Annual report pursuant to Section 13 and 15(d)

Note 10 - Franchise Operations

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Note 10 - Franchise Operations
12 Months Ended
Dec. 25, 2016
Notes to Financial Statements  
Franchise Income [Text Block]
(10)
Franchise Operations
 
The Company franchises Ruth’s Chris Steak House restaurants. The Company executes franchise agreements for each franchisee-owned restaurant, which sets out the terms of its arrangement with the franchisee. The franchise agreements typically require the franchisee to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. The Company collects ongoing royalties of
5%
of sales at franchisee-owned restaurants plus a
1%
advertising fee applied to national advertising expenditures. The Company is not required to perform any services for the ongoing royalties and thus these royalties are recognized when the royalties are due from the franchisee on a monthly basis. These ongoing royalties are reflected in the accompanying consolidated statements of income as franchise income. The
1%
advertising fee is not recorded as revenue, but rather is recorded as a liability against which specified advertising and marketing costs are charged.
 
The Company executes an area development agreement with franchisees that gives each franchisee exclusive rights to develop a specific number of restaurants within a specified area. The Company receives a development fee at the time that an area development agreement is executed. The development fee is recognized as revenue as franchisee-owned restaurants are opened. The Company also executes separate, site-specific franchise agreements for each restaurant developed by a franchisee under an area development agreement. The Company charges a site-specific fee at the time the franchise agreement is executed. This fee is related to construction assistance and consulting regarding operating procedures and purchasing. These services are performed prior to the restaurant opening. The Company recognizes the site-specific franchise fee when the related restaurant opens.
 
The Company currently has
81
franchisee-owned Ruth’s Chris Steak House restaurants, including
20
international restaurants.
Two
new franchisee-owned restaurants opened in fiscal year
2016
including Jakarta, Indonesia which opened in
February
and a
second
Greenville, SC location in
October.
Three
new franchisee-owned restaurants opened in fiscal year
2015
including Ann Arbor, MI and Charleston, SC which both opened in
May
and
one
in San Antonio, TX in
November.
During fiscal year
2014
three
new franchisee-owned restaurants were opened -
one
in Boise, ID in
February,
one
in Panama City, Panama in
September
and
one
in Taipei, Taiwan in
December.
The franchisee-owned Ruth’s Chris Steak House restaurant in San Salvador, El Salvador closed in
January
2016.
In
February
2014,
the Company acquired a franchisee-owned restaurant located in Austin, TX. No franchisee-owned restaurants were sold or purchased during fiscal years
2016
or
2015.
Franchise income includes opening and development fees and income generated from existing franchisee-owned restaurants. The Company classifies franchise income separately in the consolidated statements of income (in thousands):
 
 
 
Fiscal Year
 
 
 
2016
 
 
2015
 
 
2014
 
                         
Franchise income:
                       
Income from existing franchise locations
  $
17,001
    $
16,361
    $
15,598
 
Opening and development fee income
   
300
     
300
     
165
 
Total franchise income:
  $
17,301
    $
16,661
    $
15,763