UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 25, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-51485
Ruths Hospitality Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 72-1060618 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
1030 W. Canton Avenue, Suite 100, Winter Park, FL |
32789 | |
(Address of principal executive offices) | (Zip code) |
(407) 333-7440
Registrants telephone number, including area code
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ¨ No x
The number of shares outstanding of the registrants common stock as of April 27, 2012 was 35,230,301, which includes 954,332 shares of unvested restricted stock shares.
2
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsUnaudited
(Amounts in thousands, except share and per share data)
March 25, 2012 |
December 25, 2011 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 3,054 | $ | 3,925 | ||||
Accounts receivable, less allowance for doubtful accounts 2012$370; 2011$382 |
10,004 | 12,715 | ||||||
Inventory |
7,526 | 7,358 | ||||||
Prepaid expenses and other |
1,558 | 1,448 | ||||||
Deferred income taxes |
1,584 | 1,623 | ||||||
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Total current assets |
23,726 | 27,069 | ||||||
Property and equipment, net of accumulated depreciation 2012$108,397; 2011$104,773 |
97,047 | 99,154 | ||||||
Goodwill |
22,097 | 22,097 | ||||||
Franchise rights |
32,200 | 32,200 | ||||||
Trademarks |
10,676 | 10,676 | ||||||
Other intangibles, net of accumulated amortization 2012$2,142; 2011$2,037 |
6,365 | 6,470 | ||||||
Deferred income taxes |
37,342 | 38,928 | ||||||
Other assets |
3,276 | 3,626 | ||||||
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Total assets |
$ | 232,729 | $ | 240,220 | ||||
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Accounts payable |
$ | 8,499 | $ | 8,014 | ||||
Accrued payroll |
11,056 | 12,914 | ||||||
Accrued expenses |
5,245 | 9,127 | ||||||
Deferred revenue |
26,646 | 30,082 | ||||||
Other current liabilities |
6,120 | 6,182 | ||||||
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Total current liabilities |
57,566 | 66,319 | ||||||
Long-term debt |
77,000 | 22,000 | ||||||
Deferred rent |
23,110 | 23,037 | ||||||
Other liabilities |
5,241 | 5,333 | ||||||
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Total liabilities |
162,917 | 116,689 | ||||||
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Commitments and contingencies (Note 11) |
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Series A 10% Redeemable Convertible Preferred Stock, par value $0.01 per share; no shares issued and outstanding at March 25, 2012, 25,000 shares authorized, issued and outstanding, liquidation preference of $25,000 at December 25, 2011 |
| 23,891 | ||||||
Shareholders equity: |
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Common stock, par value $.01 per share; 100,000,000 shares authorized, 34,204,119 shares issued and outstanding at March 25, 2012, 34,150,389 shares issued and outstanding at December 25, 2011 |
342 | 341 | ||||||
Additional paid-in capital |
165,114 | 200,524 | ||||||
Accumulated deficit |
(95,644 | ) | (101,225 | ) | ||||
Treasury stock, at cost; 71,950 shares at March 25, 2012 and December 25, 2011 |
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Total shareholders equity |
69,812 | 99,640 | ||||||
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Total liabilities, preferred stock, and shareholders equity |
$ | 232,729 | $ | 240,220 | ||||
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See accompanying notes to condensed consolidated financial statements.
3
RUTHS HOSPITALITY GROUP, INC AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)Unaudited
(Amounts in thousands, except share and per share data)
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
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Revenues: |
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Restaurant sales |
$ | 97,287 | $ | 94,164 | ||||
Franchise income |
3,455 | 3,056 | ||||||
Other operating income |
292 | 500 | ||||||
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Total revenues |
101,034 | 97,720 | ||||||
Costs and expenses: |
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Food and beverage costs |
31,127 | 28,885 | ||||||
Restaurant operating expenses |
47,494 | 46,339 | ||||||
Marketing and advertising |
1,740 | 2,929 | ||||||
General and administrative costs |
6,886 | 5,877 | ||||||
Depreciation and amortization expenses |
3,707 | 3,711 | ||||||
Pre-opening costs |
77 | 1 | ||||||
Restructuring benefit |
| (502 | ) | |||||
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Total costs and expenses |
91,031 | 87,240 | ||||||
Operating income |
10,003 | 10,480 | ||||||
Other expense: |
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Interest expense, net |
(481 | ) | (831 | ) | ||||
Debt issuance costs written-off |
(807 | ) | | |||||
Other |
(12 | ) | (200 | ) | ||||
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Income from continuing operations before income tax expense |
8,703 | 9,449 | ||||||
Income tax expense |
2,591 | 2,845 | ||||||
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Income from continuing operations |
6,112 | 6,604 | ||||||
Loss (income) from discontinued operations, net of income tax benefit (expense) |
17 | (327 | ) | |||||
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Net income |
$ | 6,095 | $ | 6,931 | ||||
Preferred stock dividends |
514 | 623 | ||||||
Accretion of preferred stock redemption value |
73 | 88 | ||||||
Excess of redemption value over carrying value of preferred shares redeemed |
35,776 | | ||||||
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Net income (loss) applicable to preferred and common shareholders |
$ | (30,268 | ) | $ | 6,220 | |||
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Basic earnings (loss) per common share: |
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Continuing operations |
$ | (0.89 | ) | $ | 0.14 | |||
Discontinued operations |
| 0.01 | ||||||
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Basic earnings (loss) per share |
$ | (0.89 | ) | $ | 0.15 | |||
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Diluted earnings (loss) per common share: |
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Continuing operations |
$ | (0.89 | ) | $ | 0.14 | |||
Discontinued operations |
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Diluted earnings (loss) per share |
$ | (0.89 | ) | $ | 0.14 | |||
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Shares used in computing net income (loss) per common share: |
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Basic |
34,170,628 | 34,000,032 | ||||||
Diluted |
34,170,628 | 43,084,686 |
See accompanying notes to condensed consolidated financial statements.
4
RUTHS HOSPITALITY GROUP, INC AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders EquityUnaudited
for the Thirteen Weeks ended March 25, 2012 and March 27, 2011
(Amounts in thousands)
Common Stock |
Additional |
Accumulated |
Treasury Stock |
Shareholders | ||||||||||||||||||||||||
Shares | Value | Paid-in Capital | Deficit | Shares | Value | Equity | ||||||||||||||||||||||
Balance at December 25, 2011 |
34,150 | $ | 341 | $ | 200,524 | $ | (101,225 | ) | 72 | $ | | $ | 99,640 | |||||||||||||||
Net income |
| | | 6,095 | | | 6,095 | |||||||||||||||||||||
Preferred stock dividends |
| | | (514 | ) | | | (514 | ) | |||||||||||||||||||
Accretion of preferred stock redemption value |
| | (73 | ) | | | | (73 | ) | |||||||||||||||||||
Excess of redemption value over carrying value of Preferred Shares redeemed |
| | (35,776 | ) | | | | (35,776 | ) | |||||||||||||||||||
Shares issued under stock compensation plan including tax effects |
54 | 1 | 5 | | | | 6 | |||||||||||||||||||||
Stock-based compensation |
| | 434 | | | | 434 | |||||||||||||||||||||
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Balance at March 25, 2012 |
34,204 | $ | 342 | $ | 165,114 | $ | (95,644 | ) | 72 | | $ | 69,812 | ||||||||||||||||
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Balance at December 26, 2010 |
33,981 | $ | 339 | $ | 198,304 | $ | (118,282 | ) | 72 | $ | | $ | 80,361 | |||||||||||||||
Net income |
| | | 6,931 | | | 6,931 | |||||||||||||||||||||
Preferred stock dividends |
| | | (623 | ) | | | (623 | ) | |||||||||||||||||||
Accretion of preferred stock redemption value |
| | (88 | ) | | | | (88 | ) | |||||||||||||||||||
Shares issued under stock compensation plan including tax effects |
68 | 1 | 2 | | | | 3 | |||||||||||||||||||||
Stock-based compensation |
| | 719 | | | | 719 | |||||||||||||||||||||
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Balance at March 27, 2011 |
34,049 | $ | 340 | $ | 198,937 | $ | (111,974 | ) | 72 | $ | | $ | 87,303 | |||||||||||||||
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See accompanying notes to condensed consolidated financial statements.
5
RUTHS HOSPITALITY GROUP, INC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsUnaudited
(Amounts in thousands)
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
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Cash flows from operating activities: |
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Net income |
$ | 6,095 | $ | 6,931 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
3,707 | 3,711 | ||||||
Deferred income taxes |
1,624 | 1,345 | ||||||
Non-cash interest expense |
153 | 192 | ||||||
Debt issuance costs written-off |
807 | | ||||||
Amortization of below market lease |
32 | 81 | ||||||
Restructuring benefit |
| (502 | ) | |||||
Stock-based compensation expense |
434 | 719 | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
3,173 | 2,617 | ||||||
Inventories |
(168 | ) | 444 | |||||
Prepaid expenses and other |
(110 | ) | (24 | ) | ||||
Other assets |
1 | 141 | ||||||
Accounts payable and accrued expenses |
(4,751 | ) | (3,880 | ) | ||||
Deferred revenue |
(3,435 | ) | (5,388 | ) | ||||
Deferred rent |
73 | (578 | ) | |||||
Other liabilities |
34 | 182 | ||||||
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Net cash provided by operating activities |
7,669 | 5,991 | ||||||
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Cash flows from investing activities: |
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Acquisition of property and equipment |
(2,093 | ) | (1,792 | ) | ||||
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Net cash used in investing activities |
(2,093 | ) | (1,792 | ) | ||||
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Cash flows from financing activities: |
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Principal borrowings on long-term debt |
64,000 | 6,000 | ||||||
Principal repayments on long-term debt |
(9,000 | ) | (12,000 | ) | ||||
Redemption of Series A 10% redeemable convertible preferred stock |
(59,740 | ) | | |||||
Dividend payments |
(1,103 | ) | (630 | ) | ||||
Deferred financing costs |
(610 | ) | | |||||
Other |
6 | 3 | ||||||
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Net cash provided by (used in) financing activities |
(6,447 | ) | (6,627 | ) | ||||
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Net decrease in cash and cash equivalents |
(871 | ) | (2,428 | ) | ||||
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Cash and cash equivalents at beginning of period |
3,925 | 5,018 | ||||||
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Cash and cash equivalents at end of period |
$ | 3,054 | $ | 2,590 | ||||
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Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest, net of capitalized interest |
$ | 408 | $ | 657 | ||||
Income taxes |
219 | 344 | ||||||
Noncash investing and financing activities: |
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Excess accrual-based acquisition of property and equipment |
$ | (565 | ) | $ | (793 | ) | ||
Preferred stock dividends accrued |
| 589 |
See accompanying notes to condensed consolidated financial statements.
6
RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial StatementsUnaudited
(1) The Company and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Ruths Hospitality Group, Inc. and its subsidiaries (together, the Company) as of March 25, 2012 and December 25, 2011 and for the fiscal quarters ended March 25, 2012 and March 27, 2011 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The consolidated financial statements include the financial statements of Ruths Hospitality Group, Inc. and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Ruth's Hospitality Group, Inc. is a leading restaurant company focused on the upscale dining segment. The Company owns the Ruth's Chris Steak House, Mitchell's Fish Market, Columbus Fish Market, Mitchell's Steakhouse and Cameron's Steakhouse concepts. As of March 25, 2012, there were 131 Ruth's Chris Steak House restaurants, of which 63 were Company-owned and 68 were franchisee-owned, including fourteen international franchisee-owned restaurants in Aruba, Canada, China (Hong Kong), Mexico, Japan, Taiwan, and the United Arab Emirates. The Company also operates 19 Mitchell's Fish Markets and three Cameron's Steakhouse restaurants, located primarily in the mid-west and Florida. There were no changes to either owned or franchised restaurants during the first quarter of fiscal year 2012.
The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. The interim results of operations for the fiscal quarters ended March 25, 2012 and March 27, 2011 are not necessarily indicative of the results that may be achieved for the full year. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SECs rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 25, 2011.
The Company operates on a 52 or 53-week fiscal year ending on the last Sunday in December. The fiscal quarters ended March 25, 2012 and March 27, 2011 each contained 13 weeks and are referred to herein as the first quarter of fiscal year 2012 and the first quarter of fiscal year 2011, respectively. Fiscal year 2012 is a 53-week year and fiscal year 2011 was a 52-week year.
Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, franchise rights, trademarks and obligations related to workers compensation and medical insurance. Actual results could differ from those estimates.
Reclassifications
The operating results of certain closed locations (see Note 9) have been reclassified to the discontinued operations line of the condensed consolidated statements of income. These reclassifications had no effect on previously reported net income.
Recent Accounting Pronouncements for Future Application
Accounting standards that have been issued by the Financial Accounting Standards Board (FASB) or other standard-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
(2) Redeemable Convertible Preferred Stock
In February 2010, the Company issued and sold 25,000 shares of Preferred Stock to Bruckmann, Rosser, Sherrill & Co. Management, L.P. and affiliates (BRS) in a private placement transaction. The Company received proceeds of $23.2 million, net of approximately $1.8 million in closing and issuance costs. The Preferred Stock was classified as temporary shareholders' equity since the shares had certain conditions that allow the holder to redeem the Preferred Stock for cash, and for which redemption was not solely within the control of the Company.
7
Each share of the Preferred Stock had an initial liquidation preference of $1,000. The holders of the Preferred Stock were entitled to quarterly dividends accruing at a 10% annual rate. The Preferred Stock was also convertible, under certain circumstances, into the number of shares of the Company's common stock equal to the quotient of the liquidation preference, including accrued dividends, divided by the conversion price. Using the liquidation preference of $25.0 million as of December 25, 2011, a conversion of Preferred Stock into the Company's common stock would have resulted in the issuance of 8,620,690 additional common shares. The Preferred Stock was convertible at any time, at the option of the holders. The Company had the option to convert the Preferred Stock, in whole or in part, after February 12, 2012 if the closing price of the Company's common stock equaled or exceeded 225% of the then applicable conversion price for a period of 20 trading days over any 30 consecutive trading day period. At the option of the Company, the Preferred Stock could have been redeemed on or after February 12, 2015 without regard to the Company's stock price. At the option of the holders, the Preferred Stock could have been redeemed on or after February 12, 2017. The redemption price per share was to equal the liquidation preference, including any accrued dividends. In accordance with FASB Accounting Standards Codification (ASC) Topic 480-10-S99, the Company was accreting the carrying value of Preferred Stock to its redemption value of $25 million from the date of issuance to the earliest redemption date, February 12, 2015.
On March 8, 2012, the Company repurchased all of the outstanding Preferred Stock for $60.2 million. The purchase price, which includes payment of all accrued and unpaid dividends owed on the Preferred Stock, was funded using borrowings from the Companys $100 million senior credit facility. After the repurchase and retirement of the Preferred Stock, the Companys fully diluted common share base decreased by approximately 8.6 million shares and the 10% annual dividend on the preferred stock, which amounted to $2.5 million in fiscal year 2011, was eliminated. The Company recorded a reduction of net income applicable to shareholders of approximately $35.8 million in the first fiscal quarter of 2012 to reflect the excess of the redemption value over the financial statement carrying value of the preferred shares redeemed. In connection with the repurchase of preferred shares, the BRS director designee resigned his position as a member of the Companys Board of Directors.
(3) Long-term Debt
Long-term debt consists of the following (in thousands):
March 25, 2012 |
December 25, 2011 |
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Senior Credit Facility: |
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Revolving credit facility |
$ | 77,000 | $ | 22,000 | ||||
Less current maturities |
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$ | 77,000 | $ | 22,000 | |||||
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As of March 25, 2012, the Company had an aggregate of $77.0 million of outstanding indebtedness under its senior credit facility at a weighted average interest rate of 2.41% with approximately $18.8 million of borrowings available, net of outstanding letters of credit of approximately $4.2 million. The 2.41% weighted average interest rate includes a 2.25% interest rate on outstanding indebtedness, plus fees on the Company's unused borrowing capacity and outstanding letters of credit. As of March 25, 2012, the Company was in compliance with all the covenants under its credit facility.
On February 14, 2012, the Company entered into a Second Amended and Restated Credit Agreement with Wells Fargo Bank, as administrative agent, and certain other lenders (the Amended and Restated Credit Agreement), reducing the overall facility from $129.6 million to $100.0 million and extending the maturity of the borrowings to February 14, 2017. The senior credit facility is available to be used for working capital and other general corporate purposes. The Amended and Restated Credit Agreement allows for loan advances plus outstanding letters of credit of up to $100.0 million to be outstanding at any time that the conditions for borrowings are met. The Amended and Restated Credit Agreement also:
| decreases the interest rates applicable to borrowings based on the Company's actual leverage ratio, ranging (a) from 2.00% to 2.75% (from 3.25% to 5.00%) above the applicable LIBOR rate or (b) at the Company's option, from 1.00% to 1.75% (from 2.00% to 3.75%) above the applicable base rate; |
| reduces the commitment fees charged to any undrawn availability under the revolving loan facility, with such commitment fees based on the Company's actual leverage ratio; |
| increases the Company's ability to incur capital leases and other general liens, in both cases, to $10.0 million from $2.5 million; |
8
| reduces the fixed charge coverage ratio to 1.25:1.00 (from 1.35:1.00) and the maximum leverage ratio to 2.50:1.00 (from 3.75 to 1.00); and |
| increases the Company's ability to make capital expenditures to (a) an amount not to exceed 75% of EBITDA if its leverage ratio is equal to or greater than 1.50:1.00 or (b) an unlimited amount if its leverage ratio is less than 1.50:1.00. |
The Amended and Restated Credit Agreement contains customary covenants and restrictions, including, but not limited to: (1) prohibitions on incurring additional indebtedness and from guaranteeing obligations of others; (2) prohibitions on creating, incurring, assuming or permitting to exist any lien on or with respect to any property or asset; (3) limitations on our ability to enter into joint ventures, acquisitions, and other investments; (4) prohibitions on directly or indirectly creating or becoming liable with respect to certain contingent liabilities; and (5) restrictions on directly or indirectly declaring, ordering, paying, or making any restricted junior payments. The Amended and Restated Credit Agreement requires the Company to maintain a fixed charge coverage ratio of 1.25:1.00 and the maximum leverage ratio of 2.50:1.00. Junior stock payments, which include both cash dividend payments and repurchases of common or preferred stock, are limited to $100 million through the end of the agreement. As of March 25, 2012, approximately $60.2 million of the junior stock payments limit had been used due to the repurchase of preferred stock from BRS. The Company's obligations under the Amended and Restated Credit Agreement are guaranteed by each of its existing and future subsidiaries and are secured by substantially all of its assets and a pledge of the capital stock of its subsidiaries. The Amended and Restated Credit Agreement includes customary events of default.
As a result of the February 2012 amendment, $100 thousand of legal fees were incurred in the first quarter of fiscal year 2012. In addition, $807 thousand of previously deferred debt issuance costs were written off because the participants of the lending group changed.
(4) Fair Value Measurements
The carrying amounts of cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair values due to their short duration. Borrowings classified as long-term debt as of March 25, 2012 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying amount of this debt is a reasonable estimate of its fair value.
During the first quarter of fiscal year 2012, the Company had no assets or liabilities measured on a recurring or nonrecurring basis subject to the disclosure requirements of Fair Value Measurements and Disclosures, FASB ASC Topic 820.
(5) Franchise Income
The Company currently has 68 Ruths Chris Steak House franchise locations, including 14 international locations. No franchise locations were opened, sold or purchased during the first quarters of fiscal years 2012 or 2011. Franchise income includes opening and development fees and income generated from existing franchise locations. All franchise income in the first quarters of fiscal years 2012 and 2011 was from existing franchise locations.
(6) Stock-Based Employee Compensation
Under the 2000 Stock Option Plan, there are 44,252 shares of common stock issuable upon exercise of currently outstanding options at March 25, 2012 and no future grants are able to be made. Under the 2005 Equity Incentive Plan, as amended, at March 25, 2012 there are 2,574,849 shares of common stock issuable upon exercise of currently outstanding options and restricted stock awards and 617,385 shares available for future grants. Total stock compensation expense recognized during the first quarters of fiscal years 2012 and 2011 was $0.4 million and $0.7 million, respectively.
9
(7) Restructuring
The Company had no accrued restructuring liability as of either March 25, 2012 or December 25, 2011. A recap of the changes in the accrued restructuring liability during the first quarter of fiscal year 2011 follows (in thousands):
Lease obligations |
Total restructuring |
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Accrued restructuring as of December 26, 2010 |
$ | 1,202 | $ | 1,202 | ||||
Payments |
| | ||||||
Adjustments |
(502 | ) | (502 | ) | ||||
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Accrued restructuring as of March 27, 2011 |
$ | 700 | $ | 700 | ||||
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The Company accrued lease exit costs related to locations for which a lease was signed and the Company subsequently decided not to open a restaurant. The Company recorded a $0.5 million reduction in accrued restructuring costs during the first quarter of fiscal year 2011. The reduction in the liability was due to a change in the estimated lease exit costs for two leases in Scottsdale, Arizona. The remaining accrued restructuring balance of $0.7 million as of March 27, 2011, was based on the expected settlement of the outstanding lease commitments and certain accrued legal costs.
(8) Income Taxes
The effective income tax rate applicable to income from continuing operations for the first quarter of fiscal year 2012 was 29.8%, compared to an effective income tax rate of 30.1% for the first quarter of fiscal year 2011.
A reconciliation of the U.S. statutory rate to the effective rate for each quarter follows:
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Income tax expense (benefit) at statutory rates |
35.0 | % | 35.0 | % | ||||
Increase (decrease) in income taxes resulting from: |
||||||||
State income taxes, net of federal benefit |
4.6 | % | 5.8 | % | ||||
Stock compensation expense (benefit) |
1.9 | % | 0.7 | % | ||||
Employment tax credits |
(11.8 | %) | (12.0 | %) | ||||
Other |
0.1 | % | 0.6 | % | ||||
|
|
|
|
|||||
Effective tax rate |
29.8 | % | 30.1 | % | ||||
|
|
|
|
The Company files consolidated and separate income tax returns in the United States Federal jurisdiction and many state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal income tax examinations for years before 2007.
(9) Discontinued Operations
During the third quarter of fiscal year 2007, the Company was notified that the replacement tenant in the Manhattan-UN, New York, location was placed in default by the landlord and as a result, the Company resumed lease payments with respect to this property during the third quarter of fiscal year 2008. Payments will range from $0.1 million to $0.2 million in the aggregate per fiscal quarter through September 2016. The Company entered into a sublease agreement in April 2011 in order to recover some of the amounts due under the remaining lease term. As of March 25, 2012, the recorded liability related to this property was $1.0 million. The Company accounted for the exit costs in accordance with the provisions of Exit or Disposal Cost Obligations, FASB ASC Topic 420, which requires that such costs be expensed in the periods whereby such costs are incurred. All of the losses incurred are included in discontinued operations in the accompanying consolidated statements of income.
10
The Company accounts for its closed restaurants in accordance with the provisions of Property, Plant and EquipmentImpairment or Disposal of Long-Lived Assets, FASB ASC Topic 360-10. Therefore, when a restaurant is closed, and the restaurant is either held for sale or abandoned, the restaurants operations are eliminated from the ongoing operations. Accordingly, the operations of such restaurants, net of applicable income taxes, are presented as discontinued operations and prior period operations of such restaurants, net of applicable income taxes, are reclassified. Discontinued operations for the first quarter of fiscal year 2011 included a $0.4 million benefit for a change in estimate of lease exit costs related to the Manhattan UN, New York lease.
Discontinued operations consist of the following (in thousands):
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Revenues |
$ | | $ | 1,119 | ||||
Loss (income) before income tax |
$ | 25 | $ | (422 | ) | |||
Loss (income) from discontinued operations, net of income tax benefit (expense) |
$ | 17 | $ | (327 | ) |
(10) Earnings Per Share
Basic earnings per common share is computed under the two-class method as provided in Earnings Per Share, FASB ASC Topic 260. Under the two-class method a portion of net income is allocated to participating securities, such as the Companys Preferred Stock, and therefore is excluded from the calculation of earnings per share allocated to common shares. Diluted earnings per common share is computed by dividing the net income applicable to common shareholders for the period by the weighted average number of common and potential common shares outstanding during the period. Net income, in both the basic and diluted earnings per common share calculations, is reduced by the Preferred Stock dividends and accretion of the Preferred Stock to its redemption value. Additionally, net income for the first quarter of fiscal year 2012 in both the basic and diluted earnings per share calculations was reduced by the excess of the redemption value over the carrying value of the preferred shares redeemed.
Diluted earnings per share for the first quarters of fiscal years 2012 and 2011 excludes stock options and restricted shares of 1,562,862 and 1,675,177, respectively, which were outstanding during the period but were anti-dilutive. Diluted earnings per share for the first quarter of fiscal year 2012 also excludes the 8,620,690 shares of common stock issuable upon the conversion of 25,000 shares of Preferred Stock, which were outstanding until their repurchase and retirement on March 8, 2012, but were anti-dilutive. The weighted average exercise prices of the anti-dilutive stock options for first quarters of fiscal years 2012 and 2011 were $13.04 and $9.40 per share, respectively.
11
The following table sets forth the computation of basic earnings per share (amounts in thousands, except share and per share amounts):
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Income from continuing operations |
$ | 6,112 | $ | 6,604 | ||||
Loss (income) from discontinued operations, net of income tax benefit (expense) |
17 | (327 | ) | |||||
|
|
|
|
|||||
Net income |
$ | 6,095 | $ | 6,931 | ||||
Preferred stock dividends |
514 | 623 | ||||||
Accretion of preferred stock redemption value |
73 | 88 | ||||||
Excess of redemption value over carrying value of preferred stock redeemed |
35,776 | | ||||||
|
|
|
|
|||||
Undistributed net income |
$ | (30,268 | ) | $ | 6,220 | |||
Undistributed net income allocated to preferred shareholders |
| 1,258 | ||||||
|
|
|
|
|||||
Net income (loss) available to common shareholders |
$ | (30,268 | ) | $ | 4,962 | |||
|
|
|
|
|||||
Shares: |
||||||||
Weighted average number of common shares outstandingbasic |
34,170,628 | 34,000,032 | ||||||
Basic earnings per common share: |
||||||||
Continuing operations |
$ | (0.89 | ) | $ | 0.14 | |||
Discontinued operations |
| 0.01 | ||||||
|
|
|
|
|||||
Basic earnings per common share |
$ | (0.89 | ) | $ | 0.15 | |||
|
|
|
|
The following table sets forth the computation of diluted earnings per share (amounts in thousands, except share and per share amounts):
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Income from continuing operations |
$ | 6,112 | $ | 6,604 | ||||
Loss (income) from discontinued operations, net of income tax benefit (expense) |
17 | (327 | ) | |||||
|
|
|
|
|||||
Net income |
$ | 6,095 | $ | 6,931 | ||||
Preferred stock dividends |
514 | 623 | ||||||
Accretion of preferred stock redemption value |
73 | 88 | ||||||
Excess of redemption value over carrying value of preferred stock redeemed |
35,776 | | ||||||
|
|
|
|
|||||
Net income (loss) applicable to preferred and common shareholders |
$ | (30,268 | ) | $ | 6,220 | |||
|
|
|
|
|||||
Shares: |
||||||||
Weighted average number of common shares outstandingbasic |
34,170,628 | 34,000,032 | ||||||
Dilutive shares |
| 463,964 | ||||||
Dilutive convertible preferred stock |
| 8,620,690 | ||||||
|
|
|
|
|||||
Weighted-average number of common shares outstandingdiluted |
34,170,628 | 43,084,686 | ||||||
|
|
|
|
|||||
Diluted earnings per common share: |
||||||||
Continuing operations |
$ | (0.89 | ) | $ | 0.14 | |||
Discontinued operations |
| | ||||||
|
|
|
|
|||||
Diluted earnings per common share |
$ | (0.89 | ) | $ | 0.14 | |||
|
|
|
|
12
(11) Commitments and Contingencies
The Company is subject to various claims, legal actions and other matters arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse effect on the financial position, results of operations or liquidity of the Company. The Company expenses legal fees as incurred.
The Company remits a variety of taxes and fees to various governmental authorities, including excise taxes, property taxes, sales and use taxes, and payroll taxes. The taxes and fees remitted are subject to review and audit by the applicable governmental authorities which could result in liability for additional assessments. In addition, the Company is subject to unclaimed or abandoned property (escheat) laws which require the Company to turn over to certain state government authorities the property of others held by us that has been unclaimed for a specified period of time. The Company is subject to audit by individual U.S. states with regard to 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 its tax positions are reasonable, the Company has recorded accrued liabilities aggregating $4.0 million in recognition that various taxing authorities may challenge certain of the positions the Company has taken, which may also potentially result in additional liabilities for taxes and interest in excess of accrued liabilities. These accrued liabilities are reviewed periodically and are adjusted as events occur that affect the estimates, 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 the Companys results of operations and cash flows in future periods.
In February 2012, the Company entered into a lease for a new Ruths Chris Steak House restaurant in Cincinnati, Ohio. The restaurant is scheduled to open in November 2012.
The Company is in the process of evaluating a relocation of a Ruths Chris Steak House restaurant from an owned facility to a leased facility. We expect to conclude our evaluation of this new site in the second quarter. Should the Company execute a lease at the new leased location, we may recognize an impairment charge of approximately $400 thousand.
13
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that reflect, when made, the Companys expectations or beliefs concerning future events that involve risks and uncertainties. Forward-looking statements frequently are identified by the words believe, anticipate, expect, estimate, intend, project, will be, will continue, will likely result, or other similar words and phrases. Similarly, statements herein that describe the Companys objectives, plans or goals also are forward-looking statements. Actual results could differ materially from those projected, implied or anticipated by the Companys forward-looking statements. Some of the factors that could cause actual results to differ include: changes in economic conditions and general trends; the loss of key management personnel; the effect of market volatility on the Companys stock price; health concerns about beef or other food products; the effect of competition in the restaurant industry; changes in consumer preferences or discretionary spending; reductions in the availability of, or increases in the cost of, USDA Prime grade beef, fish and other food items; labor shortages or increases in labor costs; the impact of federal, state or local government regulations relating to Company employees, the sale or preparation of food, the sale of alcoholic beverages and the opening of new restaurants; harmful actions taken by the Companys franchisees; the Companys ability to protect its name and logo and other proprietary information; the impact of litigation; and the restrictions imposed by the Companys Amended and Restated Credit Agreement. For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended December 25, 2011, which is available on the SECs website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.
Unless the context otherwise indicates, all references in this report to the Company, Ruths, we, us, or our or similar words are to Ruths Hospitality Group, Inc. and its subsidiaries. Ruths Hospitality Group, Inc. is a Delaware corporation formerly known as Ruths Chris Steak House, Inc., and was founded in 1965.
Overview
Ruths Hospitality Group, Inc. is a leading restaurant company focused on the upscale dining segment. The Company owns the Ruths Chris Steak House, Mitchells Fish Market, Columbus Fish Market, Mitchells Steakhouse and Camerons Steakhouse concepts. As of March 25, 2012, there were 131 Ruths Chris Steak House restaurants, of which 63 were Company-owned and 68 were franchisee-owned, including fourteen international franchisee-owned restaurants in Aruba, Canada, China (Hong Kong), Mexico, Japan, Taiwan, and the United Arab Emirates. The Company also operates 19 Mitchell's Fish Markets and three Camerons Steakhouse restaurants, located primarily in the mid-west and Florida. There were no changes to the number of Company-owned or franchised restaurants during the first quarter of fiscal year 2012.
We expect to grow the number of Company-owned and franchised owned restaurants in 2012. A second franchise restaurant located in Dubai opened in April 2012. We anticipate that franchisees will open two to four additional restaurants in 2012. A new Ruths Chris Steak House located at Harrahs casino in Cherokee, NC is targeted to be opened in May 2012 under a management agreement between the Company and the Eastern Band of Cherokee Indians. A Company-owned Ruths Chris Steak House is scheduled to be opened in Cincinnati, Ohio in November 2012.
Our business is subject to seasonal fluctuations. Historically, our first and fourth quarters have tended to be the strongest revenue quarters due, in part, to the year-end holiday season. 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.
Our Annual Report on Form 10-K for the fiscal year ended December 25, 2011 provides additional information about our business, operations and financial condition.
14
Results of Operations
The table below sets forth certain operating data expressed as a percentage of total revenues for the periods indicated, except as otherwise noted. Our historical results are not necessarily indicative of the operating results that may be expected in the future.
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Revenues: |
||||||||
Restaurant sales |
96.3 | % | 96.4 | % | ||||
Franchise income |
3.4 | % | 3.1 | % | ||||
Other operating income |
0.3 | % | 0.5 | % | ||||
|
|
|
|
|||||
Total revenues |
100.0 | % | 100.0 | % | ||||
Costs and expenses: |
||||||||
Food and beverage costs (percentage of restaurant sales) |
32.0 | % | 30.7 | % | ||||
Restaurant operating expenses (percentage of restaurant sales) |
48.8 | % | 49.2 | % | ||||
Marketing and advertising |
1.7 | % | 3.0 | % | ||||
General and administrative costs |
6.8 | % | 6.0 | % | ||||
Depreciation and amortization expenses |
3.7 | % | 3.8 | % | ||||
Pre-opening costs |
0.1 | % | | |||||
Restructuring benefit |
| (0.5 | %) | |||||
|
|
|
|
|||||
Total Costs and expenses |
93.1 | % | 92.2 | % | ||||
Operating income |
9.9 | % | 10.7 | % | ||||
Other income (expense): |
||||||||
Interest expense, net |
(0.5 | %) | (0.9 | %) | ||||
Debt issuance costs written-off |
(0.8 | %) | | |||||
Other |
| (0.2 | %) | |||||
|
|
|
|
|||||
Income from continuing operations before income tax expense |
8.6 | % | 9.6 | % | ||||
|
|
|
|
|||||
Income tax expense |
2.6 | % | 2.9 | % | ||||
|
|
|
|
|||||
Income from continuing operations |
6.0 | % | 6.7 | % | ||||
Loss (income) from discontinued operations, net of income tax benefit (expense) |
| (0.3 | %) | |||||
|
|
|
|
|||||
Net income |
6.0 | % | 7.0 | % | ||||
|
|
|
|
|||||
Preferred stock dividends |
0.5 | % | 0.6 | % | ||||
Accretion of preferred stock redemption value |
0.1 | % | 0.1 | % | ||||
Excess of redemption value over carrying value of preferred shares redeemed |
35.4 | % | | |||||
|
|
|
|
|||||
Net income (loss) applicable to preferred and common shareholders |
(30.0 | %) | 6.3 | % | ||||
|
|
|
|
First Quarter Ended March 25, 2012 (13 Weeks) Compared to First Quarter Ended March 27, 2011 (13 Weeks)
Overview. First quarter fiscal year 2012 operating income decreased from the first quarter fiscal year 2011 level by $0.5 million to $10.0 million. First quarter fiscal year 2012 operating income was favorably impacted by a $3.1 million increase in restaurant sales which was offset by increased food and restaurant operating expenses. Higher restaurant sales were attributable both to an increase in the number of customers as measured by an increase in entrées and an increase in average check. Net income for the first quarter of fiscal year 2012 decreased by $0.8 million to $6.1 million as compared to the first quarter of fiscal year 2011. During the first quarter of fiscal year 2011, we recognized a $0.5 million restructuring benefit and a $0.3 million discontinued operations benefit.
Preferred stock requirements are deducted from net income to arrive at net income (loss) applicable to preferred and common shareholders. During the first quarter of fiscal year 2012, we reported a $30.3 million loss applicable to shareholders due to the repurchase of all of the Companys Preferred Stock. We recorded a reduction of net income applicable to shareholders of $35.8 million in the first fiscal quarter of 2012 to reflect the excess of the redemption value over the carrying value of the preferred shares redeemed.
15
Restaurant Sales. Restaurant sales increased $3.1 million, or 3.3%, to $97.3 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. Company-owned comparable restaurant sales for Ruths Chris Steak House increased 3.7%, which consisted of an average check increase of 1.5% and an entrée increase of 2.2%. Company-owned comparable restaurant sales at Mitchells Fish Market were flat, due to an average check decrease of 0.1% and an entrée increase of 0.1%.
Franchise Income. Franchise income increased $0.4 million, or 13.1%, to $3.5 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. The increase was driven by two locations which opened in 2011 and an increase in comparable franchise-owned restaurant sales of 7.6%.
Food and Beverage Costs. Food and beverage costs increased $2.2 million, or 7.8%, to $31.1 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. As a percentage of restaurant sales, food and beverage costs increased to 32.0% in the first quarter of fiscal year 2012 from 30.7% in the first quarter of fiscal year 2011. This increase in food and beverage costs as a percentage of restaurant sales was primarily due to unfavorable beef prices.
Restaurant Operating Expenses. Restaurant operating expenses increased $1.2 million, or 2.5%, to $47.5 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. Restaurant operating expenses, as a percentage of restaurant sales, decreased to 48.8% in the first quarter of fiscal year 2012 from 49.2% in the first quarter of fiscal year 2011 due to leveraging higher comparable restaurant sales. Restaurant operating expenses were adversely impacted by higher health insurance costs in the first quarter of fiscal year 2012.
Marketing and Advertising. Marketing and advertising expenses decreased $1.2 million, or 40.6%, to $1.7 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. As a percentage of total revenues, marketing and advertising decreased to 1.7% in the first quarter of fiscal year 2012 from 3.0% in the first quarter of fiscal year 2011. The decrease in marketing and advertising expenses in the first quarter of fiscal 2012 was primarily due to a decrease in TV production costs and a shift in the timing of advertising campaigns.
General and Administrative. General and administrative expenses increased $1.0 million to $6.9 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011 due to increases in legal fees and personnel costs.
Depreciation and Amortization Expenses. Depreciation and amortization expense was $3.7 million in the first quarter of fiscal year 2012, which was relatively flat to the first quarter of fiscal year 2011.
Restructuring Benefit. In the first quarter of 2011, a $0.5 million restructuring benefit was recognized due to a change in the estimated lease exit costs for two leases in Scottsdale, Arizona. The change in estimate was a result of a favorable outcome on the outstanding litigation related to the lease commitments.
Interest Expense. Interest expense decreased $0.3 million, or 42.1%, to $0.5 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. The decrease in expense was due to a lower average debt balance and lower interest rates in the first quarter of fiscal year 2012.
Debt Issuance Cost Write-off. As a consequence of the February 2012 amendment to our senior credit agreement, $807 thousand of previously deferred debt issuance costs were written off.
Income Tax Expense. Income tax expense decreased $0.2 million to $2.6 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011. The decrease in the first quarter of fiscal year 2012 is primarily due to a $0.7 million decrease in income from continuing operations before income tax.
Income from Continuing Operations. Income from continuing operations decreased $0.5 million, or 7.5%, to $6.1 million in the first quarter of fiscal year 2012 from the first quarter of fiscal year 2011.
Discontinued Operations, net of Income Tax Benefit. Income from discontinued operations, net of income tax benefit, was $0.3 million in the first quarter of fiscal year 2011. The income in the first quarter of fiscal year 2011 was primarily due to a benefit for a change in estimate of lease exit costs related to the Manhattan UN, New York lease.
Net Income (Loss) Applicable to Preferred and Common Shareholders. Net income (loss) applicable to preferred and common shareholders was a loss of $30.3 million in the first quarter of fiscal year 2012 compared to $6.2 million income in the first quarter of fiscal year 2011. The loss in the first quarter of fiscal year 2012 was attributable to the repurchase of all of the outstanding Preferred Stock. We recorded a reduction of net income applicable to shareholders of $35.8 million in the first fiscal quarter of 2012 to reflect the excess of the redemption value over the financial statement carrying value of the preferred shares redeemed.
16
Liquidity and Capital Resources
Overview
Our principal source of cash during the first quarter of fiscal year 2012 was net cash provided by operating activities and borrowings from our $100 million senior credit facility. Our principal use of cash during the first quarter of fiscal year 2012 was for the repurchase of all of our issued and outstanding shares of Preferred Stock.
On February 14, 2012, we entered into a Second Amended and Restated Credit Agreement with Wells Fargo Bank, as administrative agent, and certain other lenders (the Amended and Restated Credit Agreement), reducing the overall facility from $129.6 million to $100.0 million and extending the maturity of the borrowings to February 14, 2017. The revolving credit facility is available to be used for working capital and other general corporate purposes. The Amended and Restated Credit Agreement now allows for loan advances plus outstanding letters of credit of up to $100 million to be outstanding at any time that the conditions for borrowings are met. The Amended and Restated Credit Agreement revised the key financial covenants on terms more favorable to us. The Amended and Restated Credit Agreement contains customary covenants and restrictions, including, but not limited to: (1) prohibitions on incurring additional indebtedness and from guaranteeing obligations of others; (2) prohibitions on creating, incurring, assuming or permitting to exist any lien on or with respect to any property or asset; (3) limitations on our ability to enter into joint ventures, acquisitions, and other investments; (4) prohibitions on directly or indirectly creating or becoming liable with respect to certain contingent liabilities; and (5) restrictions on directly or indirectly declaring, ordering, paying, or making any restricted junior payments. The Amended and Restated Credit Agreement requires us to maintain a fixed charge coverage ratio of 1.25:1.00 and the maximum leverage ratio of 2.50:1.00. Junior stock payments, which include both cash dividend payments and repurchases of common or preferred stock, are limited to $100 million through the end of the agreement. As of March 25, 2012, $60.2 million of the junior stock payments limit had been used due to the repurchase of preferred stock from BRS. The Companys obligations under the Amended and Restated Credit Agreement are guaranteed by each of its existing and future subsidiaries and are secured by substantially all of its assets and a pledge of the capital stock of its subsidiaries. The Amended and Restated Credit Agreement includes customary events of default.
On March 8, 2012 we repurchased all of our issued and outstanding shares of Preferred Stock for $60.2 million in cash. The purchase price, which includes all accrued and unpaid dividends owed on the preferred stock, was funded using borrowings from our $100 million senior credit facility. As of the date of the repurchase, our potential fully diluted common share base decreased by approximately 8.6 million shares and the 10% dividend on the preferred stock, which amounted to $2.5 million in fiscal year 2011, was eliminated.
As of March 25, 2012, we had an aggregate of $77.0 million of outstanding indebtedness under our senior credit facility at a weighted average interest rate of 2.41% with approximately $18.8 million of borrowings available, net of outstanding letters of credit of approximately $4.2 million. The 2.41% weighted average interest rate includes a 2.25% interest rate on outstanding indebtedness, plus fees on our unused borrowing capacity and outstanding letters of credit. As of March 25, 2012, we were in compliance with all the covenants under our credit facility. As of April 27, 2012, we had an aggregate of $74.0 million of outstanding indebtedness under our Amended and Restated Credit Facility with approximately $21.8 million of borrowings available, net of outstanding letters of credit of approximately $4.2 million. We expect that our principal uses of cash for the remainder of fiscal year 2012 will be for capital expenditures on existing and new restaurants and debt repayments on our senior credit facility. We anticipate capital expenditures for fiscal year 2012 will aggregate approximately $10 million to $12 million. We believe that our borrowing ability under our senior credit agreement coupled with our anticipated cash flow from operations should provide us with adequate liquidity in fiscal year 2012.
17
First Quarter Sources and Uses of Cash
The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):
13 Weeks Ended | ||||||||
March 25, 2012 |
March 27, 2011 |
|||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 7,669 | $ | 5,991 | ||||
Investing activities |
(2,093 | ) | (1,792 | ) | ||||
Financing activities |
(6,447 | ) | (6,627 | ) | ||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
$ | (871 | ) | $ | (2,428 | ) | ||
|
|
|
|
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 during the first quarters of both fiscal years 2012 and 2011 primarily because operating revenues have exceeded cash based expenses.
Net cash used in investing activities in both periods pertained primarily to restaurant remodel projects.
Financing activities used cash in both periods. During the first quarter of fiscal year 2012 we repurchased all of our outstanding preferred stock for $60.2 million, which was funded by our senior credit facility. We also repaid $5.2 million of debt using cash provided by operations. During the first quarter of fiscal year 2011 we repaid $6.0 million of debt outstanding under our senior credit facility.
Off-Balance Sheet Arrangements
As of March 25, 2012, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. Our Annual Report on Form 10-K for the fiscal year ended December 25, 2011 includes a summary of the critical accounting policies and estimates that we believe are the most important to aid in the understanding our financial results. There have been no material changes to these critical accounting policies and estimates that impacted our reported amounts of assets, liabilities, revenues or expenses during the first quarter of fiscal year.
ITEM 3. | 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 senior 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 March 25, 2012, the Company had $77.0 million of variable rate debt outstanding. The Company currently does not use financial instruments to hedge its risk to market fluctuations in interest rates. Ceteris paribus, a hypothetical immediate one percentage point change in interest rates would be expected to have an impact on pre-tax earnings and cash flows for fiscal year 2012 of approximately $0.8 million.
Foreign Currency Risk
The Company believes that fluctuations in foreign exchange rates do not present a material risk to its operations due to the relatively small amount of franchise income it receives from outside the U.S.
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 Companys food and beverage costs. As the Company
18
typically sets its menu prices in advance of its beef and other food product purchases, the Company cannot quickly take into account changing costs of beef and other food items. 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 has purchase agreements for prime beef representing approximately 25% to 30% of our needs from April through August 2012. The Company currently does not use financial instruments to hedge its risk to market price fluctuations in other food product prices. The market for USDA Prime grade beef is particularly volatile. If prices increase, or the supply of beef is reduced, operating margin could be materially adversely affected. Ceteris paribus, a hypothetical 10% fluctuation in beef prices would have an approximate impact ranging from $3.0 to $3.5 million on pre-tax earnings for the balance of fiscal year 2012.
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 the Companys costs increase, the Companys results of operations could be adversely affected.
Effects of Inflation
Components of the Companys operations subject to inflation include food, beverage, lease and labor costs. The Companys leases require it to pay taxes, maintenance, repairs, insurance and utilities, all of which are subject to inflationary increases. The Company believes inflation has not had a material impact on its results of operations in recent years.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of the Companys 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 Securities Exchange Act of 1934, as amended (the Exchange Act)), as of March 25, 2012. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of March 25, 2012 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 SECs rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Companys management to allow timely decisions regarding the required disclosure.
Changes in internal control over financial reporting
During the fiscal quarter ended March 25, 2012, there was no change in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that in the Companys judgment has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. While litigation is subject to uncertainties and the outcome of litigated matters is not predictable with assurance, the Company is not aware of any legal proceedings pending or threatened against it that it expects to have a material adverse effect on its financial condition or results of operations.
ITEM 1A. | RISK FACTORS |
There are no material changes to the Risk Factors included in the Companys Form 10-K for the fiscal year ended December 25, 2011. The impact of the circumstances and events described in such Risk Factors could result in significant adverse effects on our financial position, results of operations and cash flows.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 4. | MINE SAFETY DISCLOSURES |
None.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The Agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
| should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
| have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
| may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
| were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company's other public files, which are available without charge through the SEC's website at http://www.sec.gov.
Exhibit 10.1* Terms of Employment/Letter of Understanding and Salary Continuation Agreement dated March 2012 between the Company and Peter Beaudrault.
Exhibit 10.2* Terms of Employment/Letter of Understanding and Salary Continuation Agreement dated October 2011 between the Company and Cheryl Henry.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. |
Interactive Data Files | |
101.INS** |
XBRL Instance Document | |
101.SCH** |
XBRL Taxonomy Extension Schema Document | |
101.CAL** |
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF** |
XBRL Taxonomy Definition Linkbase Document | |
101.LAB** |
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE** |
XBRL Taxonomy Extension Presentation Linkbase Document |
* | Management contract or compensatory plan or arrangement. |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RUTHS HOSPITALITY GROUP, INC. | ||
By: |
/s/ MICHAEL P. ODONNELL | |
Michael P. ODonnell | ||
Chairman of the Board, President and Chief Executive Officer | ||
(Principal Executive Officer) |
By: |
/s/ ARNE G. HAAK | |
Arne G. Haak | ||
Executive Vice President and Chief Financial Officer of Ruths Hospitality Group, Inc. (Principal Financial Officer) |
Date: April 27, 2012
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Exhibit 10.1
CHERYL J. HENRY
TERMS OF EMPLOYMENT/
LETTER OF UNDERSTANDING AND SALARY CONTINUATION
AGREEMENT
Ruths Hospitality Group, Inc. (hereafter referred to as Employer) and Cheryl J. Henry (hereinafter referred to as Employee) agree upon the following terms of employment of Employee by Employer.
1. Duties. Employee shall be employed during the term of this Agreement as set forth in Section 3 in the position of Senior Vice President and Chief Branding Officer. Employee will advance the best interests of Employer at all times during her employment and shall at all such times faithfully, industriously and to the best of her ability, perform all duties as may be required of her by virtue of her title and position and in accordance with the job description for her title and position as established by the Employers Board of Directors and/or its Designee from time to time. Employer shall provide Employee with a written job description. Employee shall comply with any and all written personnel and corporate policies and employment manuals of Employer in the conduct of her duties that are applied on a consistent basis.
2. Extent of Service. Employee shall devote her full time and best efforts to the performance of her duties. Employee shall not engage in any business or perform any services in any capacity that would, in the reasonable judgment of Employer, interfere with the full and proper performance by Employee of her duties.
3. Term. This Agreement shall expire and terminate and be of no further effect (with the exception of terms herein which by their terms survive the termination of this Agreement) on the close of business of the first anniversary of the date this Agreement was first
executed (the Termination Date); provided however that this Agreement shall automatically renew and extend for additional one (1) year terms if Employee is not otherwise in default and remains in the employ of Employer. Notwithstanding the foregoing, Employer must give Employee a minimum of 60 days notice prior to the expiration of any given Term, otherwise this Agreement shall automatically renew for a successive term
4. Compensation.
a. Salary. For all duties to be performed by Employee in the capacity reference hereunder, Employee shall receive an initial annual base salary of $250,000.00, that cannot be reduced and which shall be paid in accordance with Employers normal payroll practice. Employees base salary will be subject to annual review by the Compensation Committee of the Board of Directors.
b. Bonus. Employee will be entitled to a discretionary bonus of up to 45% of her base salary, subject to the budget and performance targets as defined by the Board of Directors on an annual basis pursuant to the Employers Executive Bonus Plan (Plan) and which may be increased or decreased according to the Plan, to be paid to Employee after the issuance of the Employers audited financial statements relating to that year, assuming Employee is actively employed by Employer at the end of the fiscal year.
c. Automobile Allowance. Employee shall also receive a monthly automobile allowance of at least $900.00 per month during the term of the Agreement.
d. Restricted Stock Units. Pursuant to the Companys Plan, Employee shall receive upon commencement of this agreement 20,000 restricted stock units with a three year cliff vesting schedule.
5. Benefits.
a. Vacation/LeaveEmployee shall be entitled to four (4) weeks of paid vacation per calendar year, with normal sick and holiday leave as defined by Employers written policies.
b. Benefit PlanEmployee shall be eligible to participate in the health and welfare plans provided by Employer for Executives.
c. Retirement BenefitsEmployee will be eligible for all applicable retirement benefits offered by Employer, if any.
d. Reimbursement of ExpensesEmployer agrees to reimburse Employee for reasonable and appropriate Employer-related expenses (as determined by Employer) paid by Employee in furtherance of her duties, including, but not limited to, travel expenses, food, lodging, entertainment expenses and automobile expenses, upon submission of proper accounting records for such expenses. Employer agrees to reimburse Employee for in-transition living expenses and moving expenses pursuant to its written relocation policy, including any terms in addition thereto as may be agreed to by the parties.
6. Disability or Incapacity. If, for a period of ninety (90) consecutive days during the continuing term of this Employment Agreement, Employee is disabled or incapacitated for mental, physical or other cause to the extent that she is unable to perform her duties as herein contemplated during said ninety (90) consecutive days, Employer shall immediately thereafter have the right to terminate this Employment Agreement upon providing ten (10) days written notice to Employee and shall be obligated to pay Employee compensation up to the effective date of said termination. The right of termination in this section in no way affects or diminishes other rights of termination as stated in this Employment Agreement, Equity or Bonus Plan.
7. Termination. Notwithstanding any other provision hereof, Employees employment shall be terminated immediately: 1) upon her death; 2) notice after disability as defined in Section 6; or 3) Employees discharge with or without Cause; or 4) Employees resignation.
a. For purposes of this Agreement, Cause shall mean (i) Employees theft or embezzlement, or attempted theft or embezzlement, of money or property of Employer, her perpetuation or attempted perpetuation of fraud, or her participation in a fraud or attempted fraud, on Employer or her unauthorized appropriation of, or her attempt to misappropriate, any tangible or intangible assets or property of Employer, (ii) any act or acts of disloyalty, misconduct or moral turpitude by Employee injurious to the interest, property, operations, business or reputation of Employer or her commission of a crime which results in injury to Employer or (iii) her willful disregard of lawful directive given by a superior or the Board or a violation of an Employer employment policy injurious to the interest of the Employer. Employee may not be terminated for cause under (ii) and (iii) unless provided written notice and the circumstance has not been cured within 10 business days. Cause shall not include termination due to Death or Disability.
b. Should Employer terminate Employees employment for cause, as defined in Section 7.b, then, Employee is entitled to be paid no more than his salary through the date of termination, any unused vacation days, unreimbursed expenses, car allowance, earned but unpaid bonus per Plan. All vested but not exercised option rights will be subject to repurchase by Employer according to the terms of the Equity Plan.
c. Employer reserves the right to terminate Employees employment without cause, as defined in Section 7.b. However, in the event that occurs, then: 1) Employee will
receive twelve (12) monthly payments in the aggregate equal to Employees prior twelve (12) months base salary compensation; 2) Employee shall receive 12 monthly payments in the aggregate equal to fifty per cent (50%) of employees prior year bonus compensation. 3) Employee will be eligible to receive twelve (12) months continued health, welfare and retirement Benefits (as defined hereinabove), according to the same terms and conditions Employee would have been entitled to had Employees employment with Employer not been terminated; 4) twelve (12) monthly payments of the automobile allowance Employee would have been entitled to had Employees employment with Employer had not been terminated, including reimbursement for fuel and routine maintenance costs for one automobile; 5) all unreimbursed expenses; and 6) all vesting rights of Employees stock options and restricted stock granted during Employees tenure shall continue for 12 month post-termination notwithstanding any terms of the Equity Plan to the contrary. Employer has the option of paying this severance on a monthly or lump sum basis. The payment of all amounts under this Section 7.c is contingent on Employees compliance with Sections 8 and 9, and the signing of a customary general release in favor of the Employer.
d. Should Employee resign her employment for Good Reason, as defined below, Employee will receive as severance the identical compensation and benefit payments that are set forth in section 7.c (1-6). Employer has the option of paying this severance on a monthly or lump sum basis. The payment of all amounts under this Section 7.d is contingent upon Employees compliance with Sections 8 and 9, and the signing of a customary general release in favor of the Employer.
e. For purposes of this Agreement, Good Reason shall mean (i) the assignment by the Board to Employee of any material duties that are clearly inconsistent with Employees status, title and position as Senior Vice President / Chief Branding Officer of
Employer; (ii) a failure by Employer to pay Employee any amounts required to be paid under this Agreement, which failure continues uncured for a period of fifteen (15) days after written notice thereof is given by Employee to the Board; (iii) relocation of Employer requiring Employee to relocate; or (iv) Employer provides Employee notice 60 days before expiration of a given Term of its decision not to renew this Agreement.
f. Employee understands that should Employee resign her employment without Good Reason, then Employee is entitled to no more than her salary through the date of termination (said termination date to be determined by Employer upon notice of resignation), any earned but unused vacation days and unreimbursed business expenses.
g. Notwithstanding the foregoing, and in the event of a change in the composition of the Board of Directors at any time between the date that this Agreement is effective and two years thereafter whereby more than a majority of the Board members in place at the time this Agreement is effective resign or are otherwise replaced and Employee is terminated without cause by the newly comprised Board of Directors, Employee shall receive, in addition to the benefits in Section 7.c (1-6), an additional payment of fifty-percent (50%) of her annual base salary as of the date of termination.
h. Notwithstanding the foregoing, and in the event of the sale of Employer or substantially all of Employers assets resulting in a change in control of the Employer (as such transactions are defined in the Equity Plan) at any time during the term of this Agreement, in addition to the benefits in Section 7.c (1-6), there shall be an accelerated vesting of all equity grants notwithstanding any contrary terms of the Equity Plan. These Sections 7.g and 7.h of this Agreement shall be referred to as a Change in Control for purposes of this Agreement.
8. Disclosure of Information. Employee agrees that she will not, during employment or any time after termination of employment hereunder, without authorization of Employer, disclose to, or make use of for herself or for any person, corporation or other entity, any files, videos, trade secrets, papers, photographs, presentations, recipes, specifications, drawings, salary structures, sources of income, business plans, minutes of meetings, contractual arrangements, or other confidential information concerning the business, clients, methods, operations, financing or services of Employer. Trade secrets and confidential information shall mean information disclosed to Employee or known by her as a consequence of her employment by Employer, and not generally known to the restaurant industry.
9. | Non-Compete. |
a. In further consideration of the compensation to be paid to Employee hereunder, Employee acknowledges that in the course of her employment with Employer and its Subsidiaries and Affiliates she shall become familiar, and during her employment with Employer she has become familiar, with Employers trade secrets and with other Confidential Information concerning Employer and its predecessors and its Subsidiaries and Affiliates and that her services have been and shall be of special, unique and extraordinary value to Employer. Therefore, Employee agrees that during her employment and for a period of one year following her last day of employment (hereafter referred to as the Non-compete Period), Employee shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business or enterprise identical to or similar to any such business which is engaged in by Employer, its Subsidiaries or Affiliates or any of their respective franchises, which shall include any restaurant business that derives more than 25% of its revenues from the sale of seafood and seafood dishes, steak and steak dishes and which has an
average guest check greater than $45, escalating by five percent (5%) per year, (the Business), as of the date of this Agreement and which is located in the United States, which shall for purposes of illustration and not limitation include the following chains and their parent companies, subsidiaries and other affiliates: McCormick and Schmick, Legal Sea Foods, Oceanaire, Ocean Prime, Mortons Restaurant Group, The Palm, Smith & Wollensky, Chart House Enterprises, Del Friscos, Sullivans, The Capital Grille and Flemings. Nothing herein shall prohibit Employee from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation that is publicly traded, so long as Employee has no active participation in the business of such corporation. This restriction will not apply if Employee is employed as an officer of a business, including, but not limited to, a casino or hotel, that as an ancillary service provides fine dining as defined in this paragraph. The term ancillary assumes that less than 50% of the business revenues are derived from its dining facilities.
b. During the Non-compete Period, Employee shall not directly or indirectly through another entity (i) induce or attempt to induce any non-hourly or management employee of Employer or any Subsidiary or Affiliate to leave the employ of Employer or such Subsidiary or Affiliate, or in any way interfere with the relationship between Employer or any Subsidiary or Affiliate and any employee thereof, (ii) hire any person who was an employee of Employer or any Subsidiary or Affiliate at any time during the Employment Period, unless such person responded to a general solicitation, or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of Employer or any Subsidiary or Affiliate to cease doing business between any such customer, supplier, licensee or business relation and Employer or any Subsidiary or Affiliate (including, without limitation, making any negative, derogatory or disparaging statements or communications regarding Employer or its Subsidiaries, Affiliates, employees or franchisees).
10. Surrender of Books and Records. Employee acknowledges that all files, lists, books, records, photographs, videotapes, slides, specifications, drawings or any other materials used or created by Employee or used or created by Employer in connection with the conduct of its business, shall at all times remain the property of Employer and that upon termination of employment hereunder, irrespective of the time, manner or cause of said termination, Employee will surrender to Employer all such files, lists, books, records, photographs, videotapes, slides, specifications, drawings or any other materials.
11. Severability. If any provision of this Agreement shall be held invalid or unenforceable, the remainder of this Letter shall, nevertheless, remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall, nevertheless, remain in full force and effect in all other circumstances.
12. Notice. All notices required to be given under the terms expressed hereunder shall be in writing, shall be effective upon receipt, and shall be delivered to the addressee in person or mailed by certified mail, returned receipt requested:
If to Employer, addressed to:
Chief Executive Officer
Ruths Hospitality Group, Inc.
1030 West Canton Avenue, Suite 100
Winter Park, Florida, 32789
If to Employee, addressed to:
Cheryl J. Henry
at the address contained in records of the Employer as updated from to time to time.
or such other address as a party shall have designated for notices to be given to her or it by notice given in accordance with this paragraph.
13. Governing Law and Resolution of Dispute. Employees terms of employment shall be governed by and construed in accordance with the laws of or applicable to the State of Florida. Any dispute, controversy or claim arising out of or relating to Employees terms of employment, or the breach therefore, shall be resolved by arbitration conducted in accordance with the rules then existing of the American Arbitration Association, applying the substantive law of the State of Florida. The parties further agree that any such arbitration shall be conducted in Seminole County, Florida.
14. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
[Signatures appear on the following page]
The parties hereby agree that this Agreement shall be deemed executed and effective as of the 18th day of October, 2011.
RUTHS HOSPITALITY GROUP, INC | ||
By: | /s/ John F. McDonald, III | |
Name: | John F. McDonald, III | |
Title: | Vice President, Legal | |
Date: | October 18, 2011 |
CHERYL J. HENRY | ||
By: | /s/ Cheryl J. Henry | |
Cheryl J. Henry | ||
Date: | October 18, 2011 |
Exhibit 10.2
PETER J. BEAUDRAULT
TERMS OF EMPLOYMENT/
LETTER OF UNDERSTANDING AND SALARY CONTINUATION
AGREEMENT
Ruths Hospitality Group, Inc. (hereafter referred to as Employer) and Peter J. Beaudrault, (hereinafter referred to as Employee) agree upon the following terms of employment of Employee by Employer.
1. Duties. Employee shall be employed during the term of this Agreement as set forth in Section 3 in the position of President and Chief Operating Officer of Mitchells Fish Market. Employee will advance the best interests of Employer at all times during his employment and shall at all such times faithfully, industriously and to the best of his ability, perform all duties as may be required of him by virtue of his title and position and in accordance with the job description for his title and position as established by the Employers Board of Directors and/or its Designee from time to time. Employee shall comply with any and all written personnel policies and employment manuals of Employer in the conduct of his duties.
2. Extent of Service. Employee shall devote his full time and best efforts to the performance of his duties. Employee shall not engage in any business or perform any services in any capacity that would, in the reasonable judgment of Employer, interfere with the full and proper performance by Employee of his duties.
3. Term I Annual Renewals. This Agreement shall expire and terminate and be of no further effect (with the exception of terms herein which by their terms survive the termination of this Agreement) on the close of business of the first anniversary of the date this Agreement was first executed (the Termination Date), provided; however, that this Agreement shall automatically renew and extend for additional, one (1) year terms if Employee is not otherwise in default, and remains in the employ of the Employer.
1
4. Compensation.
a. Salary For all duties to be performed by Employee in the capacity reference hereunder, Employee shall receive an annual base salary of $250,000, effective February 6, 2012, subject to annual review by the Compensation Committee and Board of Directors.
b. Bonus Employee will be entitled to a discretionary bonus, subject to the budgetary and performance targets as defined by the Board of Directors on an annual basis, pursuant to the Management Bonus Plan Chief Operating OfficerMitchells Fish Market (Plan), or any replacement thereof , and which may be increased or decreased according to the Plan.
c. Automobile Allowance Employee shall also receive a month automobile allowance of at least $900.00 per month during the term of this Agreement.
5. Benefits.
a. Vacation/LeaveEmployee shall be entitled to four ( 4) weeks of paid vacation per calendar year, with normal sick and holiday leave as defined by Employers policies.
b. Benefit Plan Employee shall be eligible to participate in the health and welfare plans provided by Employer.
c. Retirement BenefitsEmployee will be eligible for all applicable retirement benefits offered by Employer, if any.
d. Reimbursement of Expenses Employer agrees to reimburse Employee for reasonable and appropriate Employer-related expenses (as determined by Employer) paid by Employee in furtherance of his duties, including, but not limited to, travel expenses, entertainment expenses and automobile expenses, upon submission of proper accounting records for such expenses. Employer agrees to reimburse Employee for in-transition living expenses and moving expenses pursuant to its written relocation policy.
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6. Disability of incapacity of Employee.
If, for a period of ninety (90) consecutive days during the terms of this Employment Agreement, Employee is disabled or incapacitated for mental, physical or other cause to the extent that he is unable to perform his duties as herein contemplated during said ninety (90) consecutive days, Employer shall immediately thereafter have the right to terminate this Employment Agreement upon providing ten (1 0) days written notice to Employee and shall be obligated to pay Employee compensation up to the effective date of said termination. The right of termination in this section in no way affects or diminishes other rights of termination as stated in this Employment Agreement.
7. Termination.
a. Notwithstanding any other provision hereof, Employees employment shall be terminated immediately upon: 1) his death; 2) notice after disability as defined in Section 6; or 3) Employees discharge for Cause.
b. For purposes of this Agreement, Cause shall mean (i) Employees theft or embezzlement, or attempted theft or embezzlement, of money or property of Employer, his perpetuation or attempted perpetuation of fraud, or his participation in a fraud or attempted fraud, on Employer or his unauthorized appropriation of, or his attempt to misappropriate, any tangible or intangible assets or property of Employer, (ii) any act or acts of disloyalty, misconduct or moral turpitude by Employee injurious to the interest, property, operations, business or reputation of Employer or his commission of a crime which results in injury to Employer or (iii) his willful disregard of lawful directive given by a superior or the Board or a violation of an Employer employment policy.
3
c. Should Employee terminate Employees employment for cause, as defined in Section 7.b, then Employee is entitled to no more than his salary through the date of termination and any unused vacation days.
d. Employer reserves the right to terminate Employees employment without cause, as defined in Section 7.b. However, in the event that occurs, then: 1) Employee shall receive 12 monthly payments in the aggregate equal to Employees prior 12 months base salary compensation; 2) Employee shall receive 12 monthly payments in the aggregate equal to fifty-percent (50%) of Employees prior year bonus compensation; 3) Employee will be eligible to receive 12 months continued health, welfare and retirement Benefits (as defined hereinabove), according to the same terms and conditions Employee would have been entitled to had Employees employment with Employer not been terminated; 4) 12 monthly payments of the automobile allowance Employee would have been entitled to had Employees employment with Employer not been terminated; and 5) all vesting rights of Employees stock options and restricted stock granted during Employees tenure shall continue for 12 months post-termination. Employer has the option of paying this severance on a monthly or lump sum basis. The payment of all amounts under this Section 7.d is contingent on Employees compliance with Sections 8 and 9.
e. Should Employee resign his employment for Good Reason, as defined below, Employee will receive the identical compensation and benefit payments set forth in section 7.d (1-5). Employer has the option of paying this severance on a monthly or lump sum basis. The payment of all amounts under this Section 7(e) is contingent upon Employees compliance with Sections 8 and 9.
f. For purposes of this Agreement, Good Reason shall mean (i) the assignment by the Board to Employee of any material duties that are clearly inconsistent with Employees status, title and position as President and Chief Operating Officer of Mitchells Fish Market; or (ii) a failure by
4
Employer to pay Employee any amounts required to be paid under this Agreement, which failure continues uncured for a period of 15 days after written notice thereof is given by Employee to the Board.
g. Employee understands that should Employee resign his employment without Good Reason, then Employee is entitled to no more than his salary through the date of termination (said termination date to be determined by Employer upon notice of resignation) and any earned but unused vacation days.
8. Disclosure of Information. Employee agrees that he will not, during employment or any time after termination of employment hereunder, without authorization of Employer, disclose to, or make use of for himself or for any person, corporation or other entity, any files, videos, trade secrets, papers, photographs, presentations, recipes, specifications, drawings, salary structures, sources of income, business plans, minutes of meetings, contractual arrangements, or other confidential information concerning the business, clients, methods, operations, financing or services of Employer. Trade secrets and confidential information shall mean information disclosed to Employee or known by him as a consequence of his employment by Employer, and not generally known to the restaurant industry.
9. Non-Compete.
a. In further consideration of the compensation to be paid to Employee hereunder, Employee acknowledges that in the course of his employment with Employer and its Subsidiaries and Affiliates he shall become familiar, and during his employment with Employer he has become familiar, with Employers trade secrets and with other Confidential Information concerning Employer and its predecessors and its Subsidiaries and Affiliates and that his services have been and shall be of special, unique and extraordinary value to Employer. Therefore, Employee agrees that during his
5
employment and for a period of one year following his last day of employment (hereafter referred to as the Non-compete Period), Employee shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business or enterprise identical to or similar to any such business which is engaged in by Employer, its Subsidiaries or Affiliates or any of their respective franchises, which shall include any restaurant business that derives more than 25% of its revenues from the sale of seafood and seafood dishes and which has an average guest check greater than $35, (the Business), as of the date of this Agreement, which shall for purposes of illustration and not limitation include the following chains and their parent companies, subsidiaries and other affiliates: McCormick & Schmick, Legal Sea Foods, Oceanaire and Ocean Prime. Nothing herein shall prohibit Employee from being a passive owner of not more than two-percent (2%) of the outstanding stock of any class of a corporation that is publicly traded, so long as Employee has no active participation in the business of such corporation. This restriction will not apply if Employee is employed as an officer of a business, including, but not limited to, a casino or hotel, that as an ancillary service provides dining as defined in this paragraph. The term ancillary assumes that less than fifty-percent 50% of the business revenues are derived from its dining facilities.
b. During the Non-compete Period, Employee shall not directly or indirectly through another entity (i) induce or attempt to induce any non-hourly or management employee of Employer or any Subsidiary or Affiliate to leave the employ of Employer or such Subsidiary or Affiliate, or in any way interfere with the relationship between Employer or any Subsidiary or Affiliate and any employee thereof, (ii) hire any person who was an employee of Employer or any Subsidiary or Affiliate at any time during the Employment Period or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of Employer or any
6
Subsidiary or Affiliate to cease doing business between any such customer, supplier, licensee or business relation and Employer or any Subsidiary or Affiliate (including, without limitation, making any negative, derogatory or disparaging statements or communications regarding Employer or its Subsidiaries, Affiliates, employees or franchisees).
10. Surrender of Books and Records. Employee acknowledges that all files, lists, books, records, photographs, videotapes, slides, specifications, drawings or any other materials used or created by Employee or used or created by Employer in connection with the conduct of its business, shall at all times remain the property of Employer and that upon termination of employment hereunder, irrespective of the time, manner or cause of said termination, Employee will surrender to Employer all such files, lists, books, records, photographs, videotapes, slides, specifications, drawings or any other materials.
11. Execution and Mutual Releases. Upon fulfillment of all rights and obligations created herein, Employer and Employee agree to execute mutual releases in favor of the other unless otherwise prohibited by law.
12. Severability. If any provision of this Letter ofUnderstanding shall be held invalid or unenforceable, the remainder of this Letter shall, nevertheless, remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall, nevertheless, remain in full force and effect in all other circumstances.
13. Notice. All notices required to be given under the terms expressed hereunder shall be in writing, shall be effective upon receipt, and shall be delivered to the addressee in person or mailed by certified mail, returned receipt requested:
7
If to Employer, addressed to:
Ruths Hospitality Group, Inc.
400 International Parkway
Suite 325
Heathrow, FL 32746
Attn: CEO
If to Employee, addressed to:
Peter J. Beaudrault
2345 Ridgewind Way
Windermere, Florida 34786
or such other address as a party shall have designated for notices to be given to him or it by notice given in accordance with this paragraph.
14. Governing Law and Resolution of Dispute. Employees terms of employment shall be governed by and construed in accordance with the laws of or applicable to the State of Delaware. Any dispute, controversy or claim arising out of or relating to Employees terms of employment, or the breach therefore, shall be resolved by arbitration conducted in accordance with the rules then existing of the American Arbitration Association, applying the substantive law of the State of Delaware. The parties further agree that any such arbitration shall be conducted in Seminole County, Florida.
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Date: March 14, 2012
WITNESS: | RUTHS HOSPITALITY GROUP, INC | |||
/s/ John F. McDonald, III | /s/ Michael P. ODonnell | |||
John F. McDonald, III Vice President, Legal March 14, 2012 |
Michael P. ODonnell Chairman of the Board, President and Chief Executive Officer March 14, 2012 |
/s/ Peter J. Beaudrault | ||||
Peter J. Beaudrault March 14, 2012 |
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Michael P. ODonnell, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Ruths Hospitality Group, Inc. (the Company); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Date: April 27, 2012
By | /s/ MICHAEL P. ODONNELL | |
Michael P. ODonnell | ||
President and Chief Executive Officer of | ||
Ruths Hospitality Group, Inc. |
22
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Arne G. Haak, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Ruths Hospitality Group, Inc. (the Company); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Date: April 27, 2012
By | /s/ ARNE G. HAAK | |
Arne G. Haak | ||
Executive Vice President and Chief Financial Officer of Ruths Hospitality Group, Inc. (Principal Financial Officer) |
23
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Ruths Hospitality Group, Inc. (the Company) for the quarter ended March 25, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, the President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 27, 2012
By | /s/ MICHAEL P. ODONNELL | |
Michael P. ODonnell | ||
President and Chief Executive Officer of Ruths Hospitality Group, Inc. |
24
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Ruths Hospitality Group, Inc. (the Company) for the quarter ended March 25, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, the Executive Vice President and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 27, 2012
By | /s/ ARNE G. HAAK | |
Arne G. Haak | ||
Executive Vice President and Chief Financial Officer of Ruths Hospitality Group, Inc. (Principal Financial Officer) |
25
Long-Term Debt
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 25, 2012
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Long-Term Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt | (3) Long-term Debt Long-term debt consists of the following (in thousands):
As of March 25, 2012, the Company had an aggregate of $77.0 million of outstanding indebtedness under its senior credit facility at a weighted average interest rate of 2.41% with approximately $18.8 million of borrowings available, net of outstanding letters of credit of approximately $4.2 million. The 2.41% weighted average interest rate includes a 2.25% interest rate on outstanding indebtedness, plus fees on the Company's unused borrowing capacity and outstanding letters of credit. As of March 25, 2012, the Company was in compliance with all the covenants under its credit facility. On February 14, 2012, the Company entered into a Second Amended and Restated Credit Agreement with Wells Fargo Bank, as administrative agent, and certain other lenders (the Amended and Restated Credit Agreement), reducing the overall facility from $129.6 million to $100.0 million and extending the maturity of the borrowings to February 14, 2017. The senior credit facility is available to be used for working capital and other general corporate purposes. The Amended and Restated Credit Agreement allows for loan advances plus outstanding letters of credit of up to $100.0 million to be outstanding at any time that the conditions for borrowings are met. The Amended and Restated Credit Agreement also:
The Amended and Restated Credit Agreement contains customary covenants and restrictions, including, but not limited to: (1) prohibitions on incurring additional indebtedness and from guaranteeing obligations of others; (2) prohibitions on creating, incurring, assuming or permitting to exist any lien on or with respect to any property or asset; (3) limitations on our ability to enter into joint ventures, acquisitions, and other investments; (4) prohibitions on directly or indirectly creating or becoming liable with respect to certain contingent liabilities; and (5) restrictions on directly or indirectly declaring, ordering, paying, or making any restricted junior payments. The Amended and Restated Credit Agreement requires the Company to maintain a fixed charge coverage ratio of 1.25:1.00 and the maximum leverage ratio of 2.50:1.00. Junior stock payments, which include both cash dividend payments and repurchases of common or preferred stock, are limited to $100 million through the end of the agreement. As of March 25, 2012, approximately $60.2 million of the junior stock payments limit had been used due to the repurchase of preferred stock from BRS. The Company's obligations under the Amended and Restated Credit Agreement are guaranteed by each of its existing and future subsidiaries and are secured by substantially all of its assets and a pledge of the capital stock of its subsidiaries. The Amended and Restated Credit Agreement includes customary events of default. As a result of the February 2012 amendment, $100 thousand of legal fees were incurred in the first quarter of fiscal year 2012. In addition, $807 thousand of previously deferred debt issuance costs were written off because the participants of the lending group changed. |