to increase not only the wage rates of our minimum wage employees but also the wages paid to our employees who are paid above the minimum wage, which will increase our labor costs. Proposals on paid sick leave could also increase our labor costs. None of our employees are represented by a collective bargaining unit. Should some of our employees elect to be represented by a collective bargaining unit, our labor costs may increase due to higher wage rates and/or the implementation of work rules. We may be unable to increase our prices to pass these increased labor costs on to our guests, in which case our margins would be negatively affected.
Regulations affecting the operation of our restaurants could increase operating costs and restrict growth.
Each of our restaurants must obtain licenses from regulatory authorities allowing us to sell liquor, beer and wine, and each restaurant must obtain a food service license from local health authorities. Each restaurant’s liquor license must be renewed annually and may be
revoked at any time for cause, including violation by the Company or its employees of any laws and regulations relating to the minimum drinking age, advertising, wholesale purchasing and inventory control.
In certain states, including states where we have a large number of restaurants or where we may open restaurants in the future, the number of liquor licenses available is limited and licenses are traded at market prices. If we are unable to maintain existing licenses, or if we choose to open a restaurant in those states, the cost of a new license could be significant. Obtaining and maintaining licenses is an important component of each of our restaurant’s operations, and the failure to obtain or maintain food and liquor licenses and other required licenses, permits and approvals would materially adversely impact existing restaurants or our growth strategy.
We are also subject to a variety of federal and state labor laws, pertaining to matters such as minimum wage and overtime pay requirements, unemployment tax rates, workers’ compensation rates and citizenship requirements. Government-mandated increases in minimum wages, overtime pay, paid leaves of absence, mandated health benefits, COVID related labor regulations, or increased tax reporting and tax payment requirements for employees who receive gratuities or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could increase our labor costs and reduce our operating margins. In addition, the Federal Americans with Disabilities Act prohibits discrimination based on disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons.
We are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. There also has been increasing focus by United States and overseas governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.
We rely on information technology in our operations and a failure to maintain a continuous and secure network, free from material failure, interruption, or security breach, could harm our ability to effectively operate our business, damage our reputation and negatively affect our operations and profits.
We rely on information systems across our operations, including for marketing programs, point-of-sale processing systems in our restaurants, online purchases of gift cards and various other processes and transactions. The failure of these systems to operate effectively, delays in transitioning to upgraded or replacement systems, a material network breach in the security of these systems, or any other failure to maintain a continuous and secure network could adversely affect our reputation, negatively affect our results of operations, subject us to litigation or action by regulatory authorities and result in substantial harm to us or an individual. As privacy and information security laws and regulations change and cyber risks evolve, we may incur additional costs to ensure we remain in compliance, to protect guest, employee and Company information. We currently carry insurance coverage to protect ourselves against some of these risks. However, our inability to renew this coverage or to obtain such insurance coverage at reasonable costs also could have a material adverse effect on our financial condition and results of operations.
We accept electronic payment cards, including credit, debit and gift cards, from our guests for payment in our restaurants and on our websites. We also receive and maintain certain personal information about our customers and employees. Most of our sensitive data, including information related to employees, guests, credit cards, gift cards and financial statements, is stored or processed by third-party vendors. We, and some of our vendors, have experienced breaches but they have not had a material impact on operations or our financial position. If we, or one of our vendors, experienced a material security breach, we could become subject to claims, lawsuits or other proceedings for purportedly fraudulent transactions arising out of the theft of credit or debit card information, theft of gift card information, compromised security and information systems, failure of our employees to comply with applicable laws, the unauthorized acquisition or use of such information by third parties, or other similar claims.
We frequently defend against unauthorized attempts to breach our network. Like other companies, we have in the past experienced, and we expect to continue to experience, cyber-attacks, including phishing, attacks through vulnerabilities in widely deployed third-party software we deploy in the ordinary course of business, and other attempts to breach, or gain unauthorized access to, our systems. We employ both internal and external consultants to conduct auditing and testing for weaknesses in our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such damage, security breaches or other disruptive problems. We continuously monitor data security and evaluate our network for known security breaches. However, because the techniques used to obtain unauthorized access, to disable or degrade service, or to sabotage computer systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or successfully implement adequate preventive security measures. There can also be no assurance that we would detect a cyber incident or prevent cyberattacks from penetrating our systems. Any such incidents or proceedings could negatively affect our reputation and our results of operations, cause delays in guest service, require significant capital investments to remediate the problem, and could result in the imposition of penalties or cause us to incur significant unplanned losses and expenditures, including those necessary to
remediate any damage to persons whose personal information may have been compromised. Furthermore, because of legislative and regulatory rules, we may be required to notify employees or the owners of the credit and debit card information of any data breaches, which could harm our reputation and financial results, as well as subject us to litigation or other proceedings by regulatory authorities.
We may not be able to compete successfully with other restaurants, which could reduce revenues.
The restaurant industry is intensely competitive with respect to price, service, location, food quality, atmosphere and overall dining experience. Our competitors include a large and diverse group of well-recognized upscale steakhouse and upscale casual restaurant chains, including steakhouse and seafood chains as well as restaurants owned by independent local operators. Some of our competitors have substantially greater financial, marketing and other resources, and may be better established in the markets where our restaurants are or may be located. If we cannot compete effectively in one or more of our markets, we may be unable to maintain recent levels of comparable restaurant sales growth and/or may be required to close existing restaurants.
Risks Related to Financial Performance or General Economic Conditions
Increases in the prices of, or reductions in the availability of, any of our core food products could reduce our operating margins and revenues.
We purchase large quantities of beef, particularly USDA Prime grade beef, which is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other factors. Our beef costs represented approximately 50% of our food and beverage costs during fiscal year 2021. We typically buy our beef on the “spot” market and from time to time we will enter into longer term pricing and supply agreements. As of December 26, 2021, we have negotiated set pricing on approximately 10% of our beef supply through mid-March 2022. The market for USDA Prime grade beef is particularly volatile. If prices increase, or we are unsuccessful in our long-term pricing and supply agreements, or the supply of beef is reduced, our operating margins could be materially adversely affected.
In addition, under the Federal Meat Inspection Act and the Poultry Products Inspection Act, the production, processing or interstate distribution of meat and poultry products is prohibited absent federal inspection. If there is a disruption to the meat inspection process, we could experience a reduction in supply and a corresponding increase in meat prices, which could be significant, either of which could materially impact our operating margin and results of operations.
In the recent past, certain types of seafood have experienced fluctuations in availability. Seafood is also subject to fluctuations in price based on availability, which is often seasonal. If certain types of seafood are unavailable, or if our costs increase, our results of operations could be adversely affected.
An impairment in the financial statement carrying value of our goodwill, other intangible assets or property could adversely affect our financial condition and consolidated results of operations.
Goodwill and owned franchise rights must be reviewed for potential impairment annually and when triggering events are detected. We performed our annual impairment test of goodwill and franchise rights as of November 28, 2021 using a qualitative assessment. Using the qualitative approach, we evaluated factors, including but not limited to: recent financial performance, forecasts for future cash flows, the Company’s stock price and market capitalization, recent impairment tests, legal factors, the business climate, and the competitive environment.
We review property and equipment, which includes leasehold improvements, and operating lease right-of-use (ROU) assets for impairment when events or circumstances indicate these assets might be impaired. We test for impairment using historical cash flow, forecasts and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. The analysis is performed quarterly at the restaurant level for indicators of impairment. In determining future cash flows, we make significant estimates with respect to future operating results of each restaurant over the expected remaining life of the primary asset in the restaurant.
We cannot accurately predict the amount and timing of any impairment of assets. Should the financial statement carrying value of goodwill, other intangible assets or property and equipment become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.
We cannot assure our stockholders that we will continue to pay quarterly cash dividends on our common stock or repurchase shares of our common stock under our share repurchase program. Failure to continue to pay quarterly cash dividends to our stockholders or repurchase shares of our common stock under our share repurchase program could cause the market price for our common stock to decline.
During the third quarter of fiscal year 2021 we resumed the repurchase of shares of our commons stock under our share repurchase program after temporarily ceasing the repurchase of shares due to the impacts of COVID-19. Following the end of fiscal year 2021, we resumed paying quarterly cash dividends to holders of our common stock after a temporary suspension of such payments due to the impacts of COVID-19. Our ability to pay future quarterly cash dividends or repurchase shares of our common stock will be subject to, among other things, our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any new indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems relevant. There can be no assurance that we will resume payment of a quarterly cash dividend or repurchase shares of our common stock in the future. Any reduction or discontinuance by us of the payment of quarterly cash dividends or the repurchase of shares of our common stock under our share repurchase program could cause the market price of our common stock to decline. Moreover, in the event our payment of quarterly cash dividends is reduced or discontinued, our failure or inability to resume paying quarterly cash dividends at historical levels could result in a lower market valuation of our common stock.
Local conditions, adverse weather conditions, natural disasters, acts of violence, terrorism or civil unrest, could adversely affect our business.
Certain of the regions in which we operate (including Florida and California where we have a significant number of restaurants) have been, and may in the future be, subject to adverse local conditions, events, terrorist attacks, adverse weather conditions, or natural disasters, such as earthquakes, floods, hurricanes and wildfires. Any of the foregoing events may result in physical damage, temporary or permanent closure, lack of an adequate work force, or temporary or long-term disruption in the supply of food, beverages, electric, water, sewer and waste disposal services necessary for our restaurants to operate. Depending upon its magnitude, any of the foregoing could severely damage our restaurants and/or adversely affect our business, results of operations or financial condition.
We currently maintain property and business interruption insurance through the aggregate property policy for each of our company-owned locations. However, if there is a major disaster, such coverage may not be adequate. In addition, upon the expiration of our current insurance policies, adequate insurance coverage may not be available at reasonable rates, or at all.
We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature (including hurricanes and other natural disasters) including back up and off-site locations for recovery of electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital functions, tardiness in required reporting and compliance, failures to adequately support restaurant operations and other breakdowns in normal communication and operating procedures that may have a material adverse effect on our business, results of operations, financial condition and exposure to administrative and other legal claims.
The cost of our employee health care benefit program may increase in the future.
We maintain an employee benefits program that provides self-insured and insured coverage to employees that meet the applicable requirements under the program. Employees can elect to enroll dependents that meet eligibility criteria. Coverage includes health, dental, vision, short- and long-term disability, life insurance and other voluntary ancillary benefits. Employees share in the cost of other coverage at varying levels. The Company has historically funded a majority of the cost of health benefits.
The Company routinely reviews its health benefit plans to assure conformity with government regulations. Approximately 62% of eligible employees elect to participate in our health benefit plans. The “hours of service” eligibility criteria for the Company’s health benefits plan are lower than those required by law. In the future, proportionately more employees may elect to participate in our health benefit plans. We are unable to reliably predict to what extent, if any, the percentage of eligible employees who elect health care coverage will increase in the future. Because we fund a majority of the cost of health benefits, our financial accounting expense will increase to the extent that additional employees elect to participate in the Company’s health benefit plans.
Certain other restaurant companies may curtail the ability of their employees to participate in their health benefit plans by increasing the hours worked eligibility requirement to the minimum required under the ACA. Such restaurant companies may gain a cost advantage compared to us by reducing the cost of their employee health benefit programs.
Also, medical inflation has historically tended to outpace general inflation. We are unable to reliably predict the extent to which future medical inflation will outpace general inflation. Additionally, because our medical benefit program is self-insured, an unusual incidence of large claims may cause our costs to unexpectedly increase.
Economic downturns or changes in consumer confidence may adversely impact consumer spending patterns.
Economic downturns have in the past and could in the future negatively impact consumer spending patterns. Any decrease in consumer spending patterns may result in a decline in our operating performance. Economic downturns may reduce guest traffic and require us to lower our prices, which reduces our revenues and operating income, which may adversely affect the market price for our
common stock. In addition, some of our restaurants are located in areas that we consider tourist or vacation destinations. In those locations, we depend in large part on vacation travelers to frequent our Ruth’s Chris Steak House restaurants, and such destinations typically experience a reduction in visitors during economic downturns, thereby reducing the potential guests that could visit our restaurants. A significant portion of our gross revenue comes from business guests and private dining which could also be negatively affected during an economic downturn or decrease in consumer confidence. This could have a material adverse impact on our results of operations and growth strategy. Disasters occurring at one of our franchisee’s locations could impact our reputation and our consumers’ perception of our brand. Moreover, these types of events could negatively impact consumer spending in the impacted regions or, depending on the severity, globally, which could adversely impact our operating results. In fiscal year 2020 the COVID-19 outbreak caused a global economic downturn. As of February 2022, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine supply and effectiveness are expected to impact the severity and timing with regards to the negative economic effects resulting from COVID-19, all of which may affect our business, results of operations or financial condition.
Litigation concerning food quality, health, employment practices and other issues could require us to incur additional liabilities and/or cause guests to avoid our restaurants.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to our restaurants. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims, claims from franchisees, claims from landlords, claims from suppliers, claims alleging violations of federal and state law regarding workplace and employment matters, harassment and discrimination and similar matters. In addition, we could become subject to class action lawsuits related to these matters in the future. These actions and proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination; guest discrimination; food safety issues including poor food quality, food-borne illness, food tampering, food contamination, and adverse health effects from consumption of various food productions or high-calorie foods. We, and other companies in the restaurant industry, have also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their guests. In addition, we are subject to “dram shop” statutes. These statutes generally permit a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The restaurant industry has also faced recent claims related to sexual harassment. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment that significantly exceeds our insurance coverage for any claims or for matters not covered by insurance could materially adversely affect our financial condition and results of operations. Our inability to continue to obtain such insurance coverage at reasonable costs also could have a material adverse effect on our financial condition and results of operations. Adverse publicity or a failure to respond effectively resulting from these claims may also negatively impact our reputation and revenues at one or more of our restaurants.
Tax assessments or unclaimed property audits by governmental authorities could adversely impact our operating results.
We remit a variety of taxes and fees to various governmental authorities, including federal and state income taxes, excise taxes, franchise taxes, property taxes, sales and use taxes, and payroll taxes. The taxes and fees remitted by us are subject to review and audit by the applicable governmental authorities, which can result in liability for additional assessments. In addition, we are subject to unclaimed or abandoned property (escheat) laws which require us to turn over to certain government authorities the property of others held by us that has been unclaimed for a specified period. We are subject to audits by individual U.S. states regarding our escheatment practices. The legislation and regulations related to tax and unclaimed property matters tend to be complex and subject to varying interpretations by both government authorities and taxpayers. Although management believes that the positions are reasonable, various taxing authorities have in the past and may in the future challenge certain of the positions we have taken, which may also potentially result in additional liabilities for taxes, unclaimed property and interest in excess of accrued liabilities. Our positions are reviewed as events occur such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability based on current calculations, 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 our results of operations and cash flows in future periods.
Market volatility could adversely affect our stock price.
Many factors affect the trading price of our stock, including factors over which we have no control, such as trading activity or communications with activist investors, reports on the economy or the price of commodities, as well as negative or positive announcements by competitors, regardless of whether the report relates directly to our business. In addition to investor expectations, trading activity in our stock can reflect the portfolio strategies and investment allocation changes of institutional holders. Any failure to meet market expectations, whether for sales growth rates, earnings per share or other metrics, could adversely affect our share price. During fiscal year 2021, COVID-19 was a source of volatility in the financial markets. This volatility also impacted the Company’s stock price.
In the future we could incur unexpected expenses resulting from the sale of the Mitchell’s Restaurants.
Effective January 21, 2015, we sold the Mitchell’s Restaurants and related assets to Landry’s, Inc. and Mitchell’s Entertainment, Inc., an affiliate of Landry’s Inc. (together with Landry’s Inc., “Landry’s”). Pursuant to the terms of the purchase agreement, upon closing of the sale of the Mitchell’s Restaurants, Landry’s assumed the lease obligations of the Mitchell’s Restaurants. However, we have guaranteed Landry’s lease obligations aggregating $21.2 million under four of the leases which extend until the leases terminate which may continue into 2040 assuming all options are exercised. Separate from the purchase agreement, Landry’s has agreed to indemnify the Company in the event of a default under any of the leases. There is a risk that adverse events may occur that require us to defend against or fulfill an indemnity claim, which could result in unexpected expense.
Risks Related to Our Brand
Negative publicity surrounding our brand, the consumption of beef generally, or shifts in consumer tastes, could reduce sales in one or more of our restaurants and make our brand less valuable.
Our success depends, in large part, upon the reputation of our brand. Negative publicity resulting from poor food quality, illness, injury or other health concerns, or operating problems including disappointing customer experiences related to one or more restaurants, have occurred in the past, could occur in the future, and could make our restaurants less appealing to consumers. Further, the influence of social media could make it more difficult for us to respond to negative publicity in a timely or effective manner. Consumers value readily available information and often act on such information without further investigation and without regard to its accuracy. The harm may be immediate without affording us the opportunity for redress or correction. In addition, any shifts in consumer preferences away from the kinds of food we offer, particularly beef, whether because of environmental, dietary or other health concerns or otherwise, would make our restaurants less appealing and adversely affect revenues. Our restaurants are required to disclose calorie information on menus, which could have an adverse effect on our revenues and results of operations.
Our franchisees could take actions that harm our reputation and reduce our royalty and restaurant revenues.
We do not exercise control over the day-to-day operations of our franchisee-owned restaurants. While we strive to ensure that franchisee-owned restaurants maintain the same high operating standards that we demand of Company-owned restaurants, one or more of these restaurants may fail to maintain these standards or provide a customer experience consistent with our brand standards. Any operational or financial shortcomings of the franchisee-owned restaurants are likely to be attributed to our system-wide operations and could adversely affect our reputation and damage our brand as well as have a direct negative impact on the royalty income we receive from those restaurants. Franchisee noncompliance with the operational standards and the terms and conditions of our franchise agreements may reduce the overall goodwill of our brand, whether through the failure to meet health and safety standards, engage in quality control or maintain product consistency, adequate succession planning or through the participation in improper or objectionable business practices. Moreover, unauthorized third parties may use our intellectual property to trade on the goodwill of the Company’s brand, resulting in consumer confusion or dilution. Any harm to our brand or goodwill, customer confusion or brand dilution could materially and adversely impact our business and results of operations.
The expansion into international markets by our franchisees also creates additional risks to our brands and reputation.
Our international operations are subject to all the same risks associated with our domestic operations, as well as numerous additional risks. These include, among other things, international economic and political conditions, foreign currency fluctuations and differing cultures and consumer preferences. We are also subject to governmental regulation in such international markets, including antitrust and tax requirements, anti-boycott regulations, COVID-19 related regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.
Our failure to enforce our service marks or other proprietary rights could adversely affect our competitive position or the value of our brands.
We own certain common law service mark rights and a number of federal and international service mark registrations, most importantly the Ruth’s Chris Steak House names and logos, copyrights relating to text and print uses, and other proprietary intellectual property rights. We believe that our service marks, copyrights and other proprietary rights are important to our success and competitive position. Protective actions we take with respect to these rights may fail to prevent unauthorized usage or imitation by others, which could harm our reputation, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal expenses.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
Item 2.
PROPERTIES
Company-owned restaurants are generally located in spaces leased by wholly-owned direct or indirect subsidiaries. Seventy-two of the Company-owned Ruth’s Chris restaurants operate in leased space, of which the majority currently provide for an option to renew for terms ranging from approximately five years to twenty years. Historically, the Company has not had difficulty in renewing its leases in a timely manner. Restaurant leases provide for a specified annual rent, and some leases call for additional or contingent rent based on sales volumes over specified levels.
The corporate headquarters reside in leased space (11,784 square feet) in Winter Park, Florida, with a term set to expire on August 31, 2026.
The Company owns the real estate for one Ruth’s Chris operating restaurant in Ft. Lauderdale, Florida (7,800 square feet).
The following table sets forth information about the Company’s existing Company-owned and franchisee-owned restaurants as of December 26, 2021. As of this same date, the Company operated 73 Ruth’s Chris restaurants and three restaurants operated under contractual agreements. In addition, franchisees operated 74 restaurants. Company-owned Ruth’s Chris restaurants range in size from approximately 4,000 to approximately 13,000 square feet with approximately 180 to 375 seats. The Company expects that future restaurants will range in size from 6,000 to 10,000 square feet with approximately 230 to 250 seats.
Company-Owned Ruth's Chris Restaurants
Franchisee-Owned Ruth's Chris Restaurants
Year Opened
Locations
Property Leased or Owned
Year Opened
Locations
Metairie, LA
Leased
Baton Rouge, LA
Lafayette, LA
Leased
Mobile, AL
Ft. Lauderdale, FL
Owned
Atlanta, GA
Austin, TX
Leased
Pittsburgh, PA
Nashville, TN
Leased
Hartford, CT
Philadelphia, PA
Leased
Richmond, VA
Seattle, WA
Leased
Birmingham, AL
Honolulu, HI
Leased
San Antonio, TX
Memphis, TN
Leased
Taipei, Taiwan
Weehawken, NJ
Leased
Cancun, Mexico
Scottsdale, AZ
Leased
Indianapolis, IN
Palm Desert, CA
Leased
Toronto, Canada
Minneapolis, MN
Leased
Taichung, Taiwan
Arlington, VA
Leased
Indianapolis, IN
Manhattan, NY
Leased
Kowloon, Hong Kong
San Diego, CA
Leased
Raleigh (Cary), NC
Long Island, NY
Leased
Annapolis, MD
Westchester, NY
Leased
Atlanta, GA
Dallas, TX
Leased
Pikesville, MD
Troy, MI
Leased
San Antonio, TX
Tampa, FL
Leased
Kaohsiung, Taiwan
Irvine, CA
Leased
Queensway, Hong Kong
Jacksonville, FL
Leased
Cabo San Lucas, Mexico
Louisville, KY
Leased
Virginia Beach, VA
Parsippany, NJ
Leased
Baltimore, MD
Northbrook, IL
Leased
Atlantic City, NJ
Coral Gables, FL
Leased
Charlotte, NC
Ponte Vedra, FL
Leased
Ocean City, MD
Winter Park, FL
Leased
Destin, FL
Sarasota, FL
Leased
Huntsville, AL
Del Mar, CA
Leased
Edmonton, Canada
Boca Raton, FL
Leased
Charlotte, NC
Wailea, HI
Leased
Columbia, SC
Orlando, FL
Leased
Mishawaka, IN
Greensboro, NC
Leased
Tokyo, Japan
Woodland Hills, CA
Leased
Madison, WI
Fairfax, VA
Leased
Calgary, Canada
Walnut Creek, CA
Leased
Rogers, AR
Roseville, CA
Leased
Park City, UT
Boston, MA
Leased
Aruba
Sacramento, CA
Leased
Myrtle Beach, SC
Bonita Springs, FL
Leased
Wilmington, NC
Pasadena, CA
Leased
Wilkes-Barre, PA
Lake Mary, FL*
Land Leased
Raleigh, NC
Anaheim, CA*
Land Leased
Savannah, GA
Biloxi, MS
Leased
Greenville, SC
Company-Owned Ruth's Chris Restaurants
Franchisee-Owned Ruth's Chris Restaurants
Year Opened
Locations
Property Leased or Owned
Year Opened
Locations
Knoxville, TN
Leased
St. Louis, MO
Tyson's Corner, VA
Leased
Durham, NC
Waikiki, HI
Leased
Kennesaw, GA
West Palm Beach, FL
Leased
Salt Lake City, UT
Ft. Worth, TX
Leased
Grand Rapids, MI
New Orleans, LA
Leased
Asheville, NC
Princeton, NJ*
Land Leased
Singapore
Fresno, CA
Leased
Niagara Falls, Canada
South Barrington, IL*
Land Leased
Las Vegas, NV
Portland, OR
Leased
San Juan, Puerto Rico
Cincinnati, OH
Leased
Chattanooga, TN
Houston, TX
Leased
Shanghai, China
Denver, CO
Leased
Alpharetta, GA
Gaithersburg, MD
Leased
Boise, ID
Marina del Rey, CA
Leased
Taipei, Taiwan
St. Petersburg, FL
Leased
Ann Arbor, MI
Albuquerque, NM
Leased
San Antonio, TX
El Paso, TX
Leased
Jakarta, Indonesia
Waltham, MA
Leased
Odenton, MD
Denver, CO
Leased
Greenville, SC
Jersey City, NJ
Leased
Chengdu, China
Paramus, NJ
Leased
Toronto, Canada
Columbus, OH
Leased
Ft. Wayne, IN
Somerville, MA
Leased
Markham, Canada
Washington, D.C.
Leased
Chongqing, China
Short Hills, NJ
Leased
Chesterfield, MO
Lake Grove, NY
Leased
Manila, Philippines
Changsha, China
Ruth's Chris Restaurants Under Contractual Agreement
Year Opened
Locations
Cherokee, NC
Tulsa, OK
Reno, NV
*
The Company owns the building and leases the land pursuant to a long-term ground lease.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3.
LEGAL PROCEEDINGS
See Note 11 of the Notes to the consolidated financial statements for a summary of legal proceedings.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4.
MINE SAFETY DISCLOSURES
None.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is listed on the Nasdaq Global Select Market under the trading symbol “RUTH.” As of February 3, 2022, there were 91 holders of record of its common stock.
Common Stock Repurchase Program
During the fourth quarter of fiscal year 2019, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $60 million of outstanding common stock from time to time in the open market, through negotiated transactions or otherwise (including, without limitation, the use of Rule 10b5-1 plans), depending on share price, market conditions and other factors. During fiscal year 2020, as a result of the impacts to our business arising from the COVID-19 pandemic, the Company temporarily suspended its share repurchase program. During the third quarter of fiscal year 2021 the Company resumed its share repurchase program. The Company conducts any open market share repurchase activities in compliance with the safe harbor provisions of Rule 10b-18 of the Exchange Act. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of its shares. The program has no termination date. As of December 26, 2021, $25.0 million remained available for further purchases under the new program. The Company’s ability to make future stock purchases under the program is currently limited by our credit agreement. The Company’s amended and restated credit agreement currently does not limit dividends and share repurchases if the Company’s Consolidated Leverage Ratio is less than 2.50:1.00 and holds a minimum liquidity of $25.0 million. As of December 26, 2021 our Consolidated Leverage Ratio was less than 2.50:1.00.
Stock repurchase activity during the fourth fiscal quarter ended December 26, 2021 was as follows:
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of a Publicly Announced Program
Maximum Dollar Value that May Yet be Purchased under the Program - Amounts in thousands
September 27, 2021 to October 31, 2021
316,853
$
19.50
$
316,853
$
31,546
November 1, 2021 to November 28, 2021
9,781
$
18.03
9,781
$
31,369
November 29, 2021 to December 26, 2021
368,779
$
17.36
368,779
$
24,966
Totals for the fiscal quarter
695,413
$
18.35
695,413
$
24,966
Unregistered Recent Sales of Securities
None.
Dividends
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, of this Annual Report on Form 10-K for information regarding dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this Annual Report on Form 10-K for information regarding securities authorized for issuance under the Company’s equity compensation plans.
Performance Graph
The following table and graph show the cumulative total stockholder return on the Company’s Common Stock with the S&P 500 Stock Index, the S&P Small Cap 600 Index and the Dow Jones U.S. Restaurants & Bars Index, in each case assuming an initial investment of $100 on December 25, 2016 and full dividend reinvestment.
CUMULATIVE TOTAL RETURN
Assuming an investment of $100 and reinvestment of dividends
12/25/2016
12/31/2017
12/30/2018
12/29/2019
12/27/2020
12/26/2021
Ruth's Hospitality Group, Inc.
$
$
$
$
$
$
S&P 500
$
$
$
$
$
$
S&P Smallcap 600
$
$
$
$
$
$
Dow Jones US Restaurants & Bars
$
$
$
$
$
$
All amounts rounded to the nearest dollar.
**********
The stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6.
[RESERVED]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes to the consolidated financial statements. We report our financial results on a 52/53-week fiscal year, which ends on the last Sunday in December. Fiscal years 2021, 2020 and 2019 all had 52 weeks of operations.
Overview
Ruth’s Hospitality Group, Inc. develops and operates fine dining restaurants under the trade name Ruth’s Chris Steak House. As of December 26, 2021, there were 150 Ruth’s Chris Steak House restaurants, including 73 Company-owned restaurants, three restaurants operating under contractual agreements and 74 franchisee-owned restaurants, including 23 international franchisee-owned restaurants.
On July 29, 2019, we completed the acquisition of substantially all the assets of three franchisee-owned Ruth’s Chris Steak House restaurants for a cash purchase price of $18.6 million. The results of operations, financial position and cash flows of the MBR Franchise Acquisition are included in our consolidated financial statements as of the date of the acquisition. For additional information, see Note 3 of the consolidated financial statements.
All Company-owned Ruth’s Chris Steak House restaurants are located in the United States. The franchisee-owned Ruth’s Chris Steak House restaurants include 23 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Philippines, Singapore and Taiwan. In 2019, the Company opened two new Ruth’s Chris Steak House restaurants - one in Columbus, OH in October and one in Somerville, MA in November. A franchisee opened a new restaurant in 2019 in Chongqing, China. In 2020, the Company relocated one of its Ruth’s Chris Steak House restaurants in Washington, D.C. due to the expiration of a lease. Franchisees did not open any new restaurants in 2020. During fiscal year 2020 nine Company-owned Ruth’s Chris Steak House restaurants were permanently closed and one franchisee-owned Ruth’s Chris Steak House restaurant was permanently closed. In 2021, the Company opened two new Ruth’s Chris Steak House restaurants - one in Short Hills, NJ in September and one in Lake Grove, NY in December. The Company-owned Ruth’s Chris Steak House restaurant in Bellevue, WA closed in April 2021, and the Bethesda, MD and Mauna Lani, HI locations closed in December 2021. Franchisees opened two new Ruth’s Chris Steak Houses in fiscal year 2021 - one in Manila, Philippines in September and one in Changsha, China in November.
The Ruth’s Chris menu features a broad selection of high-quality USDA Prime and Choice grade steaks and other premium offerings served in Ruth’s Chris’ signature fashion-“sizzling” and topped with butter-complemented by other traditional menu items inspired by our New Orleans heritage. The Ruth’s Chris restaurants reflect the 56-year commitment to the core values instilled by our founder, Ruth Fertel, of caring for our guests by delivering the highest quality food, beverages and service in a warm and inviting atmosphere.
Our Ruth’s Chris restaurants cater to special occasion diners and frequent customers, in addition to the business clientele traditionally served by upscale steakhouses, by providing a dining experience designed to appeal to a wide range of guests. We believe our focus on creating this broad appeal provides us with opportunities to expand into a wide range of markets, including many markets not traditionally served by upscale steakhouses. We offer USDA Prime and other high-quality steaks that are aged and prepared to exact company standards and cooked in 1,800-degree broilers. We also offer veal, lamb, poultry and seafood dishes and a broad selection of appetizers. We complement our distinctive food offerings with an award-winning wine list. During the fiscal year 2021, the average check was $89 per person at Company-owned Ruth’s Chris Restaurants.
Recap of Fiscal Year 2021 and Fiscal Year 2020 Operating Results
Operating income (loss) for fiscal year 2021 increased from fiscal year 2020 by $78.3 million to $49.7 million. Operating income for fiscal year 2021 was impacted favorably by a $141.3 million increase in restaurant sales, a reduction in loss on impairment of $14.7 million and increases in franchise income and other operating income, which were partially offset by increased food and beverage costs, restaurant operating expenses and marketing and advertising. Increased restaurant sales were attributable to the reduction of COVID-19 pandemic effects on Company-owned restaurant sales. After-tax net income from continuing operations during fiscal year 2021 increased from fiscal year 2020 by $67.6 million to $42.3 million.
Operating income (loss) for fiscal year 2020 decreased from fiscal year 2019 by $81.0 million to a loss of $28.5 million. Operating loss for fiscal year 2020 was impacted unfavorably by a $180.6 million decrease in restaurant sales, a loss on impairment of $16.5 million and decreases in franchise income and other operating income, which were partially offset by decreased food and beverage costs, restaurant operating expenses, marketing and advertising, and general and administrative expenses. Lower restaurant sales were attributable to the COVID-19 pandemic effect on Company-owned restaurant sales. After-tax net income (loss) from continuing operations during fiscal year 2020 decreased from fiscal year 2019 by $67.5 million to a loss of $25.3 million.
For further information on the impact of COVID-19 and actions taken by the Company in response to the pandemic, see Note 1 of the consolidated financial statements.
Key Financial Terms and Metrics
We evaluate our business using a variety of key financial measures:
Restaurant Sales. Restaurant sales consist of food and beverage sales by Company-owned restaurants. Restaurant sales are primarily influenced by total operating weeks in the relevant period and comparable restaurant sales growth. Total operating weeks is the total number of Company-owned restaurants multiplied by the number of weeks each is in operation during the relevant period. Total operating weeks are impacted by restaurant openings and closings, as well as changes in the number of weeks included in the relevant period. Comparable restaurant sales growth reflects the change in year-over-year or quarter-over-quarter, as applicable, sales for the comparable restaurant base. We define the comparable restaurant base to be those Company-owned restaurants in operation for not less than eighteen months prior to the beginning of the fiscal year including the period being measured. Comparable restaurant sales growth is primarily influenced by customer traffic, which is measured by the number of entrées sold, and the average guest check. Customer traffic is influenced by the popularity of our menu items, our guest mix, our ability to deliver a high-quality dining experience and overall economic conditions. Average guest check, a measure of total restaurant sales divided by the number of entrées, is driven by menu mix and pricing.
Franchise Income. Franchise income includes (1) franchise and development fees charged to franchisees, (2) sales-based royalty income and (3) sales-based advertising fees. Franchise royalties consist of 5.0% of adjusted gross sales from each franchisee-owned restaurant. In addition, our more recent franchise agreements require an advertising fee of up to 1.0% of gross sales to be paid by the franchisee. Under our prior franchise agreements, the Company would pay 1.0% out of the 5.0% royalty toward national advertising. We evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks, which is impacted by franchisee-owned restaurant openings and closings, and comparable franchisee-owned restaurant sales growth, which together with operating weeks, drives royalty income.
Other Operating Income. Other operating income consists primarily of breakage income associated with gift cards, and includes fees earned from management agreements, banquet-related guarantee and services revenue and other incidental guest fees.
Food and Beverage Costs. Food and beverage costs include all restaurant-level food and beverage costs of Company-owned restaurants. We measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée. Food and beverage costs are generally influenced by the cost of food and beverage items, distribution costs and menu mix.
Restaurant Operating Expenses. We measure restaurant operating expenses for Company-owned restaurants as a percentage of restaurant sales. Restaurant operating expenses include the following:
•
Labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items, including taxes and fringe benefits. We measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales;
•
Operating costs, consisting of maintenance, utilities, bank and credit card charges, and any other restaurant-level expenses; and
•
Occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, insurance premiums and real property taxes.
Marketing and Advertising. Marketing and advertising includes all media, production and related costs for both local restaurant advertising and national marketing. We measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues. We have historically spent approximately 2.5% to 4.0% of total revenues on marketing and advertising. It is anticipated that spending in this area will increase throughout fiscal year 2022 as the economy improves.
General and Administrative. General and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future Company and franchisee growth. General and administrative costs are comprised of management, supervisory and staff salaries and employee benefits, travel, performance-based compensation, stock compensation, information systems, training, corporate rent, professional and consulting fees, technology and market research. We measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues.
Depreciation and Amortization. Depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life.
Pre-Opening Costs. Pre-opening costs consist of costs incurred prior to opening a Company-owned restaurant, which are comprised principally of manager salaries and relocation costs, employee payroll and related training costs for new employees, including practice and rehearsal of service activities as well as lease costs incurred prior to opening.
Gain (Loss) on Lease Modifications. Gain (Loss) on lease modifications consist of gains and losses related to changes in the scope of a lease or the consideration for a lease that was not included in the original terms of the lease. Costs incurred related to the exit of a signed lease are also included.
Loss on Impairments. Loss on impairments consist of charges recognized by which the carrying amount of an asset exceeds its fair value (net realizable value for inventory). Impairment charges were taken on fixed assets, inventory, liquor licenses and operating lease right-of-use assets.
Results of Operations
The table below sets forth certain operating data expressed as a percentage of total revenues, unless otherwise marked as a percentage of restaurant sales, for the periods indicated. Please refer to the Consolidated Statement of Operations for additional information regarding the Company’s results of operations. Our historical results are not necessarily indicative of the operating results that may be expected in the future.
Fiscal Year
Revenues:
Restaurant sales
93.7
%
93.9
%
94.3
%
Franchise income
4.3
%
4.2
%
3.8
%
Other operating income
2.0
%
1.9
%
1.9
%
Total revenues
100.0
%
100.0
%
100.0
%
Costs and expenses:
Food and beverage costs (percentage of restaurant
sales)
32.0
%
29.1
%
28.9
%
Restaurant operating expenses (percentage of
restaurant sales)
44.7
%
57.7
%
48.6
%
Marketing and advertising
3.1
%
2.5
%
3.3
%
General and administrative costs
7.6
%
12.0
%
7.4
%
Depreciation and amortization expenses
4.8
%
7.9
%
4.6
%
Pre-opening costs
0.4
%
0.6
%
0.4
%
Loss (gain) on lease modifications
0.2
%
(0.1
%)
-
Loss on impairment
0.4
%
6.0
%
-
Total costs and expenses
88.4
%
110.3
%
88.8
%
Operating income (loss)
11.6
%
(10.3
%)
11.2
%
Other income (expense):
Interest expense, net
(0.8
%)
(1.7
%)
(0.5
%)
Other
0.0
%
0.0
%
0.0
%
Income (loss) from continuing operations before income tax
expense
10.8
%
(12.0
%)
10.7
%
Income tax expense (benefit)
0.9
%
(2.9
%)
1.7
%
Net income
9.9
%
(9.1
%)
9.0
%
Fiscal Year 2021 Compared to Fiscal Year 2020
Restaurant Sales. Restaurant sales increased $141.3 million, or 54.2%, to $402.0 million during fiscal year 2021 from fiscal year 2020. Comparable Company-owned restaurant sales increased 58.6%, which consisted of an average check increase of 13.1%, and a 40.2% increase in traffic counts as local restrictions and market conditions improved relating to the COVID-19 pandemic during fiscal year 2021.
Franchise Income. Franchise income increased $6.8 million, or 57.9%, to $18.5 million during fiscal year 2021 from fiscal year 2020. The increase is primarily attributable to an increase in sales-based royalty income from a sales increase as local restrictions and market conditions improved relating to the COVID-19 pandemic during fiscal year 2021.
Other Operating Income. Other operating income increased $3.3 million, or 63.4%, to $8.6 million during fiscal year 2021 from fiscal year 2020. Other operating income includes our share of income from managed restaurants, gift card breakage revenue and miscellaneous restaurant income. The change in other operating income was primarily due to an increase of $1.5 million in income from restaurants operating under contractual agreements and $891 thousand in breakage revenue.
Food and Beverage Costs. Food and beverage costs increased $52.6 million, or 69.4%, to $128.5 million during fiscal year 2021 from fiscal year 2020. Food and beverage costs, as a percentage of restaurant sales, increased 29 basis points to 32.0% compared to fiscal year 2020 largely due to an increase of 36.5% in total beef costs.
Restaurant Operating Expenses. Restaurant operating expenses increased $29.3 million, or 19.4%, to $179.7 million during fiscal year 2021 from fiscal year 2020. Restaurant operating expenses, as a percentage of restaurant sales, decreased 13.0% to 44.7% compared to fiscal year 2020 primarily due to labor efficiencies and the impact of fixed costs on higher restaurant sales in 2021.
Marketing and Advertising. Marketing and advertising expenses increased $6.6 million, or 96.3% to $13.5 million during fiscal year 2021 from fiscal year 2020. Marketing and advertising, as a percentage of total revenue, increased 60 basis points to 3.1% compared to fiscal year 2020. The increase in marketing and advertising expenses during fiscal year 2021 was attributable to $4.7 million related to digital and data transformation and increasing expenses as the Company resumes its marketing programs that were suspended as a result of its response to the COVID-19 pandemic.
General and Administrative. General and administrative expenses decreased $717 thousand or 2.2% to $32.5 million during fiscal year 2021 from fiscal year 2020. The decrease in general and administrative costs was primarily attributable to a reduction in compensation related costs in fiscal year 2021.
Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $1.5 million to $20.5 million during fiscal year 2021, primarily due to reduced depreciation expenses from the permanent closure of nine Ruth’s Chris Steak House locations in fiscal year 2020.
Pre-opening Costs. Pre-opening costs of $1.9 million during fiscal year 2021 were primarily due to the planned openings of two Ruth’s Chris Steak House restaurants in Short Hills, NJ and Lake Grove, NY totaling $1.3 million. The remaining $632 thousand of pre-opening expenses related to pre-opening rent expense on locations where the Company took possession of the property from the landlord. Pre-opening costs of $1.6 million in fiscal year 2020 primarily related to pre-opening rent expense on locations where the Company took possession of the property from the landlord.
Losses (Gains) on Lease Modifications. Losses on lease modifications was $1.1 million in fiscal year 2021. The Company had $206 thousand in gains on lease modifications during fiscal year 2020. Gains and losses on lease modifications consist of gains and losses related to changes in the scope of a lease or the consideration for a lease that was not included in the original terms of the lease. Costs incurred related to the exit of a signed lease are also included. The losses on lease modifications during fiscal year 2021 were attributable to the termination of a lease in response to the COVID-19 pandemic. The gains on lease modifications during fiscal year 2020 were attributable to the changes of lease terms in response to the COVID-19 pandemic.
Loss on Impairment. Loss on impairment decreased $14.7 million or 88.8% to $1.9 million in fiscal year 2021. Loss on impairments consist of charges recognized by which the carrying amount of an asset exceeds its fair value (net realizable value for inventory). Impairment charges were taken on fixed assets, inventory, liquor licenses and lease right-of-use assets triggered by the adverse economic impact of COVID-19.
Interest Expense. Interest expense decreased $1.2 million or 25.7% to $3.5 million during fiscal year 2021 from fiscal year 2020. The decrease in expense was primarily due to lower average debt balances and average interest rates during fiscal year 2021 compared to fiscal year 2020.
Other Income. During fiscal year 2021 we recognized $102 thousand of other income. During fiscal year 2020 we recognized $26 thousand of other expense.
Income Tax Expense (Benefit). The effective income tax rates for fiscal years 2021 and 2020 for continuing operations were 8.8% and 23.8%, respectively. The effective tax rate for fiscal year 2021 represents an income tax expense of $4.1 million, whereas the effective tax rate for fiscal year 2019 represents income tax benefit of $7.9 million. The significant change was driven primarily by the Company’s generation of pre-tax income from continuing operations in fiscal year 2021 partially offset by the generation of a $40.0
million federal tax NOL that the Company plans to carryback to tax years 2015 and 2016, compared with the generation of pre-tax losses in fiscal year 2020.
Net Income (Loss). Net income was $42.3 million during fiscal year 2021 compared to a $25.3 million net loss during fiscal year 2020 due to the factors noted above.
Fiscal Year 2020 Compared to Fiscal Year 2019
Restaurant Sales. Restaurant sales decreased $180.6 million, or 40.9%, to $260.8 million during fiscal year 2020 from fiscal year 2019. Comparable Company-owned restaurant sales decreased 40.2%, which consisted of an average check decrease of 6.4%, and a 36.1% decrease in traffic counts as a result of the COVID-19 pandemic.
Franchise Income. Franchise income decreased $6.1 million, or 34.4%, to $11.7 million during fiscal year 2020 from fiscal year 2019. The decrease is primarily attributable to a decrease in sales-based royalty income from a sales decrease as a result of the COVID-19 pandemic.
Other Operating Income. Other operating income decreased $3.5 million, or 40.3%, to $5.2 million during fiscal year 2020 from fiscal year 2019. Other operating income includes our share of income from managed restaurants, gift card breakage revenue and miscellaneous restaurant income. The change in other operating income was primarily due to a decrease of $1.6 million in breakage revenue and $555 thousand in income from restaurants operating under contractual agreements.
Food and Beverage Costs. Food and beverage costs decreased $51.8 million, or 40.6%, to $75.8 million during fiscal year 2020 from fiscal year 2019. Food and beverage costs, as a percentage of restaurant sales, increased 17 basis points to 29.1% compared to fiscal year 2019 largely due to an increase of 1.6% in total beef costs.
Restaurant Operating Expenses. Restaurant operating expenses decreased $64.3 million, or 29.9%, to $150.4 million during fiscal year 2020 from fiscal year 2019. Restaurant operating expenses, as a percentage of restaurant sales, increased 9.1% to 57.7% compared to fiscal year 2019 primarily due to the impact of fixed costs on lower restaurant sales in 2020.
Marketing and Advertising. Marketing and advertising expenses decreased $8.6 million, or 55.6% to $6.9 million during fiscal year 2020 from fiscal year 2019. Marketing and advertising, as a percent of total revenue, decreased 80 basis points to 2.5% compared to fiscal year 2019. The decrease in marketing and advertising expenses during fiscal year 2020 was attributable to the Company reducing expenses in response to the COVID-19 pandemic.
General and Administrative. General and administrative expenses decreased $1.4 million or 4.0% to $33.2 million during fiscal year 2020 from fiscal year 2019. The decrease in general and administrative costs was attributable to a reduction of $1.5 million in compensation costs and a $1.2 million reduction in travel related expenses partially offset by an increase in professional fees of $1.3 million.
Depreciation and Amortization Expenses. Depreciation and amortization expense increased $610 thousand to $22.0 million during fiscal year 2020, primarily due to property additions related to new restaurants and remodel projects placed in service within the last twelve months.
Pre-opening Costs. Pre-opening costs remained relatively unchanged at $1.6 million in fiscal year 2020 compared to $1.8 million in fiscal year 2019 and primarily relate to pre-opening rent expense on locations that the Company has taken possession of the property from the landlord.
Gain on Lease Modifications. Gain on lease modifications was $206 thousand in fiscal year 2020. The Company did not have any gains on lease modifications during fiscal year 2019. Gain on lease modifications consist of gains and losses related to changes in the scope of a lease or the consideration for a lease that was not included in the original terms of the lease. Costs incurred related to the exit of a signed lease are also included. The gain on lease modifications during fiscal year 2020 was attributable to the changes of lease terms in response to the COVID-19 pandemic.
Loss on Impairment. Loss on impairment was $16.5 million in fiscal year 2020. The Company did not have any loss on impairment expense during fiscal year 2019. Loss on impairments consist of charges recognized by which the carrying amount of an asset exceeds its fair value (net realizable value for inventory). Impairment charges were taken on fixed assets, inventory, liquor licenses and lease right-of-use assets triggered by the adverse economic impact of COVID-19.
Interest Expense. Interest expense increased $2.5 million to $4.7 million during fiscal year 2020 from fiscal year 2019. The increase in expense was primarily due to higher average debt balances during fiscal year 2020 compared to fiscal year 2019.
Other Income. During fiscal year 2020 we recognized $26 thousand of other income. During fiscal year 2019 we recognized $115 thousand of other expense.
Income Tax Expense (Benefit). The effective income tax rates for fiscal years 2020 and 2019 for continuing operations were 23.8% and 16.2%, respectively. The effective tax rate for fiscal year 2020 represents an income tax benefit of $7.9 million, whereas the effective tax rate for fiscal year 2019 represents income tax expense of $8.2 million. The significant change was driven primarily by the Company’s generation of a pre-tax loss from continuing operations in fiscal year 2020, compared with the generation of pre-tax income in fiscal year 2019.
Net Income (Loss). Net loss was $25.3 million during fiscal year 2020 compared to $42.2 million net income during fiscal year 2019 due to the factors noted above.
Segment Profitability
Segment profitability information for the Company’s two operating segments is presented in Note 17 of the consolidated financial statements.
Potential Fluctuations in Quarterly Results and Seasonality
Our quarterly operating results may fluctuate significantly as a result of a variety of factors. See “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of certain material risks that could affect our quarterly operating results.
Our business is also subject to seasonal fluctuations. Historically, the percentages of our annual total revenues during the first and fourth fiscal quarters have generally been higher due, in part, to the year-end holiday season and the popularity of dining out in the fall and winter months. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and comparable restaurant sales for any particular period may decrease. The evolving impact of the COVID-19 pandemic may affect the seasonality of our business.
Liquidity and Capital Resources
Overview
Our principal sources of cash during fiscal year 2021 was net cash provided by operating activities. Our principal uses of cash during fiscal year 2021 were for principal repayments under our senior credit facility, capital expenditures and common stock repurchases.
In October 2019, our Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $60 million of outstanding common stock from time to time. During fiscal year 2020, as a result of the impacts to our business arising from the COVID-19 pandemic, the Company suspended its share repurchase program. During the third quarter of fiscal year 2021 the Company resumed its share repurchase program and repurchased 887,515 shares at an aggregate cost of $16.6 million or an average cost of $18.69 per share, under a Rule 10b5-1 plan. All repurchased shares were retired and cancelled. As of December 26, 2021, $25.0 million remained available for future purchases under the share repurchase program.
During the second quarter of fiscal year 2013, we commenced paying quarterly cash dividends to holders of common and restricted stock. In the first quarter of fiscal year 2020, we paid a cash dividend of $0.15 per share, or $4.4 million in the aggregate. As a result of the impacts to our business arising from the COVID-19 pandemic, the Company suspended its share repurchase program and dividend payments beginning in the second fiscal quarter of 2020. The Company’s amended and restated credit agreement currently does not limit the payment of dividends and share repurchases if our Consolidated Leverage Ratio (as defined in the revolving credit facility) as of the end of the immediately preceding fiscal quarter is less than 2.50:1.00 and holds a minimum liquidity of $25.0 million. On January 6, 2022, we announced that our Board of Directors declared a quarterly cash dividend of $0.12 per share, or $4.1 million in the aggregate, to be paid on February 17, 2022 to common and restricted stockholders of record as of the close of business on February 3, 2022. Future dividends will be subject to the approval of our Board of Directors.
We believe that our current cash position, $92.1 million as of December 26, 2021, coupled with our anticipated cash flow from operations should provide us with adequate liquidity for the next twelve months and, when combined with our anticipated access to additional capital, should provide us with adequate liquidity for the foreseeable future.
Senior Credit Facility
As of December 26, 2021, we had $70.0 million of outstanding indebtedness under our senior credit facility with approximately $65.3 million of borrowings available, net of outstanding letters of credit of approximately $4.7 million. As of December 26, 2021, the
weighted average interest rate on our outstanding debt was 1.9% and the weighted average interest rate on our outstanding letters of credit was 1.9%. In addition, the commitment fee on the daily unused average portion of our senior credit facility was 0.3%.
During the fourth fiscal quarter of 2021, the Company entered into an amended and restated credit agreement, which amends and restates its prior credit agreement with Wells Fargo Bank, National Association as administrative agent, and certain other lenders (as amended and restated, the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility of $140.0 million with a $10.0 million sub-facility of letters of credit and a $5.0 million sub-facility 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 $200.0 million. The Credit Agreement has a maturity date of October 18, 2026.
The 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 Credit Agreement (“Fixed Charge Coverage Ratio”) limiting the Company’s actual leverage ratio as defined in the Credit Agreement (“Maximum Consolidated Leverage Ratio”). The Credit Agreement restored the Fixed Charge Coverage Ratio to a ratio equal to or greater than 1.25:1.00 and restored the Maximum Consolidated Leverage Ratio to a ratio no greater than 3.00:1.00. Under the Credit Agreement, dividends and share repurchases are not limited if the Company’s Consolidated Leverage Ratio is less than 2.50:1.00 and holds a minimum liquidity of $25.0 million. As of December 26, 2021 our Consolidated Leverage Ratio was less than 2.50:1.00. 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 and the lenders’ commitments may be terminated. The obligations under the 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.
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 and the fee for the unused commitment is based on the Company’s Maximum Consolidated Leverage Ratio, ranging (a) from 1.50% to 2.25% above the applicable LIBOR rate or (b) 0.50% to 1.25% above the applicable Base Rate. The Credit Agreement also includes a mechanism for an alternate rate to LIBOR, which is the highest of (a) the prime rate or (b) the federal funds rate plus 0.50%.
Capital Expenditures and Acquisition of Restaurants
Capital expenditures in fiscal year 2021, which aggregated $19.7 million, pertained primarily to $9.0 million for new restaurants, $8.4 million for technology and $2.3 million for restaurant remodel and capital replacement projects. Capital expenditures in fiscal year 2020, which aggregated $10.6 million, pertained primarily to $6.7 million for new restaurants and $3.3 million for restaurant remodel and capital replacement projects. Capital expenditures in fiscal year 2019, which aggregated $50.3 million, pertained primarily to $14.4 million for restaurant remodel projects and capital replacement projects; $11.0 million for new restaurants and $18.6 million related to the acquisition of the MBR Franchise Acquisition from the owner franchisee. We anticipate capital expenditures in fiscal year 2022 will be approximately $53.0 to $58.0 million. We currently expect to open five more Company-owned restaurants at leased locations in fiscal year 2022.
Cash Flows
The following table summarizes our primary sources and uses of cash (in thousands):
Fiscal Year
Net cash provided by (used in):
Operating activities
$
81,391
$
20,085
$
72,910
Investing activities
(19,651
)
(10,620
)
(50,281
)
Financing activities
(65,009
)
80,370
(22,124
)
Net increase (decrease) in cash and cash equivalents
$
(3,269
)
$
89,835
$
Operating Activities. Operating cash inflows pertain primarily to restaurant sales and franchise income. Operating cash outflows pertain primarily to expenditures for food and beverages, restaurant operating expenses, marketing and advertising and general and administrative costs. Operating activities provided cash flow all three fiscal years primarily because operating revenues have exceeded cash-based expenses.
Investing Activities. Investing activities in fiscal years 2021 and 2020 primarily related to capital expenditure projects. Fiscal year 2019 investing activities pertained primarily to both the acquisition of franchisee owned restaurants and capital expenditure projects.
Financing Activities. Financing activities provided cash in fiscal year 2020 and used cash in fiscal years 2021 and 2019. During fiscal year 2021 we: reduced debt by $45.0 million; repurchased common stock of $16.6 million; paid $2.8 million in employee taxes in connection with the vesting of restricted stock; and paid $612 thousand in deferred financing costs. We paid $2.8 million in taxes in connection with the vesting of restricted stock and the exercise of stock options because some recipients elected to satisfy their individual tax withholding obligations by having us withhold a number of vested shares of restricted stock and/or a number of shares otherwise issuable pursuant to stock options. During fiscal year 2020 we: issued common stock for $49.6 million; increased the debt outstanding under our senior credit facility by $51.0 million; repurchased common stock of $13.2 million; paid dividends of $4.4 million; paid $1.6 million in employee taxes in connection with the vesting of restricted stock; and paid $962 thousand in deferred financing costs. During fiscal year 2019 we: repurchased common stock of $25.8 million; increased the debt outstanding under our senior credit facility by $23.0 million; paid dividends of $15.6 million; and paid $3.7 million in employee taxes in connection with the vesting of restricted stock and the exercise of stock options.
Contractual Obligations
The following table summarizes our contractual obligations as of December 26, 2021:
Payments due by period
Less than
1-3
3-5
More than
Total
1 year
years
years
5 years
(in millions)
Long-term debt obligations
$
78.3
$
1.7
$
3.3
$
73.3
$
-
Operating lease obligations
296.5
27.2
48.0
43.7
177.6
Total
$
374.8
$
28.9
$
51.3
$
117.0
$
177.6
Long-term debt obligations include principal maturities and expected interest payments. Expected interest payments were estimated using the interest and fee rates under our senior credit facility as of December 26, 2021. Operating lease obligations do not include contingent rent, common area maintenance, property taxes and other pass through charges from our landlords. The above table does not include recorded liabilities to vendors or employees nor does it include routine purchase commitments shorter than twelve months in duration for food and supplies.
Pursuant to the terms of the purchase agreement, upon closing of the sale of the Mitchell’s Restaurants in January 2015, Landry’s assumed the lease obligations of the Mitchell’s Restaurants. However, the Company has guaranteed Landry’s lease obligations aggregating $21.2 million under four of the leases. Separate from the purchase agreement, Landry’s has agreed to indemnify the Company in the event of a default under any of the leases. The above table does not include potential lease obligations for the Mitchell’s Restaurants.
Off-Balance Sheet Arrangements
As of December 26, 2021, we do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition is based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements is based, in part, on our critical accounting policies that require us to make estimates and judgments that affect the amounts reported in those consolidated financial statements. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 of the consolidated financial statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.
Deferred Gift Card Revenue and Gift Card Breakage Revenue
Revenue from restaurant sales is recognized when food and beverage products are sold. Deferred revenue primarily represents the Company’s liability for gift cards that have been sold but not yet redeemed and is recorded at the expected redemption value. When the gift cards are redeemed, the Company recognizes restaurant sales and reduces the deferred revenue liability. Company issued gift cards redeemed at franchisee-owned restaurants reduce the deferred revenue liability but do not impact our restaurant sales. Gift card transactions involving franchisees are settled on a monthly basis through the Company’s third-party gift card provider. The expected redemption value of gift cards represents the full value of all gift cards issued less the amount the Company has recognized as other operating income for gift cards that are not expected to be redeemed.
The portion of gift cards sold to customers which are never redeemed is commonly referred to as gift card breakage. Gift card breakage produces a revenue stream which is a key element of the profitability of the Company’s gift card program and is classified as a component of other operating revenue.
The Company’s accounting method for recognizing breakage revenue is the redemption method. Under the redemption method, breakage revenue is recognized and the gift card liability is derecognized for unredeemed gift cards in proportion to actual gift card redemptions based on historical breakage rates, including breakage rates during previous economic recessions. The Company continues to review historical gift card redemption information and considers any changes in redemption patterns as a result of the current economic environment, to assess the reasonableness of projected gift card breakage rates and patterns of redemption. Future gift card usage may be different than our historical experience and as result our estimate of cards not expected to be redeemed is subject to inherent uncertainty. If actual redemption activity differs significantly from our historical experience our deferred revenue liability and results of operations could be materially impacted.
Impairment of Long-Lived Assets
We review property and equipment (which includes leasehold improvements), purchased intangibles subject to amortization, and operating lease right-of-use (ROU) assets for impairment when events or circumstances indicate these assets might be impaired. We test impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. The analysis is performed at the restaurant level for indicators of permanent impairment. In determining future cash flows, we make significant estimates with respect to future operating results of each restaurant over the expected remaining life of the primary asset in the restaurant. If assets are determined to be impaired, the loss on impairment is measured by calculating the amount by which the asset-carrying amount exceeds its fair value. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record additional losses on impairment on these assets. During fiscal year 2021, the Company recognized $1.9 million in impairment loss due to the decline in the estimated fair value of the long-lived assets, including property, plant and equipment, inventory, and lease right-of-use assets at two closed locations.
The judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, changes in usage or operating performance and desirability of the restaurant sites. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, significant adverse changes in these factors could cause us to recognize a material loss on impairment.
Generally, costs for exit or disposal activities, including restaurant closures, are expensed as incurred. The costs include the cost of disposing of the assets as well as other facility-related expenses from previously closed restaurants. For restaurants operated under operating leases, on the date we commit to a plan to abandon the related ROU asset, we evaluate the ROU asset for potential impairment and determine the go-forward accounting based on requirements in Topic 842.
Valuation and Recoverability of Goodwill and Franchise Rights
Goodwill and franchise rights arise primarily from our acquisition of franchisee-owned Ruth’s Chris restaurants. We recognized $7.1 million of franchise rights and $9.0 million of goodwill related to the MBR Franchise Acquisition completed on July 29, 2019. During fiscal year 2020 a territory rights impairment charge of $3.1 million was taken at two locations.
Prior to the MBR Franchise Acquisition, the most significant acquisitions were completed in 1996, 1999, 2006, 2007 and 2017. Goodwill is not subject to amortization and franchise rights acquired prior to 2008 are also not subject to amortization. Such assets must be tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The annual testing date for determining whether goodwill and other intangible assets are impaired is the last day of the Company’s 48th fiscal week, which in fiscal year 2021 was November 28, 2021. A variety of inherently uncertain estimates, judgments and projections are used in both assessing whether there has been an indicator that an impairment of an intangible asset
may have occurred. We performed our annual impairment test of our goodwill and franchise rights using a qualitative assessment. In using the qualitative approach, we evaluated factors, including but not limited to, recent financial performance; forecasts for future cash flows; our stock price and market capitalization; recent impairment tests; legal factors; the business climate; and the competitive environment. If we determine that it is more likely than not that an intangible asset may be impaired, we are required to estimate its fair value. Because similar intangible assets are not bought and sold regularly in public markets, estimates of fair value of our intangible assets are inherently uncertain.
We evaluate the useful lives of our intangible assets to determine if they are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required capital expenditures, and the expected lives of other related groups of assets.
Insurance Liability
We maintain various insurance policies for workers’ compensation, health and welfare, general liability, professional liability and property damage. Pursuant to those policies, we are responsible for losses up to certain limits and are required to estimate a liability that represents our ultimate exposure for aggregate losses below those limits. The recorded liabilities are based on management’s estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. We use independent actuaries to develop the estimated workers’ compensation, general and health and welfare liabilities. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions. If actual trends differ from our estimates, our financial results could be impacted.
Income Taxes
We account for income taxes in accordance with FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes (Topic 740). Topic 740 establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes. We recognize deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities resulted in a net deferred tax asset, an evaluation is made of the probability of our ability to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or the entire deferred tax asset will not be realized. The realization of such net deferred tax will generally depend on whether we will have sufficient taxable income of an appropriate character within the carry-forward period permitted by the tax law. Without sufficient taxable income to utilize the deductible amounts and carry forwards, the related tax benefits will expire unused. We have evaluated both positive and negative evidence in making a determination as to whether it is more likely than not that all or some portion of the deferred tax asset will not be realized. Measurement of deferred items is based on enacted tax laws.
Recent Accounting Pronouncements
In December 2019 the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update was effective for the Company in the first quarter of fiscal year 2021. This update simplifies the accounting for interim period tax law changes and loss limitations, ownership changes in equity investments, intraperiod tax allocations and the step-up of tax basis in goodwill that is not acquired during a business combination. The adoption of ASU 2019-12 did not have a significant impact on the Company’s ongoing financial reporting.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company is exposed to market risk from fluctuations in interest rates. For fixed rate debt, interest rate changes affect the fair market value of such debt but do not impact earnings or cash flows. Conversely for variable rate debt, including borrowings under the Company’s credit facility, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. At December 26, 2021, the Company had $70.0 million in variable rate debt outstanding. The Company currently does not use financial instruments to hedge its risk to market fluctuations in interest rates. Holding other variables constant (such as debt levels), a hypothetical 100 basis point change in interest rates as of December 26, 2021 would be expected to have an impact on pre-tax earnings and cash flows for fiscal year 2022 of approximately $700 thousand.
Effects of Healthcare Inflation
The Company is exposed to market price fluctuations related to the cost of providing healthcare to its employees. Claim trends are predicted to outpace inflation throughout the upcoming year. Pharmacy costs are also rising in excess of general and medical cost inflation. If prices increase, or the Company experiences significantly more claims, operating margins could be materially adversely affected. Holding other variables constant, a hypothetical 10% fluctuation in healthcare costs would have an approximate impact on pre-tax earnings of approximately $1.0 million for the 2022 fiscal year.
Foreign Currency Risk
The Company believes that fluctuations in foreign exchange rates do not present a material risk to its operations. Franchise fee revenue from international locations aggregated $2.3 million in fiscal year 2021, $1.9 million in fiscal year 2020 and $2.9 million in fiscal year 2019.
Commodity Price Risk
The Company is exposed to market price fluctuations in beef and other food product prices. Given the historical volatility of beef and other food product prices, this exposure can impact the Company’s food and beverage costs. As the Company typically sets its menu prices in advance of its beef and other food product purchases, the Company cannot quickly react to changing costs of beef and other food items. While the Company regularly reviews its prices, the timing of such reviews may not align with the changes to its beef and other food product purchases, which will result in the Company not being able to pass the increased costs on to its guests as quickly as it incurs the higher costs. To the extent that the Company is unable to pass the increased costs on to its guests through price increases, the Company’s results of operations would be adversely affected. The Company experienced 37% inflation in beef prices in fiscal year 2021 compared to fiscal year 2020. During the third quarter of fiscal year 2021 we negotiated set pricing on approximately 10% of our beef supply from mid-September 2021 through mid-March 2022. Subsequent to the end of the fiscal year the Company negotiated a new forward pricing agreement for approximately 10% of beef volume through mid-August 2022. The market for USDA Prime grade beef is particularly volatile. If prices increase, or the supply of beef is reduced, operating margins could be materially adversely affected. Holding other variables constant, a hypothetical 10% change, including market price fluctuations and general inflation, in beef prices would have an approximate impact on pre-tax earnings ranging from $6.0 million to $7.0 million for fiscal year 2022.
From time to time, the Company enters into purchase price agreements for other lower-volume food products, including poultry and seafood. In the past, certain types of poultry and seafood have experienced fluctuations in availability. Poultry and seafood are also subject to fluctuations in price based on availability, which is often seasonal. If certain types of poultry and seafood are unavailable, or if the Company’s costs increase, the Company’s results of operations could be adversely affected.
Effects of Inflation
Components of the Company’s operations subject to inflation include food, beverage, lease and labor costs. The Company’s leases require it to pay taxes, maintenance, repairs, insurance and utilities, all of which are subject to inflationary increases. The Company believes that general inflation, excluding increases in food, labor and employee health plan costs, has not had a material impact on its results of operations in recent years but could have a material effect in the future. Routinely, governmental entities acted to increase minimum wage rates in jurisdictions where Company-owned restaurants are located, which increases our operating costs. Also, the U.S. government may act to further increase the federal minimum wage rate and/or decrease or eliminate the tip credit which could further increase employee compensation costs and related taxes in 2022 if adopted. The increased minimum wage rates are not expected to materially increase employee compensation and related taxes in fiscal year 2022 compared to fiscal year 2021. If prices increase operating margins could be materially adversely affected. Holding other variables constant, a hypothetical 10% increase in other operating costs would have an approximately impact on pre-tax earnings ranging from $4.0 million to $5.0 million for fiscal year 2022.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s consolidated financial statements, together with the related notes and report of independent registered public accounting firm, are set forth in the pages indicated in Item 15, Exhibits, Financial Statement Schedules, of this Annual Report on Form 10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 26, 2021. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 26, 2021 to ensure that information required to be disclosed in reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management to allow timely decisions regarding the required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).
Management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2021. In making this assessment, management applied the criteria based on the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). The Company’s assessment included documenting, evaluating and testing the design and operating effectiveness of the Company’s internal control over financial reporting. Based upon this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 26, 2021.
KPMG LLP, the Company’s independent registered public accounting firm, has audited the consolidated financial statements included herein and issued an audit report on the Company’s internal control over financial reporting as of December 26, 2021, which follows.
Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended December 26, 2021, there was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that in the Company’s judgment has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Ruth’s Hospitality Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Ruth’s Hospitality Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 26, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 26, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2021 and December 27, 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 26, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Orlando, Florida
February 24, 2022

---

ITEM 9B. OTHER INFORMATION
Item 9B.
OTHER INFORMATION
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
We have adopted a Code of Conduct and Business Ethics that applies to our principal executive officer, principal financial officer and principal accounting officer. The text of our Code of Conduct and Business Ethics is posted on our website: www.rhgi.com. We intend to disclose future amendments to, or waivers from, certain provisions of the Code of Conduct and Business Ethics on our website within four business days following the date of such amendment or waiver. Stockholders may request a free copy of the Code of Conduct and Business Ethics from: Ruth’s Hospitality Group, Inc., Attention: Corporate Secretary, 1030 West Canton Avenue, Suite 100, Winter Park, Florida 32789.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information about security ownership is incorporated by reference to the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Information as of December 26, 2021 concerning compensation plans under which our equity securities are authorized for issuance was as follows:
Number of Securities
Remaining Available for
Future Issuance Under an
Number of Securities to
Weighted-Average
Equity Compensation Plan
be Issued Upon Exercise
Exercise Price of
(Excluding Securities
Plan Category
of Outstanding Awards
Outstanding Awards
Reflected in Column (a))
(a)
(b)
(c)
Equity compensation plans approved by
stockholders:
Amended and Restated 2005 Long-Term Equity Incentive Plan
40,920
N/A
-
2018 Omnibus Incentive Plan
701,110
N/A
2,015,022
(a)
The number of securities to be issued includes outstanding restricted stock awards made to employees and officers of the Company and outstanding restricted stock units awarded to non-employee directors.
(b)
The outstanding awards in column (a) do not have an exercise price.
(c)
The total reflects all shares available for grant and could include restricted stock as further described in Note 14 of the accompanying consolidated financial statements.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements appearing on page. All schedules have been omitted because they are not required or applicable or the information is included in the consolidated financial statements or notes thereto.
(b) Exhibits.
See Exhibit Index appearing on page 41 for a list of exhibits filed with or incorporated by reference as part of this Annual Report on Form 10-K.