ACQUISITION OF CHILI'S RESTAURANTS ACQUISITION OF CHILI'S RESTAURANTS

3 Months Ended

Sep. 23, 2015

ACQUISITION OF CHILI'S RESTAURANTS [Abstract]

ACQUISITION OF CHILI'S RESTAURANTS

ACQUISITION OF CHILI'S RESTAURANTS

On June 25, 2015, we completed the stock acquisition of Pepper Dining Holding Corp. ("Pepper Dining"), a franchisee of 103 Chili's Grill & Bar restaurants primarily located in the Northeast and Southeast United States. The purchase price of $106.5 million, excluding cash and customary working capital adjustments of $0.9 million, was funded with borrowings from our existing credit facility. The results of operations of these restaurants are included in our consolidated financial statements from the date of acquisition. The assets and liabilities of the restaurants were recorded at their preliminary respective fair values as of the date of acquisition. We are in the process of finalizing the fair value of the acquired assets and liabilities through internal studies and third-party valuations.

The preliminary allocation of the purchase price is as follows (in thousands):

Current assets including cash and cash equivalents	$	6,331
Current deferred income taxes	2,050
Property and equipment	70,576
Goodwill	28,543
Reacquired franchise rights (1)	10,400
Deferred income taxes	10,928
Favorable leases	5,496
Total assets acquired	134,324
Current liabilities	18,065
Unfavorable leases	8,846
Total liabilities assumed	26,911
Net assets acquired (2)	$	107,413

⁽¹⁾  The reacquired franchise rights have an amortization period of 12 years.

⁽²⁾  The net assets acquired includes cash and cash equivalents of $1.8 million.

We expect $12.8 million of the goodwill balance to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents the benefits expected as a result of the acquisition, including sales and unit growth opportunities. The acquired restaurants generated approximately $61.8 million of revenue for the period ended September 23, 2015 and are expected to generate approximately $2.5 million of average annual revenue per restaurant in fiscal 2016, partially offset by the loss of average annual royalty revenues of approximately $104,000 per restaurant. Pro-forma financial information of the combined entities are not presented due to the immaterial impact of the financial results of the acquired restaurants on our consolidated financial statements.