Acquisition of Cheddar's Scratch Kitchen

On April 24, 2017, we acquired 100 percent of the equity interest in Cheddar’s Scratch Kitchen for $799.8 million in total consideration. We funded the acquisition with the proceeds from the issuance of $500.0 million in senior notes combined with cash on hand. The acquired operations of Cheddar’s Scratch Kitchen included 140 company-owned restaurants and 25 franchised restaurants. The results of Cheddar’s Scratch Kitchen operations are included in our consolidated financial statements from the date of acquisition.

The assets and liabilities of Cheddar’s Scratch Kitchen were recorded at their respective fair values as of the date of acquisition. We are in the process of confirming, through internal studies and third-party valuations, the fair value of these assets, including land, buildings and equipment, intangible assets, and income tax assets and liabilities. The fair values set forth below are based on preliminary valuations and are subject to adjustment as additional information is obtained. When the valuation process is completed, adjustments to goodwill may result.

The preliminary allocation of the purchase price is as follows:



						Balances at
(in millions)	Preliminary		Adjustments			November 26, 2017
Current assets	$	48.2	$	(0.3	)	$	47.9
Land, buildings and equipment	191.9		18.7			210.6
Trademark	375.0		—			375.0
Other assets	2.2		20.4			22.6
Goodwill	329.4		(39.7		)	289.7
Total assets acquired	$	946.7	$	(0.9	)	$	945.8
Current liabilities	43.4		3.7			47.1
Other liabilities	104.3		(5.4		)	98.9
Total liabilities assumed	$	147.7	$	(1.7	)	$	146.0
Net assets acquired	$	799.0	$	0.8		$	799.8

The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill. Of the $289.7 million recorded as goodwill, none is expected to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents benefits expected as a result of the acquisition, including sales and unit growth opportunities in addition to supply-chain and support-cost synergies. The trademark has an indefinite life based on the expected use of the asset and the regulatory and economic environment within which it is being used. The trademark represents a highly respected brand with positive connotations and we intend to cultivate and protect the use of this brand. Goodwill and indefinite-lived trademarks are not amortized but are reviewed annually for impairment or more frequently if indicators of impairment exist. Buildings and equipment will be depreciated over a period of 2 years to 30 years. Pro-forma financial information of the combined entities for periods prior to the acquisition is not presented due to the immaterial impact of the financial results of Cheddar’s Scratch Kitchen on our consolidated financial statements.

On August 28, 2017, we completed the acquisition of 11 Cheddar's Scratch Kitchen restaurants and certain assets and liabilities from C&P Restaurant Company, LLC, an existing franchisee. The acquisition was funded with cash on hand for $39.6 million in total consideration, of which $22.5 million was allocated to reacquired franchise rights. The results of operations of these restaurants are included in our consolidated financial statements from the date of acquisition. The assets and liabilities of these restaurants were recorded at their respective fair values as of the date of acquisition. We are in the process of confirming, through internal studies and third-party valuations, the fair value of these assets and liabilities. When the valuation process is completed, adjustments to goodwill may result. The excess purchase price over the aggregate fair value of net assets acquired of $11.1 million was allocated to goodwill and is expected to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents benefits expected as a result of the acquisition, including sales and unit growth opportunities in addition to supply-chain and support-cost synergies. Pro-forma financial information of the combined entities for periods prior to the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants on our consolidated financial statements.

As a result of the integration efforts for these acquisitions, we incurred expenses of approximately $4.2 million and $10.6 million during the quarter and six months ended November 26, 2017, respectively, which are included in general and administrative expenses in our consolidated statements of earnings.