Consideranddiscussthe specific risks and nature of the company you will be auditing and create comprehensive work programs for the Inventory, Warehousing, and Payroll accounts and cycles.

Submita 700- to 1,050-word document that includes the following:

• Audit steps for tests of controls, balances, transactions, analytical procedures, etc. as well as other considerations such as sample size and sample methodology.
• A brief summary page should be included in this document, 525 to 700 words, for each of the work programs. Include in this summary specific financial information gleaned from the current Form 10-K used to perform an analysis of work program steps. For example, if the team noted significant swings in the Inventory balance year-over-year, identify these swings and how you address them in your work program (this is in essence an audit procedure - analytical review).

ONLY Portion that needs to be done:

3) Analytics for Inventory - Calculate Average inventory per company owned store year over year. Need to do it on a per store basis to take into account that there were more stores in 2015 than 2014. We'd also want to look at margins and compare the extended values year over year - these would be impacted by increases in commodity prices (page 28 of 10-k). This person would also do analytics for payroll (Table 20-3). Payroll expense per store would be a good analytic or if we look at it in total we would expect the expense to increase in proportion to sales. Payroll tax as a % of wages is a good one too. Also check out my comment in #5 and read what is on page 27 of the 10-k if the Company is calculating labor efficiency this would also seem to be a good analytic.

8/23/2016 ruth20151227_10k.htm 10K 1 ruth20151227_10k.htm FORM 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 27, 2015 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 00051485 RUTH'S HOSPITALITY GROUP, INC. (Exact Name of Registrant as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 1030 W. Canton Avenue, Suite 100 Winter Park, Florida (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (407) 3337440 721060618 (I.R.S. Employer Identification No.) 32789 (Zip Code) Securities Registered Pursuant to Section 12(b) of the Act: Common stock, par value $0.01 per share The NASDAQ Stock Market LLC (Title of class) (Name of exchange on which registered) Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically 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 ST during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b2 of the Exchange Act (check one): Large accelerated filer Accelerated filer Nonaccelerated filer (Do not check if smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act). Yes No As of June 28, 2015, the last day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant's common stock, par value $0.01 per share, held by nonaffiliates was approximately $546,701,336. The number of shares outstanding of the registrant's common stock as of February 26, 2016 was 33,638,024 which includes 1,150,082 shares of unvested restricted stock. https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 1/74 8/23/2016 ruth20151227_10k.htm DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of Annual Report on Form 10K, to the extent not set forth herein, is incorporated herein by reference to the registrant's Proxy Statement for the 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the registrant's fiscal year. https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 2/74 8/23/2016 ruth20151227_10k.htm TABLE OF CONTENTS Page PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 1 7 12 13 16 16 PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Results of Operations and Financial Condition Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services PART IV Item 15. Signatures Exhibits and Financial Statement Schedules 17 20 21 34 34 34 34 37 37 37 37 37 37 38 39 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 3/74 8/23/2016 ruth20151227_10k.htm FORWARDLOOKING STATEMENTS This Annual Report on Form 10K and the materials incorporated by reference herein contain \"forwardlooking statements\" that reflect, when made, the Company's expectations or beliefs concerning future events that involve risks and uncertainties. Forwardlooking statements frequently are identified by the words \"anticipate,\" \"believe,\" \"estimate,\" \"expect,\" \"intend,\" \"project,\" \"targeting,\" \"will be,\" \"will continue,\" \"will likely result,\" or other similar words and phrases. Statements herein that describe the Company's objectives, plans or goals, including with respect to new restaurant openings, are forwardlooking statements. Actual results could differ materially from those projected, implied or anticipated by the Company's forwardlooking statements. Some of the factors that could cause actual results to differ include: reductions in the availability of, or increases in the cost of, USDA Prime grade beef, fish and other food items changes in economic conditions and general trends the loss of key management personnel the effect of market volatility on the Company's 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 labor shortages or increases in labor costs the impact of federal, state or local government regulations relating to income taxes, unclaimed property, Company employees, the sale or preparation of food, the sale of alcoholic beverages and the opening of new restaurants harmful actions taken by the Company's franchisees the Company's ability to protect its name and logo and other proprietary information the impact of litigation the restrictions imposed by the Company's credit agreement changes in, or the discontinuation of, the Company's share repurchase program or dividend payments and the Company's indemnification obligations in connection with its recent sale of the Mitchell's Fish Market and Mitchell's/Cameron's Steakhouse restaurants. For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forwardlooking statements, please see Item 1A, Risk Factors, in this Annual Report on Form 10K as well as the Company's other filings with the Securities and Exchange Commission (the SEC), all of which are available on the SEC's website at www.sec.gov. All forwardlooking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Annual Report on Form 10K to reflect events or circumstances after the date hereof. You should not assume that material events subsequent to the date of this Annual Report on Form 10K have not occurred. Unless the context otherwise indicates, all references in this Annual Report on Form 10K to the \"Company,\" \"we,\" \"us\" or \"our\" or similar words are to Ruth's Hospitality Group, Inc., and its wholly owned subsidiaries. https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 4/74 8/23/2016 ruth20151227_10k.htm PART I Item 1. BUSINESS Introduction Ruth's Hospitality Group, Inc. develops and operates fine dining restaurants under the trade name Ruth's Chris Steak House. As of December 27, 2015, there were 148 Ruth's Chris Steak House restaurants, including 67 Companyowned restaurants, one restaurant operating under a management agreement and 80 franchiseeowned restaurants, including 20 international franchiseeowned restaurants in Aruba, Canada, China, Hong Kong, El Salvador, Japan, Mexico, Panama, Singapore, Taiwan and the United Arab Emirates. The Company previously operated eighteen Mitchell's Fish Markets and three Mitchell's/Cameron's Steakhouse restaurants (the Mitchell's Restaurants), located primarily in the Midwest and Florida. On January 21, 2015, the Company sold the Mitchell's Restaurants to a third party. For financial reporting purposes, the Mitchell's Restaurants are classified as discontinued operations for all periods presented and, as of December 28, 2014, the assets are classified as held for sale. The Company has a 52/53week fiscal year ending the last Sunday in December. The 2015 fiscal year ended December 27, 2015, the 2014 fiscal year ended December 28, 2014, and the 2013 fiscal year ended December 29, 2013. Fiscal years 2015, 2014 and 2013 all had 52 weeks. The following description of the Company's business should be read in conjunction with the information in Management's Discussion and Analysis of Results of Operations of Financial Condition in Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition of this Annual Report on Form 10K and the consolidated financial statements included in this Annual Report on Form 10K. Background The year 2015 marked the 50th anniversary of the founding of Ruth's Chris Steak House. The Company was founded in 1965 when Ruth Fertel mortgaged her home for $22 thousand to purchase the \"Chris Steak House,\" a 60seat restaurant located near the New Orleans Fair Grounds racetrack. After a fire destroyed the original restaurant, Ruth relocated her restaurant to a new 160seat facility nearby. As the terms of the original purchase prevented the use of the \"Chris Steak House\" name at a new restaurant, Ruth added her name to that of the original restaurantthus creating the \"Ruth's Chris Steak House\" brand. The Company's expansion began in 1972, when Ruth opened a second restaurant in Metairie, a suburb of New Orleans. In 1976, the first franchiseeowned Ruth's Chris Steak House opened in Baton Rouge, Louisiana. In 2005, the Company and certain selling shareholders completed an initial public offering of the Company's common stock, which is currently listed on the Nasdaq Global Select Market under the ticker symbol \"RUTH\". Recent Developments In 2015, Ruth's Chris Steak House was honored to be recognized by surveys and publications as a premier steakhouse restaurant brand, including recognition as the #1 Consumer Pick in the Nation's Restaurant News annual survey for the fine dining category and being honored as an Open Table's 2015 Top 100 Restaurant in America. Additionally, many of our restaurants continue to be ranked best steakhouse by local publications in the areas in which they operate. In the fourth quarter of fiscal year 2015, Ruth's Chris Steak House achieved its 23rd consecutive quarter of samestore sales growth. Two new Companyowned Ruth's Chris Steak House restaurants opened during 2015, including locations in St. Petersburg, FL and Dallas, TX. Franchisees opened three new restaurants during 2015, including locations in Ann Arbor, MI, Charleston, SC, and San Antonio, TX. The Company currently expects to open four new Ruth's Chris Steak House restaurants during 2016. The Company expects that franchisees will open three new Ruth's Chris Steak House restaurants during 2016. Ruth's Chris Steak House With 148 restaurants as of December 27, 2015, Ruth's Chris Steak House is one of the largest upscale steakhouse companies in the world. The menu features a broad selection of highquality USDA Prime and Choice grade steaks and other premium offerings served in Ruth's Chris' signature fashion\"sizzling\"complemented by other traditional menu items inspired by its New Orleans heritage. Ruth's Chris complements its distinctive food offerings with an awardwinning wine list. 1 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 5/74 8/23/2016 ruth20151227_10k.htm The Ruth's Chris brand reflects its 50year commitment to the core values instilled by its founder, Ruth Fertel, of caring for guests by delivering the highest quality food, beverages and genuine hospitality in a warm and inviting atmosphere. Mitchell's Restaurants The Company acquired the Mitchell's Restaurants in 2008. Mitchell's Fish Market is an eighteenrestaurant upscale seafood concept and Mitchell's/Cameron's Steakhouse is a modern American steakhouse concept. In November 2014, the Company and Landry's, Inc. and Mitchell's Entertainment, Inc., an affiliate of Landry's Inc. (together with Landry's Inc., Landry's), entered into an asset purchase agreement (the Agreement). Pursuant to the Agreement, the Company agreed to sell the Mitchell's Restaurants and related assets to Landry's for $10 million. The sale of the Mitchell's Restaurants closed on January 21, 2015. The assets sold consisted primarily of leasehold interests, leasehold improvements, restaurant equipment and furnishings, inventory, and related intangible assets, including brand names and trademarks associated with the 21 Mitchell's Restaurants. Under the terms of the Agreement, Landry's assumed the Mitchell's Restaurants' facility lease obligations and the Company will reimburse Landry's for gift cards sold prior to the closing date and used at the Mitchell's Restaurants during the eighteen months following the closing date. Landry's offered employment to substantially all of the employees of the Mitchell's Restaurants. Strengths The Company believes that the key strengths of its business model are the following: Premier Upscale Steakhouse Brand The Ruth's Chris Steak House brand is one of the strongest in the upscale steakhouse segment of the restaurant industry, with high levels of brand awareness. In 2015, Ruth's Chris Steak House was again the #1 Consumer Pick in the Nation's Restaurant News annual survey for the fine dining category. Additionally, many of our restaurants continue to be ranked best steakhouse by local publications in the areas in which they operate. In addition, the Company has been recognized for its awardwinning core wine list, for which a majority of its Companyowned restaurants received \"Awards of Excellence\" from Wine Spectator magazine. Appealing Dining Experience At the Ruth's Chris restaurants, the Company seeks to exceed guests' expectations by offering highquality food with warm, friendly service. The Company's entire restaurant staff is dedicated to ensuring that guests enjoy a superior dining experience. The Company's teambased approach to table service is designed to enhance the frequency of guest contact and speed of service without intruding on the guest experience. Strategy The Company's strategy is to deliver a total return to shareholders by maintaining a healthy core business, growing with a disciplined investment approach and returning excess capital to shareholders. The Company strives to maintain a healthy core business by growing sales through traffic, managing operating margins and leveraging infrastructure. The Company is committed to disciplined growth in markets with attractive sales attributes and solid financial returns. The Company believes that its franchisee program is a point of competitive differentiation and looks to grow its franchiseeowned restaurant locations as well. The Company also will consider acquiring franchiseeowned restaurants at terms that it believes are beneficial to both the Company and the franchisee. Improve Sales/Profitability The Company strives to improve sales and profitability by focusing on: Ensuring consistency of food quality through more streamlined preparation and presentation Expanding our brand appeal through continued menu evolution and facility remodels Increasing brand awareness through enhanced media advertising at the national and local levels Enhancing and/or developing innovative marketing programs through its website (e.g., www.ruthschris.com), social media, digital media and email communication and Creating and/or growing revenue opportunities via Ruth's Catering, Private Dining, HD Satellite Programs and Gift Cards. Expand Relationships with New and Existing Franchisees and Others The Company intends to grow its franchising business by developing relationships with a limited number of new franchisees and by expanding the rights of existing franchisees to open new restaurants. The Company believes that building relationships with quality franchisees is a costeffective way to grow and strengthen the Ruth's Chris brand and generate additional revenues. The Company intends to continue to focus on providing operational guidance to its franchisees, including the sharing of \"best practices\" from Companyowned Ruth's Chris restaurants. 2 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 6/74 8/23/2016 ruth20151227_10k.htm Franchisees opened 57 Ruth's Chris restaurants from 1999 through the end of 2015. In fiscal year 2015, franchisees opened three new restaurants in Ann Arbor, MI, Charleston, SC, and San Antonio, TX. In fiscal year 2014, franchisees opened three new restaurants in Boise, ID, Panama City, Panama, and Taipei, Taiwan. In fiscal year 2013, franchisees opened three new restaurants in San Juan, Puerto Rico, Chattanooga, TN and Shanghai, China. In addition, a franchise restaurant opened in 2013 in Las Vegas, NV under a licensing agreement with Harrah's Casino under which we receive a fee based on a percentage of sales. Franchisees are expected to open six new restaurants by the end of fiscal year 2017. The Company and its franchise and licensing partners will have opened or relocated nineteen new Ruth's Chris Steak Houses worldwide during the three year period ended December 2015. Menu The Ruth's Chris menu features a broad selection of highquality USDA Prime grade steaks and other premium offerings served in Ruth's Chris signature fashion\"sizzling\" on a 500 degree plate and topped with buttercomplemented by other Classic American steakhouse menu items. USDA Prime is the highest meat grade level, which refers to the superior quality and evenly distributed marbling that enhances the flavor of the steak. The Ruth's Chris menu also includes premium quality lamb chops, fish, shrimp, crab, chicken and lobster. Dinner entres are generally priced from $28 to $85. Ruth's Chris is predominantly open dinner hours only with a limited number of restaurants open for lunch. The lunch menu offers entres generally ranging in price from $13 to $27. The blended guest check average at Ruth's Chris was approximately $79 during fiscal year 2015. While the Ruth's Chris core menu is similar at all of its restaurants, the Company seasonally introduces new items such as specials and prix fixe offerings that allow it to give its guests additional choices while taking advantage of fresh sourcing and advantageous cost opportunities. The Company's Ruth's Chris restaurants offer ten to thirteen standard appetizer items, including New Orleansstyle barbequed shrimp, mushrooms stuffed with crabmeat, shrimp remoulade, lobster bisque and osso bucco ravioli, as well as six to eight different salads. They also offer a variety of potatoes and vegetables as side dishes. For dessert, crme brle, bread pudding, cheesecake, fresh seasonal berries with sweet cream sauce and other selections are available. The Company's wine list features bottles typically ranging in price from $40 to over $1,000. Individual restaurants supplement their 250bottle core wine list with approximately 20 additional selections that reflect local market tastes. Most of the Company's Ruth's Chris restaurants also offer approximately 39 winesbytheglass and numerous beers, liquors and alcoholic dessert drinks. Wine sales account for approximately 58% of the total beverage sales. Restaurant Operations and Management The Ruth's Chris President and Chief Operating Officer has primary responsibility for managing Companyowned restaurants and participates in analyzing restaurantlevel performance and strategic planning. The Company has nine regional vice presidents that oversee restaurant operations at Companyowned restaurants and one vice president that has oversight responsibility for franchiseeowned restaurants. In addition, restaurant education and training is overseen by a regional staff dedicated to the ongoing training and development of customer service employees and kitchen staff. The Company's typical Companyowned restaurant employs five managers, including a general manager, two frontofthehouse managers, an executive chef and a sous chef. The Company owned restaurants also typically have approximately 70 hourly employees. Purchasing The Company's ability to maintain consistent quality throughout its restaurants depends in part upon its ability to acquire food and other supplies from reliable sources in accordance with its specifications. Purchasing at the restaurant level is directed primarily by the executive chef, who is trained in the Company's purchasing philosophy and specifications, and who works with regional and corporate managers to ensure consistent sourcing of meat, fish, produce and other supplies. During fiscal year 2015, the Company purchased substantially all of the beef it used in Companyowned Ruth's Chris restaurants from two vendors, Sysco Food Services and Stock Yards Packing (a subsidiary of US Foods). Each vendor supplied about half of the Company's beef requirements. In addition, the Company has a distribution arrangement with a national food and restaurant supply distributor, Distribution Market Advantage, Inc. (DMA), which purchases products for the Company from various suppliers and through which all of the Companyowned Ruth's Chris Steak House restaurants receive a significant portion of their food supplies. Quality Control The Company strives to maintain quality and consistency in its Companyowned restaurants through careful training and supervision of personnel and standards established for food and beverage preparation, maintenance of facilities and conduct of personnel. The primary goal of the Company's training and supervision programs is to ensure that its employees display the characteristics of its brand and values that distinguish it from its competitors. Restaurant managers in Companyowned restaurants must complete a training program that is typically seven to eight weeks long, during which they are instructed in multiple areas of restaurant management, including food quality and preparation, guest service, alcoholic beverage service, liquor regulation compliance and employee relations. Restaurant managers also receive operations manuals relating to food and beverage preparation and restaurant operations. Restaurant managers are certified by the National Restaurant Association Educational Foundation for food safety. 3 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 7/74 8/23/2016 ruth20151227_10k.htm The Ruth's Chris Steak House restaurants also employ an independent thirdparty food safety firm to ensure proper training, food safety and the achievement of the highest standards for cleanliness throughout the restaurant through routine quarterly unannounced inspections. The Company instructs chefs and assistants on safety, sanitation, housekeeping, repair and maintenance, product and service specifications, ordering and receiving food products and quality assurance. Throughout each day at the Ruth's Chris restaurants, the executive chef, together with the restaurant managers, oversees a line check system of quality control and must complete a quality assurance checklist verifying the flavor, presentation and proper temperature of the food and beverages. Marketing and Promotions The goals of the Company's marketing efforts are to increase restaurant sales by attracting new guests, increasing the frequency of visits by current guests, improving brand recognition in new markets or markets where it intends to open a restaurant and to communicate the overall uniqueness, value and quality exemplified by our restaurants. The Company uses multiple media channels to accomplish these goals and complements its national advertising with targeted local media such as print, digital media, radio and outdoor billboards. Advertising In fiscal year 2015, the Company spent $10.9 million, or 2.9% of its revenues, in total marketing and advertising expenditures, which included spending on national media, consisting primarily of national cable television advertisements, online initiatives and consumer research. During fiscal year 2015, the Company continued to optimize its online marketing efforts, using a variety of tactics. The Company's online strategy also included an emphasis on targeted emails with special offers and announcements, as well as emails regarding seasonal specials, holiday offers and personalized birthday and anniversary invitations. In the fourth quarter of fiscal year 2015, the Company ran national television advertising across a targeted selection of cable channels and invested in online advertising. In fiscal year 2015, Ruth's Chris Steak House continued its participation in cobranded campaign with American Express Membership Rewards program. Many of the Company's restaurants also schedule events to strengthen community ties and increase local market presence. The Company's franchisees also conduct their own local media and advertising plans. Gift Cards The Company sells Ruth's Chris gift cards at most of its Ruth's Chris Steak House restaurants, including franchises, on its website and through its tollfree number. Ruth's Chris patrons frequently purchase gift cards for holidays, including Christmas, Hanukkah, Valentine's Day, Mothers' Day and Fathers' Day, and other special occasions. In December 2013, Ruth's Chris began offering e gift cards to purchasers on its ecommerce gift card website. The egift card is emailed directly to the recipient and is redeemable in the same manner as a plastic gift card. Egift cards give Ruth's Chris the opportunity to maximize lastminute giftgiving and address its patrons' requests for convenient, immediate purchases. In fiscal year 2015, systemwide gift card Company and franchise sales of Ruth's gift cards aggregated approximately $59 million. Ruth's Chris gift cards are redeemable at both Company and franchisee owned Ruth's Chris restaurants. Franchise Program and Relationship Under the Company's franchise program, the Company offers certain services and licensing rights to the franchisee to help maintain consistency in systemwide operations. The Company's services include training of personnel, construction assistance, providing the new franchisee with standardized operating procedures and manuals, business and financial forms, consulting with the new franchisee on purchasing and supplies and performing supervisory quality control services. The Company conducts reviews of its franchiseeowned restaurants on an ongoing basis in order to ensure compliance with its standards. As of December 27, 2015, the Company's 80 franchiseeowned Ruth's Chris restaurants are owned by 30 franchisees with the three largest franchisees owning 29 restaurants in total. Currently, franchisees have agreed to open six additional Ruth's Chris restaurants, which are expected to open by the end of fiscal year 2017. Under the Company's current franchise program, each franchise arrangement consists of a development agreement, if multiple restaurants are to be developed, with a separate franchise agreement executed for each restaurant. The Company's current form of development agreement grants exclusive rights to a franchisee to develop a minimum number of restaurants in a defined area, typically during a threetofiveyear period. Individual franchise agreements govern the operation of each restaurant opened and have a 20year term with two renewal options each for additional tenyear terms if certain conditions are met. The Company's current form of franchise agreement requires franchisees to pay a 5% royalty on gross revenues plus up to a 1% advertising fee applied to national advertising expenditures. 4 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 8/74 8/23/2016 ruth20151227_10k.htm Under the Company's current form of development agreement, and unless agreed otherwise, the Company collects a $50 thousand development fee, which is credited toward the $150 thousand franchise fee, for each restaurant the franchisee has rights to develop. Under the Company's current form of the franchise agreement, it collects up to $150 thousand of the full franchise fee at the time of executing the franchise agreement for each restaurant. If one restaurant is to be developed, a single unit franchise agreement is executed and the $150 thousand franchise fee is collected at signing. Information Systems and Restaurant Reporting All of the Company's restaurants use computerized pointofsale systems, which are designed to promote operating efficiency, provide corporate management timely access to financial and marketing data and reduce restaurant and corporate administrative time and expense. These systems record each order and print the food requests in the kitchen for the cooks to prepare. The data captured for use by operations and corporate management includes gross sales amounts, cash and credit card receipts and quantities of each menu item sold. Sales and receipts information is generally transmitted to the corporate office daily. The Company's corporate systems provide management with operating reports that show Companyowned restaurant performance comparisons with budget and prior year results. These systems allow the Company to monitor Companyowned restaurant sales, food and beverage costs, labor expense and other restaurant trends on a regular basis. Service Marks The Company has registered the main service marks \"Ruth's Chris\" and its \"Ruth's Chris Steak House, U.S. Prime & Design\" logo, as well as other service marks used by its restaurants, with the United States Patent and Trademark Office and in the foreign countries in which its restaurants operate. The Company has also registered in other foreign countries in anticipation of new store openings within those countries. The Company is not aware of any infringing uses that could materially affect its business. The Company believes that its service marks are valuable to the operation of its restaurants and are important to its marketing strategy. Seasonality The Company's business is subject to seasonal fluctuations. Historically, the percentage of its annual revenues earned during the first and fourth fiscal quarters have been higher due, in large part, to increased restaurant sales during the yearend holiday season and the popularity of dining out in the fall and winter months. Employees As of December 27, 2015, the Company employed 4,350 persons, of whom 434 were salaried and 3,916 were hourly personnel, who were employed in the positions set forth in the table below. None of the Company's employees are covered by a collective bargaining agreement. Number of Functional Area Employees Senior Officers / Corporate VPs / Operations VPs 27 General Managers 71 Managers 177 Regional Corporate Chefs / Executive Chefs 69 Sous Chefs 50 NonSalaried Restaurant Staff 3,898 Corporate Salaried 40 Corporate Nonsalaried 18 4,350 Total number of employees Financial Information about Segments The Companyowned Ruth's Chris Steak House restaurants in North America are managed as an operating segment. The Ruth's Chris restaurants operate within the fullservice dining industry, providing similar products to similar customers. The franchise operations are also considered to be an operating segment. Financial information concerning the Company's segments for financial reporting purposes appears in Note 17 of the consolidated financial statements. Government Regulation The Company is subject to extensive federal, state and local government regulation, including regulations relating to public health and safety, zoning and fire codes and the sale of alcoholic beverages and food. The Company maintains the necessary restaurant, alcoholic beverage and retail licenses, permits and approvals. Federal and state laws govern the Company's relationship with its employees, including laws relating to minimum wage requirements, overtime, tips, tip credits and working conditions. A significant number of the Company's hourly employees are paid at rates related to the federal or state minimum wage. During 2015, governmental entities acted to increase minimum wage rates in several jurisdictions wherein Companyowned restaurants are located. Additionally, the federal government may act to increase the U.S. federal minimum wage rate. 5 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 9/74 8/23/2016 ruth20151227_10k.htm The offer and sale of franchises are subject to regulation by the U.S. Federal Trade Commission (FTC) and many states. The FTC requires that the Company furnish to prospective franchisees a franchise disclosure document containing prescribed information. A number of states also regulate the sale of franchises and require state registration of franchise offerings and the delivery of a franchise disclosure document to prospective franchisees. The Company's noncompliance could result in governmental enforcement actions seeking a civil or criminal penalty, rescission of a franchise, and loss of its ability to offer and sell franchises in a state, or a private lawsuit seeking rescission, damages and legal fees. The Company is subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. The Company is, or will become, subject to laws and regulations requiring disclosure of calorie, fat, trans fat, salt and allergen content. The Patient Protection and Affordable Care Act of 2010 (ACA) requires restaurant companies, such as the Company, to disclose calorie information on their menus beginning in December 2016. The Food and Drug Administration has rules to implement this provision that would require restaurants to post the number of calories for most items on menus or menu boards and to make available more detailed nutrition information upon request. A number of states, counties and cities have also enacted menu labeling laws requiring restaurant companies, such as the Company, to disclose certain nutrition information on their menus, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Although the ACA is intended to preempt conflicting state and local laws regarding nutrition labeling, the Company will be subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements until the Company is required to comply with the federal law. Many of the current requirements are inconsistent or are interpreted differently from one jurisdiction to another. The effect of such labeling requirements on consumer choices, if any, is unclear at this time. The Company maintains an employee benefits program that provides selfinsured and insured coverage to employees that meet the applicable requirements under the program. Employees can elect to enroll dependents that meet eligibility criteria. Coverage includes health, dental, vision, short and longterm disability, life insurance and other voluntary ancillary benefits. Employees share in the cost of other coverage at varying levels. The Company has historically funded a majority of the cost of employee health benefits. The ACA requires that employers offer health care coverage that is qualified and affordable. Coverage must be offered to all \"fulltime\" employees, as defined by the ACA. The Company routinely reviews its health benefit plans to assure conformity with the ACA. The hours of service eligibility criteria the Company requires for health benefits are lower than required under the ACA. Approximately 65% of eligible employees elect to participate in the Company's health benefit plans. Competition The restaurant business is highly competitive and highly fragmented, and the number, size and strength of the Company's competitors vary widely by region. The Company believes that restaurant competition is based on, among other things, quality of food products, customer service, reputation, restaurant location, atmosphere, name recognition and price. The Company's restaurants compete with a number of upscale steakhouses and upscale casual seafood restaurants within their markets, both locally owned restaurants and restaurants within regional or national chains. The principal upscale steakhouses with which the Company competes are Fleming's, The Capital Grille, Smith & Wollensky, The Palm, Del Frisco's Double Eagle Steakhouse, Fogo de Cho and Morton's The Steakhouse. The Company's competitors may be better established in certain of the Company's existing markets and/or markets into which the Company intends to expand. Available Information The Company maintains a website on the Internet at www.rhgi.com. The Company makes available free of charge, through the investor relations section of its website, its Annual Reports on Form 10K, Quarterly Reports on Form 10Q, Current Reports on Form 8K and amendments to those reports electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \"Exchange Act\"). Such information is available as soon as reasonably practicable after it files such reports with the SEC. Additionally, the Company's Code of Ethics may be accessed within the Investor Relations section of its website. Information found on the Company's website is not part of this Annual Report on Form 10K or any other report filed with the SEC. 6 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 10/74 8/23/2016 ruth20151227_10k.htm Item 1A. RISK FACTORS In addition to the other information in this Annual Report on Form 10K, the following risk factors should be considered carefully in evaluating the Company and its business. Additional risks and uncertainties not presently known to us or that the Company currently deems immaterial may also impair its business operations. If any of these certain risks and uncertainties were to actually occur, the Company's business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the Company's common stock could decline and its investors may lose all or part of their investment. These risks and uncertainties include the following: We may not be able to compete successfully with other restaurants, which could reduce revenues. The restaurant industry is intensely competitive with respect to price, service, location, food quality, atmosphere and overall dining experience. Our competitors include a large and diverse group of wellrecognized upscale steakhouse and upscale casual restaurant chains, including steakhouse and seafood chains as well as restaurants owned by independent local operators. Some of our competitors have substantially greater financial, marketing and other resources, and may be better established in the markets where our restaurants are or may be located. If we cannot compete effectively in one or more of our markets, we may be unable to maintain recent levels of comparable restaurant sales growth and/or may be required to close existing restaurants. Economic downturns may adversely impact consumer spending patterns. Economic downturns could negatively impact consumer spending patterns. Any decrease in consumer spending patterns may result in a decline in our operating performance. Economic downturns may reduce guest traffic and require us to lower our prices, which reduces our revenues and operating income, which may adversely affect the market price for our common stock. Increases in the prices of, or reductions in the availability of, any of our core food products could reduce our operating margins and revenues. We purchase large quantities of beef, particularly USDA Prime grade beef, which is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other factors. Our beef costs represented approximately 47% of our food and beverage costs during fiscal year 2015. During fiscal year 2015, we entered into contracts with beef suppliers to establish set pricing on a portion of anticipated beef purchases. As of December 27, 2015, we have not negotiated set pricing for beef requirements in 2016. The market for USDA Prime grade beef is particularly volatile. If prices increase, or the supply of beef is reduced, our operating margins could be materially adversely affected. In addition, under the Federal Meat Inspection Act and the Poultry Products Inspection Act, the production, processing or interstate distribution of meat and poultry products is prohibited absent federal inspection. If there is a disruption to the meat inspection process, we could experience a reduction in supply and a corresponding increase in meat prices, which could be significant, either of which could materially impact our operating margin and results of operations. In the recent past, certain types of seafood have experienced fluctuations in availability. Seafood is also subject to fluctuations in price based on availability, which is often seasonal. If certain types of seafood are unavailable, or if our costs increase, our results of operations could be adversely affected. Food safety and foodborne illness concerns throughout the supply chain may have an adverse effect on our business. Food safety is a top priority, and we dedicate substantial resources to ensuring that our customers enjoy safe, quality food products. However, food safety issues could be caused by food suppliers or distributors and, as a result, be out of our control. In addition, regardless of the source or cause, any report of foodborne illnesses such as E. coli, norovirus, hepatitis A, trichinosis or salmonella, and other food safety issues including food tampering or contamination, at one of our restaurants could adversely affect the reputation of our brands and have a negative impact on our sales. Even instances of foodborne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of foodborne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins. Negative publicity surrounding our restaurants or the consumption of beef generally, or shifts in consumer tastes, could reduce sales in one or more of our restaurants and make our brand less valuable. Our success depends, in large part, upon the popularity of our menu offerings. Negative publicity resulting from poor food quality, illness, injury or other health concerns, or operating problems related to one or more restaurants, could make our menu offerings less appealing to consumers and reduce demand in our restaurants. Further, the influence of social media could make it more difficult for us to respond to negative publicity in a timely or effective manner. Consumers value readily available information and often act on such information without further investigation and without regard to its accuracy. The harm may be immediate without affording us the opportunity for redress or correction. In addition, any other shifts in consumer preferences away from the kinds of food we offer, particularly beef, whether because of dietary or other health concerns or otherwise, would make our restaurants less appealing and adversely affect revenues. By December 2016, the ACA requires our restaurants to disclose calorie information on menus. While we cannot predict the changes in guest behavior resulting from the implementation of this portion of the ACA, it could have an adverse effect on our revenues and results of operations. 7 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 11/74 8/23/2016 ruth20151227_10k.htm If our vendors or distributors do not deliver food and beverages in a timely fashion we may experience supply shortages and/or increased food and beverage costs. Our ability to maintain consistent quality throughout Companyowned restaurants depends in part upon our ability to purchase USDA Prime and Choice grade beef, seafood and other food products in accordance with our rigid specifications. During fiscal year 2015, the Company purchased substantially all of the beef used in Companyowned Ruth's Chris restaurants from two vendors, Sysco Food Services and Stock Yards Packing (a subsidiary of US Foods). Each vendor supplied about half of the Company's beef requirements. In addition, we currently have a longterm distribution arrangement with a national food and restaurant supply distributor, DMA, which purchases products for us from various suppliers, and through which all of our Companyowned Ruth's Chris Steak House restaurants receive a significant portion of their food supplies. Consolidation in our supply chain due to mergers and acquisitions may change the relationships we have with our existing vendors and distributors and/or result in fewer alternative supply sources for purchasing our food supplies which could result in an increase in prices. If for any reason our vendors or distributors cease doing business with us, we could experience supply shortages in certain Companyowned restaurants and could be required to purchase supplies at higher prices until we are able to secure an alternative supply source. Any delay we experience in replacing vendors or distributors on acceptable terms could increase food costs or, in extreme cases, require us to temporarily remove items from the menu of one or more restaurants. Labor shortages or increases in labor costs could slow our growth or harm our business. Our success depends in part upon our ability to continue to attract, motivate and retain employees with the qualifications to succeed in our industry and the motivation to apply our core service philosophy, including regional operational managers, restaurant general managers and chefs. If we are unable to continue to recruit and retain sufficiently qualified individuals, our business and growth could be adversely affected. Competition for these employees could require us to pay higher wages, which could result in higher labor costs. In addition, we have a substantial number of hourly employees who are paid wage rates at or based on the federal or state minimum wage and who rely on tips as a large portion of their income. Governmental entities have acted to increase minimum wage rates in several jurisdictions wherein Companyowned restaurants are located. The federal minimum wage may be increased and there likely will be additional minimum wage increases implemented in other states in which we operate or seek to operate. Likewise, changes to existing tip credit laws (which dictate the amounts an employer is permitted to assume an employee receives in tips when calculating the employee's hourly wage for minimum wage compliance purposes) continue to be proposed and implemented at both the federal and state government levels. As federal and/or state minimum wage rates increase and allowable tip credits decrease, we may need to increase not only the wage rates of our minimum wage employees but also the wages paid to our employees who are paid above the minimum wage, which will increase our labor costs. None of our employees are represented by a collective bargaining unit. Should some of our employees elect to be represented by a collective bargaining unit, our labor costs may increase due to higher wage rates and / or the implementation of work rules. We may be unable to increase our prices in order to pass these increased labor costs on to our guests, in which case our margins would be negatively affected. Regulations affecting the operation of our restaurants could increase operating costs and restrict growth. Each of our restaurants must obtain licenses from regulatory authorities allowing us to sell liquor, beer and wine, and each restaurant must obtain a food service license from local health authorities. Each restaurant's liquor license must be renewed annually and may be revoked at any time for cause, including violation by the Company or its employees of any laws and regulations relating to the minimum drinking age, advertising, wholesale purchasing and inventory control. In certain states, including states where we have a large number of restaurants or where we may open restaurants in the future, the number of liquor licenses available is limited and licenses are traded at market prices. If we are unable to maintain existing licenses, or if we choose to open a restaurant in those states, the cost of a new license could be significant. Obtaining and maintaining licenses is an important component of each of our restaurant's operations, and the failure to obtain or maintain food and liquor licenses and other required licenses, permits and approvals would materially adversely impact existing restaurants or our growth strategy. We are also subject to a variety of federal and state labor laws, pertaining to matters such as minimum wage and overtime pay requirements, unemployment tax rates, workers' compensation rates and citizenship requirements. Governmentmandated increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, or increased tax reporting and tax payment requirements for employees who receive gratuities or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could increase our labor costs and reduce our operating margins. In addition, the Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons. The cost of our employee health care benefit program may increase in the future. We maintain an employee benefits program that provides selfinsured and insured coverage to employees that meet the applicable requirements under the program. Employees can elect to enroll dependents that meet eligibility criteria. Coverage includes health, dental, vision, short and longterm disability, life insurance and other voluntary ancillary benefits. Employees share in the cost of other coverage at varying levels. The Company has historically funded a majority of the cost of health benefits. 8 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 12/74 8/23/2016 ruth20151227_10k.htm The ACA requires that employers offer health care coverage that is qualified and affordable. Coverage must be offered to all \"fulltime\" employees, as defined by the ACA. The Company routinely reviews its health benefit plans to assure conformity with the ACA. While we have raised the eligibility requirement thresholds, the hours of service eligibility criteria for health benefits are lower than required under the ACA. Approximately 65% of eligible employees elect to participate in our health benefit plans. In the future, proportionately more employees may elect to participate in our health benefit plans because the ACA includes financial penalties for people who do not have health insurance. We are unable to reliably predict to what extent, if any, the percentage of eligible employees who elect health care coverage will increase in the future. Because we fund a majority of the cost of health benefits, our financial accounting expense will increase to the extent that additional employees elect to participate in the Company's health benefit plans. Certain other restaurant companies may curtail the ability of their employees to participate in their health benefit plans by increasing the hours worked eligibility requirement to the minimum required under the ACA. Such restaurant companies may gain a cost advantage compared to us by reducing the cost of their employee health benefit programs. Also, socalled \"medical inflation\" has historically tended to outpace general inflation. While medical inflation in the United States has been relatively muted in recent years, we are unable to reliably predict the extent to which future medical inflation will outpace general inflation. Additionally, because our medical benefit program is selfinsured, an unusual incidence of large claims may cause our costs to unexpectedly increase. Our strategy to open franchiseeowned restaurants subjects us to extensive government regulation, compliance with which might increase our investment costs and restrict our growth. We are subject to the rules and regulations of the FTC and various international and state laws regulating the offer and sale of franchises. The FTC requires that we furnish to prospective franchisees a franchise disclosure document containing prescribed information and can restrict our ability to sell franchises. A number of states also regulate the sale of franchises and require the obtaining of a permit and/or registration of the franchise disclosure document with state authorities and the delivery of the franchise disclosure document to prospective franchisees. Non compliance with those laws could result in governmental enforcement actions seeking a civil or criminal penalty, rescission of a franchise, and loss of our ability to offer and sell franchises in a state, or a private lawsuit seeking rescission, damages and legal fees, which could have a material adverse effect on our business. Our franchisees could take actions that harm our reputation and reduce our royalty revenues. We do not exercise control over the daytoday operations of our franchiseeowned restaurants. While we strive to ensure that franchiseeowned restaurants maintain the same high operating standards that we demand of Companyowned restaurants, one or more of these restaurants may fail to maintain these standards. Any operational shortcomings of the franchiseeowned restaurants are likely to be attributed to our systemwide operations and could adversely affect our reputation and damage our brand as well as have a direct negative impact on the royalty income we receive from those restaurants. The expansion into international markets by our franchisees also creates additional risks to our brands and reputation. Our international operations are subject to all of the same risks associated with our domestic operations, as well as a number of additional risks. These include, among other things, international economic and political conditions, foreign currency fluctuations and differing cultures and consumer preferences. We are also subject to governmental regulation in such international markets, including antitrust and tax requirements, antiboycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition. We rely on information technology in our operations and a failure to maintain a continuous and secure network, free from material failure, interruption or security breach, could harm our ability to effectively operate our business, damage our reputation and negatively affect our operations and profits. We rely on information systems across our operations, including for marketing programs, pointofsale processing systems in our restaurants, online purchases of gift cards and various other processes and transactions. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a material network breach in the security of these systems as a result of a cyberattack, or any other failure to maintain a continuous and secure network could adversely affect our reputation, negatively affect our results of operations and result in substantial harm to us or an individual. 9 https://www.sec.gov/Archives/edgar/data/1324272/000143774916026852/ruth20151227_10k.htm 13/74 8/23/2016 ruth20151227_10k.htm We accept electronic payment cards, including credit, debit and gift cards, from our guests for payment in our restaurants and on our websites. We also receive and maintain certain personal information about our customers and employees. A number of retailers and restaurant operators have experienced security breaches in which credit, debit and gift card information may have been stolen. If we experienced a security breach, we could become subject to claims, lawsuits or other proceedings for purportedly fraudulent transactions arising out of the theft of credit or debit card information, theft of gift card information, compromised security and information systems, failure of our employees to comply with applicable laws, the unauthorized acquisition or use of such information by third parties, or other similar claims. Any such incidents or proceedings could negatively affect our reputation and our results of operations, cause delays in guest service, require significant capital investments to remediate the problem, and could result in the imposition of penalties or cause us to incur significant unplanned losses and expenditures, including those necessary to remediate any damage to persons whose personal information may have been compromised. Furthermore, as a result of legislative and regulatory rules, we may be required to notify the owners of the credit and debit card information of any data breaches, which could harm our reputation and financial results, as well as subject us to litigation or other proceedings by regulatory authorities. A lack of availability of suitable locations for new restaurants or a decline in the quality of the locations of our current restaurants may adversely affect our sales and results of operations. The success of our restaurants depends in large part on their locations. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those restaurants. In addition, desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation. The occurrence of one or more of these events could have a significant adverse effect on our sales and results of operations. Our failure to enforce our service marks or other proprietary rights could adversely affect our competitive position or the value of our brands. We own certain common law service mark rights and a number of federal and international service mark registrations, most importantly the Ruth's Chris Steak House names and logos, copyrights relating to text and print uses, and other proprietary intellectual property rights. We believe that our service marks, copyrights and other proprietary rights are important to our success and competitive position. Protective actions we take with respect to these rights may fail to prevent unauthorized usage or imitation by others, which could harm our reputation, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal expenses. Litigation concerning food quality, health and other issues could require us to incur additional liabilities and/or cause guests to avoid our restaurants. Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to our restaurants. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims, claims from franchisees, claims alleging violations of federal and state law regarding workplace and employment matters and discrimination and similar matters. In addition, we could become subject to class action lawsuits related to these matters in the future. For example, in fiscal year 2005, we settled a classaction claim based on violation of wage and hour laws in California. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their guests. In addition, we are subject to \"dram shop\" statutes. These statutes generally permit a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Recent dram shop litigation against restaurant chains has resulted in significant judgments, including punitive damages. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims would materially adversely affect our financial condition and results of operations. Adverse publicity resulting from these claims may negatively impact revenues at one or more of our restaurants. The terms of our senior credit agreement may restrict our ability to operate our business and to pursue our business strategies. Our senior credit agreement contains, and any agreements governing future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us. Our senior credit agreement, as amended in February 2012 and May 2013, limits our ability, among other things, to: pay dividends or purchase stock in excess of the limits permitted under the senior credit agreement borrow money or issue guarantees make investments u