Quarterly report pursuant to Section 13 or 15(d)

Acquisition of Franchise Restaurant

v3.19.3
Acquisition of Franchise Restaurant
9 Months Ended
Sep. 29, 2019
Business Combinations [Abstract]  
Acquisition of Franchise Restaurant

(2) Acquisition of Franchise Restaurant

On July 29, 2019 the Company completed the acquisition of substantially all of the assets of the MBR Franchise Acquisition restaurants for a cash purchase price of $18.6 million.  The acquisition was funded with borrowings under the Company’s senior credit

facility.  The results of operations, financial position and cash flows of the MBR Franchise Acquisition restaurants are included in the Company’s consolidated financial statements as of the date of the acquisition.

The assets and liabilities of the MBR Franchise Acquisition restaurants were recorded at their respective fair values as of the date of the acquisition.  The fair values recorded for the assets of the MBR Franchise Acquisition, including working capital, restaurant related fixed assets, leasehold improvements, franchise and territory rights and goodwill, are based on preliminary valuations and are subject to adjustments as additional information is obtained.  The Company is in the process of confirming the fair values using a combination of internal analysis and third party valuations.  Once the process is complete, any adjustments to the fair value of assets acquired or liabilities assumed may also result in adjustments to goodwill.

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

 

 

Balances at

 

 

 

September 29, 2019

 

Current assets

 

$

387

 

Property and equipment

 

 

2,398

 

Goodwill

 

 

9,027

 

Franchise Rights

 

 

7,100

 

Other intangibles

 

 

475

 

Total assets acquired

 

$

19,387

 

Current liabilities

 

 

725

 

Other liabilities

 

 

43

 

Total liabilities assumed

 

$

768

 

Net assets acquired

 

$

18,619

 

The goodwill for the MBR Franchise Acquisition is all deductible for federal income tax purposes.  Goodwill was measured as the excess of the consideration transferred over the net of the amounts assigned to identifiable assets acquired and the liabilities assumed as of the acquisition date, and includes the economic value of expected future cash flows not assigned to identifiable assets, efficiencies from combining the operations of the acquired restaurants with other Company-owned restaurants and an assembled workforce.  The goodwill for the MBR Franchise Acquisition, which is included with the goodwill for the reporting unit identified as the steakhouse operating segment, will be reviewed for potential impairment annually or more frequently if triggering events are detected.  The determination of the acquisition date fair value of the franchise and territory rights was based on a multi-period excess earnings approach and involved projected after-royalty future earnings discounted using a market discount rate, from which a contributory asset charge for net working capital, property and equipment and assembled workforce was subtracted.  The reacquired franchise and territory rights will be amortized over a weighted average term of 8.2 years, which reflects the remaining terms of the related franchise agreements, not including renewal options.  Property and equipment will be depreciated over a period of two to twenty years.

As a result of the acquisition and related integration efforts, we incurred expenses of approximately $412 thousand during the fiscal year 2019, which are included in general and administrative expenses in the Company’s consolidated statements of income.  Pro-forma financial information reflecting the impact of the MBR Franchise Acquisition for periods prior to the acquisition are not presented due to the immaterial impact of the financial results of the MBR Franchise Acquisition on the Company’s consolidated financial statements.