Acquisition of Ruth’s Chris Steak House

3 Months Ended

Aug. 27, 2023

Business Combination and Asset Acquisition [Abstract]

On June 14, 2023, we acquired 100 percent of the equity interest of Ruth’s Chris Steak House (Ruth’s Chris) for $724.6 million in total consideration. We funded the acquisition with the proceeds from the issuance of a $600.0 million Term Loan (Term Loan Agreement) combined with cash on hand.

The acquired operations of Ruth’s Chris included 77 company-owned locations, 74 franchisee-owned locations and 4 managed locations operating under contractual agreement. The results of Ruth’s Chris operations are included in our consolidated financial statements from the date of acquisition.

The Term Loan Agreement is a senior unsecured $600 million 3-year credit agreement with Bank of America, N.A., as administrative agent, the lenders and other agents party thereto, the material terms of which are consistent with our existing revolving credit agreement. The Term Loan Agreement bears interest at a rate of:

(a) Term SOFR (which is defined, for the applicable interest period, as the Term SOFR Screen Rate two U.S. Government Securities Business Days prior to the commencement of such interest period with a term equivalent to such interest period) plus a Term SOFR adjustment of 0.10 percent plus the relevant margin determined by reference to a ratings-based pricing grid (Applicable Margin); or

(b) The base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Term SOFR plus 1.00 percent) plus the relevant Applicable Margin.

Assuming a “BBB” equivalent credit rating level, the Applicable Margin under the Term Loan Agreement is 1.125 percent for Term SOFR loans and 0.125 percent for base rate loans. The Term Loan Agreement matures on the third anniversary of the funding date thereunder, June 14, 2023.

The assets and liabilities of Ruth’s Chris 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)	June 14, 2023
Current assets	$	45.6
Land, buildings and equipment	170.5
Operating lease right-of-use assets	291.6
Trademark	341.7
Other assets	12.0
Goodwill	339.5
Total assets acquired	$	1,200.9
Current liabilities	113.5
Deferred income taxes	79.5
Operating lease liabilities - non-current	276.3
Other liabilities	7.0
Total liabilities assumed	$	476.3
Net assets acquired	$	724.6

The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill. Of the $339.5 million recorded as goodwill, $15.2 million is deductible for tax purposes. The portion of the purchase price attributable to goodwill represents benefits expected because 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.

As a result of the acquisition and related integration efforts, we incurred expenses of approximately $24.8 million during the quarter ended August 27, 2023, which are included in general and administrative expenses in our consolidated statements of earnings. 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 Ruth’s Chris on our consolidated financial statements