FISCAL 2020 CHILI'S RESTAURANT ACQUISITION

9 Months Ended

Mar. 24, 2021

Business Combinations [Abstract]

Fiscal 2020 Chili's Restaurant Acquisition

In the first quarter of fiscal 2020, on September 5, 2019, we completed the acquisition of certain assets and liabilities related to 116 previously franchised Chili’s restaurants located in the Midwest United States. Pro-forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements (Unaudited).

Total cash consideration of $96.0 million, including post-closing adjustments, was funded with borrowings from our existing credit facility. We accounted for this acquisition as a business combination. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements (Unaudited) from the date of acquisition. The assets and liabilities of these restaurants were recorded at their fair values.

Net acquisition-related charges of $1.1 million and $2.6 million were recorded during the thirteen and thirty-nine week periods ended March 25, 2020, respectively, to Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited). In the thirteen week period ended March 25, 2020, the net charges consisted of $1.1 million for professional services, transaction and transition related costs. In the thirty-nine week period ended March 25, 2020, the net charges consisted of $4.1 million for professional services, transaction and transition related costs and $1.1 million of related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully recognized at the date of the acquisition. These charges were partially offset by $2.6 million of franchise deferred revenue balances that were fully recognized at the date of the acquisition.

The final purchase price accounting was completed in the third quarter of fiscal 2020, and the final amounts recorded for the fair value of acquired assets and liabilities at the acquisition date were as follows:

	Fair Value September 5, 2019
Current assets(1)	$	7.3
Property and equipment	60.3
Operating lease assets	163.5
Reacquired franchise rights(2)	6.9
Goodwill(3)	22.4
Total assets acquired	260.4
Current liabilities(4)	9.1
Operating lease liabilities, less current portion	158.3
Total liabilities assumed	167.4
Net assets acquired(5)	$	93.0

(1)Current assets included petty cash, inventory, and restaurant supplies.

(2)Reacquired franchise rights have a weighted average amortization period of approximately 8 years.

(3)Goodwill is expected 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, and the benefit of the assembled workforce of the acquired restaurants.

(4)Current liabilities included the current portion of operating lease liabilities, gift card liability and accrued property tax.

(5)Net assets acquired at fair value are equal to the total purchase price of $99.0 million, less $3.2 million of closing adjustments and $2.8 million allocated to the prepayment of leases entered into with the franchisee.