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Form 8-K/A Del Frisco's Restaurant For: Sep 21

September 27, 2018 4:10 PM


 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
FORM 8-K/A
(Amendment No. 1)
 
CURRENT REPORT
 
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
Date of Report (Date of earliest event reported): September 21, 2018
 
Del Frisco’s Restaurant Group, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number:  001-35611
 
  
Delaware
20-8453116
(State or other jurisdiction of
incorporation)
(IRS Employer
Identification No.)
 
2900 Ranch Trail
Irving, TX 75063
(Address of principal executive offices, including zip code)
  
(469) 913-1845
(Registrant’s telephone number, including area code)


(Former name or former address, if changed since last report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






 
EXPLANATORY NOTE

Del Frisco’s Restaurant Group, Inc. (the “Company”) is filing this Amendment No. 1 to a Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 24, 2018, announcing the initial closing of the previously announced sale of its Sullivan’s Steakhouse business to Romano’s Macaroni Grill. This amendment is being filed solely for the purpose of providing unaudited pro forma financial information giving effect to the sale of the Sullivan’s Steakhouse business.

Item 9.01 Financial Statements and Exhibits
(b)
 
Pro forma Financial Information
 
 
 
 
 
The unaudited pro forma condensed consolidated financial information of the Company, after giving effect to the sale of the Sullivan’s Steakhouse business, as of June 26, 2018, for the twenty-six weeks ended June 26, 2018, for the year ended December 26, 2017, for the year ended December 27, 2016, and for the year ended December 29, 2015, is filed as Exhibit 99.1 hereto.
 
 
 
(d)
 
Exhibits
 
 
 
 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
DEL FRISCO’S RESTAURANT GROUP, INC.
 
 
 
 
Date:
September 27, 2018
By:
/s/ Neil H. Thomson
 
 
 
Neil H. Thomson
 
 
 
Chief Financial Officer








Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information of Del Frisco’s Restaurant Group, Inc. and its subsidiaries (“Del Frisco’s”, the "Company" or "we," "our," "us" and similar terms unless the context indicates otherwise) gives effect to the acquisition of Barteca Holdings, LLC and its subsidiaries (“Barteca”) which closed on June 27, 2018 (“the Barteca Acquisition”), the related financing pursuant to the terms of the credit agreement with JPMorgan Chase Bank, N.A. as the administrative agent (“the Credit Agreement”), and the issuance of 12,937,500 shares of common stock on August 6, 2018 (“the Public Offering of Common Stock”), all of which are collectively referred to as “the Transactions”. Additionally, the following unaudited pro forma condensed combined financial information gives effect to the sale of the Sullivan’s Steakhouse business that occurred on September 21, 2018 (“the Sullivan’s Divestiture”). Each of these transactions are further described in Note 1 below.
The unaudited pro forma condensed combined financial information are intended to reflect:
•
the impact of the Barteca Acquisition, which will be accounted for as a business combination in accordance with ASC 805, Business Combinations (as further described in Note 2) and the related changes in depreciation and amortization resulting from the preliminary allocation of purchase price;
•
the impact of the Credit Agreements, including relevant borrowings, repayments, and interest expense;
•
the repayment of Del Frisco’s outstanding indebtedness as of June 26, 2018, including the aggregate outstanding principal amount and all accrued but unpaid interest, fees, premiums, penalties and other amounts owed;
•
the impact of the Public Offering of Common Stock, including repayment of a portion of the borrowings outstanding pursuant to the Credit Agreements; and
•
the impact of the Sullivan’s Divestiture, which will be accounted for as a discontinued operation in accordance with ASC 205-20, Presentation of Financial Statements, Discontinued Operations (“ASC 205”) (as further described in Note 2).
The unaudited pro forma condensed combined balance sheet assumes the Transactions and the Sullivan’s Divestiture occurred on June 26, 2018. It combines Del Frisco’s unaudited condensed consolidated balance sheet as of June 26, 2018 with Barteca’s unaudited condensed consolidated balance sheet as of April 3, 2018.
The unaudited pro forma condensed combined statements of operations for the twenty six weeks ended June 26, 2018 and the fiscal year ended December 26, 2017 combine the historical consolidated statements of operations of Del Frisco’s and Barteca and assume the Transactions occurred on December 28, 2016, the first day of Del Frisco’s most recent fiscal year. The unaudited pro forma statement of operations for the twenty six weeks ended June 26, 2018 include Barteca’s results for the thirteen weeks ended April 3, 2018 and the twelve week period from April 4, 2018 to June 26, 2018, the date prior to the date of the consummation of the Barteca acquisition.
The unaudited pro forma condensed combined statements of operations for twenty six weeks ended June 26, 2018 the fiscal years ended December 26, 2017, December 27, 2016 and December 29, 2015 assume the Sullivan’s Divestiture occurred on December 31, 2014, the first day of Del Frisco’s earliest fiscal year presented.
The pro forma adjustments are based upon currently available information and certain assumptions that Del Frisco’s management believes are reasonable. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to present or be indicative of what the results of operations or financial position would have been had the events actually occurred on the dates indicated, nor is it meant to be indicative of future results of operations or financial position for any future period or as of any future date. The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, or any anticipated cost savings or operating synergies that may result from the Transactions and the Sullivan’s Divestiture.
In the opinion of Del Frisco’s management, the pro forma adjustments reflected in the unaudited pro forma condensed combined financial information are based on items that are (1) directly attributable to the Transactions and the Sullivan’s Divestiture, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. However, such adjustments are estimates based on certain assumptions and may not prove to be accurate. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.

1


The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with Del Frisco’s and Barteca’s respective historical financial statements referenced below:
•
Del Frisco’s consolidated financial statements and related notes thereto contained in its Quarterly Report on Form 10-Q as of and for the twenty six weeks ended June 26, 2018 and its Annual Report on Form 10-K as of and for the years ended December 26, 2017, December 27, 2016 and December 29, 2015; and
•
Barteca’s consolidated financial statements and related notes thereto as of and for the thirteen week period ended April 3, 2018 and as of and for the year ended January 2, 2018 included in the Del Frisco’s Current Report on Form 8-K dated June 27, 2018.
The unaudited pro forma condensed combined financial information and related notes have been prepared utilizing the period end dates for Del Frisco’s and Barteca which differ by fewer than 93 days, as permitted by Regulation S-X.

2


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 26, 2018
(Amounts in thousands)
 Historical Del Frisco
 
 Historical Barteca(1)
 
Acquisition Adjustments
 
 
 
 Offering and Financing Adjustments
 
 
 
Disposal Adjustments
 
 
 
 Pro Forma Combined
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
897

 
$
3,005

 
$
2,132

 
 6 (a)
 
$
4,362

 
 8 (a)
 
$
10,442

 
 10 (a)
 
$
20,838

Inventory
18,238

 
2,058

 
—

 
 
 
—

 
 
 
(2,297
)
 
 10 (b)
 
17,999

Income taxes receivable
39

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
39

Lease incentives receivable
9,363

 
2,133

 
—

 
 
 
—

 
 
 
—

 
 
 
11,496

Prepaid expenses and other assets
6,789

 
4,699

 
(1,115
)
 
 6 (b)
 
—

 
 
 
(589
)
 
 10 (b)
 
9,784

Total current assets
35,326

 
11,895

 
1,017

 
 
 
4,362

 
 
 
7,556

 
 
 
60,156

Property and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasehold improvements
235,443

 
43,469

 
(5,509
)
 
 6 (c)
 
—

 
 
 
(33,772
)
 
 10 (b)
 
239,631

Furniture, fixtures, and equipment
73,966

 
18,965

 
(6,573
)
 
 6 (c)
 
—

 
 
 
(12,867
)
 
 10 (b)
 
73,491

Building improvements
—

 
15,572

 
(2,075
)
 
 6 (c)
 
—

 
 
 
—

 
 
 
13,497

Construction in progress
—

 
3,616

 
—

 
 
 
—

 
 
 
—

 
 
 
3,616

Property and equipment, gross
309,409

 
81,622

 
(14,157
)
 
 
 
—

 
 
 
(46,639
)
 
 
 
330,235

Less accumulated depreciation
(108,159
)
 
(20,045
)
 
20,045

 
 6 (c)
 
—

 
 
 
26,236

 
 10 (b)
 
(81,923
)
Property and equipment, net
201,250

 
61,577

 
5,888

 
 6 (c)
 
—

 
 
 
(20,403
)
 
 
 
248,312

Goodwill
62,157

 
24,756

 
116,843

 
 6 (d)
 
—

 
 
 
(18,192
)
 
 10 (b)
 
185,564

Intangible assets, net
36,944

 
2,590

 
134,750

 
 6 (e)
 
—

 
 
 
(16,716
)
 
 10 (b)
 
157,568

Deferred income taxes
2,043

 
—

 
—

 
 
 
—

 
 
 
(985
)
 
 10 (c)
 
1,058

Other assets
15,402

 
2,352

 
1,250

 
 6 (f)
 
—

 
 
 
(1
)
 
 10 (b)
 
19,003

Total assets
$
353,122

 
$
103,170

 
$
259,748

 
 
 
$
4,362

 
 
 
$
(48,741
)
 
 
 
$
671,661

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash overdraft
$
4,655

 
$
—

 
$
(4,655
)
 
 6 (a)
 
$
—

 
 
 
$
—

 
 
 
$
—

Accounts payable
16,022

 
3,287

 
—

 
 
 
—

 
 
 
—

 
 
 
19,309

Deferred revenue
13,116

 
1,068

 
—

 
 
 
—

 
 
 
—

 
 
 
14,184

Sales tax payable
1,978

 
1,104

 
—

 
 
 
—

 
 
 
—

 
 
 
3,082

Accrued payroll
7,342

 
1,626

 
—

 
 
 
—

 
 
 
(168
)
 
 10 (b)
 
8,800

Current portion of deferred rent obligations
5,998

 
—

 
—

 
 
 
—

 
 
 
(99
)
 
 10 (b)
 
5,899

Current portion of long-term debt
—

 
3,272

 
628

 
 6 (f)
 
(948
)
 
 8 (b)
 
—

 
 
 
2,952

Other current liabilities
4,815

 
3,471

 
98

 
 6 (g)
 
—

 
 
 
—

 
 
 
8,384

Total current liabilities
53,926

 
13,828

 
(3,929
)
 
 
 
(948
)
 
 
 
(267
)
 
 
 
62,610


3


Noncurrent liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
40,476

 
55,520

 
278,791

 
 6 (f)
 
(73,740
)
 
 8 (b)
 
(18,869
)
 
 10 (d)
 
282,178

Obligation under capital lease
826

 
4,524

 
—

 
 
 
—

 
 
 
—

 
 
 
5,350

Deferred rent obligations
55,010

 
6,978

 
(6,978
)
 
 6 (h)
 
—

 
 
 
(3,600
)
 
 10 (b)
 
51,410

Deferred income taxes, net
—

 
—

 
16,244

 
 6 (i)
 
—

 
 
 
—

 
 
 
16,244

Other liabilities
12,685

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
12,685

Total liabilities
162,923

 
80,850

 
284,128

 
 
 
(74,688
)
 
 
 
(22,736
)
 
 
 
430,477

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
—

Common stock
24

 
3,085

 
(3,085
)
 
 6 (j)
 
14

 
 8 (c)
 
—

 
 
 
38

Treasury stock
(67,823
)
 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
(67,823
)
Additional paid in capital
149,478

 
—

 
—

 
 
 
97,325

 
 8 (c)
 
—

 
 
 
246,803

Retained earnings
108,520

 
19,235

 
(21,295
)
 
 6 (j)
 
(18,289
)
 
 8 (d)
 
(26,005
)
 
 10 (e)
 
62,166

Total stockholders' equity
190,199

 
22,320

 
(24,380
)
 
 6 (j)
 
79,050

 
 
 
(26,005
)
 
 
 
241,184

Total liabilities and stockholders' equity
$
353,122

 
$
103,170

 
$
259,748

 
 
 
$
4,362

 
 
 
$
(48,741
)
 
 
 
$
671,661

1.
As of April 3, 2018
See notes to unaudited pro forma condensed combined financial information

4


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statements of Operations
Twenty Six Weeks Ended June 26, 2018
(Amounts in thousands, except per share data)
 Historical Del Frisco
 
Historical Barteca(1)
 
Historical Barteca(2)
 
Acquisition Adjustments
 
 
 
 Offering and Financing Adjustments
 
 
 
Disposal Adjustments
 
 
 
 Pro Forma Combined
Revenues
$
179,343

 
$
31,280

 
$
36,938

 
$
—

 
 
 
$
—

 
 
 
$
(30,279
)
 
 11 (a)
 
$
217,282

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
52,110

 
7,735

 
8,956

 
—

 
 
 
—

 
 
 
(9,356
)
 
 11 (a)
 
59,445

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
87,622

 
15,733

 
17,444

 
61

 
 7 (a)
 
—

 
 
 
(13,819
)
 
 11 (a)
 
107,041

Marketing and advertising costs
4,016

 
—

 
—

 
—

 
 
 
—

 
 
 
(820
)
 
 11 (a)
 
3,196

Pre-opening costs
2,549

 
396

 
353

 
—

 
 
 
—

 
 
 
—

 
 
 
3,298

General and administrative costs
16,834

 
3,546

 
12,411

 
(1,572
)
 
 7 (b)
 
—

 
 
 
(2,304
)
 
 11 (a)
 
28,915

Donations
58

 
—

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
58

Consulting project costs
854

 
—

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
854

Acquisition and disposition costs
5,015

 
—

 
1,124

 
(5,406
)
 
 7 (c)
 
—

 
 
 
—

 
 
 
733

Reorganization severance
113

 
—

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
113

Lease termination and closing costs
1,389

 
—

 
—

 
—

 
 
 
—

 
 
 
(859
)
 
 11 (a)
 
530

Impairment charges
84

 
—

 
—

 
—

 
 
 
—

 
 
 
(84
)
 
 11 (a)
 
—

Depreciation and amortization
10,475

 
1,689

 
1,969

 
(1,008
)
 
 7 (d)
 
—

 
 
 
(2,104
)
 
 11 (a)
 
11,021

Total costs and expenses
181,119

 
29,099

 
42,257

 
(7,925
)
 
 
 
—

 
 
 
(29,346
)
 
 
 
215,204

Operating income
(1,776
)
 
2,181

 
(5,319
)
 
7,925

 
 
 
 
 
 
 
(933
)
 
 
 
2,078

Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest, net of capitalized interest
(813
)
 
(1,075
)
 
(1,172
)
 
(11,999
)
 
 7 (e)
 
1,424

 
 9 (a)
 
597

 
 11 (b)
 
(13,038
)
Other  
(49
)
 
—

 
(1
)
 
—

 
 
 
—

 
 
 
(5
)
 
 11 (a)
 
(55
)
(Loss) income before income taxes
(2,638
)
 
1,106

 
(6,492
)
 
(4,074
)
 
 
 
1,424

 
 
 
(341
)
 
 
 
(11,015
)
Income tax (benefit) expense
(1,476
)
 
72

 
218

 
(3,024
)
 
 7 (f)
 
299

 
 9 (b)
 
(45
)
 
 11 (a)
 
(3,956
)
Net (loss) income from continuing operations
$
(1,162
)
 
$
1,034

 
$
(6,710
)
 
$
(1,050
)
 
 
 
$
1,125

 
 
 
$
(296
)
 
 
 
$
(7,059
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income from continuing operations per average common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
$
(0.06
)
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
12

 
$
(0.21
)
Diluted:
$
(0.06
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
12

 
$
(0.21
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
20,347

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33,285

Diluted:
20,347

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33,285

1.
For the thirteen weeks ended April 3, 2018.
2.
For the period from April 4, 2018 to June 26, 2018.
See notes to unaudited pro forma condensed combined financial information.

5


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statements of Operations
Fiscal Year Ended December 26, 2017
(Amounts in thousands, except per share data)
 Historical Del Frisco
 
 Historical Barteca(1)
 
Acquisition Adjustments
 
 
 
 Offering and Financing Adjustments
 
 
 
Disposal Adjustments
 
 
 
 Pro Forma Combined
Revenues
$
361,431

 
$
128,169

 
$
—

 
 
 
$
—

 
 
 
$
(67,571
)
 
 11 (a)
 
$
422,029

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
103,976

 
31,869

 
—

 
 
 
—

 
 
 
(20,359
)
 
 11 (a)
 
115,486

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
177,170

 
63,629

 
211

 
 7 (a)
 
—

 
 
 
(31,776
)
 
 11 (a)
 
209,234

Insurance recovery
(1,073
)
 
—

 
—

 
 
 
—

 
 
 
1,073

 
 11 (a)
 
—

Marketing and advertising costs
8,393

 
—

 
—

 
 
 
—

 
 
 
(1,981
)
 
 11 (a)
 
6,412

Pre-opening costs
2,182

 
2,134

 
—

 
 
 
—

 
 
 
—

 
 
 
4,316

General and administrative costs
28,421

 
13,254

 
(302
)
 
 7 (b)
 
—

 
 
 
(4,302
)
 
 11 (a)
 
37,071

Donations
836

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
836

Consulting project costs
2,786

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
2,786

Reorganization severance costs
1,072

 
—

 
—

 
 
 
—

 
 
 
—

 
 
 
1,072

Lease termination and closing costs
538

 
—

 
—

 
 
 
—

 
 
 
(541
)
 
 11 (a)
 
(3
)
Impairment charges
37,053

 
—

 
—

 
 
 
—

 
 
 
(14,123
)
 
 11 (a)
 
22,930

Depreciation and amortization
23,399

 
6,112

 
(807
)
 
 7 (d)
 
—

 
 
 
(5,805
)
 
 11 (a)
 
22,899

Total costs and expenses
384,753

 
116,998

 
(898
)
 
 
 
—

 
 
 
(77,814
)
 
 
 
423,039

Insurance settlements
1,153

 
—

 
—

 
 
 
—

 
 
 
(1,153
)
 
 
 
—

Operating income (loss)
(22,169
)
 
11,171

 
898

 
 
 
—

 
 
 
9,090

 
 
 
(1,010
)
Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest, net of capitalized interest
(783
)
 
(3,698
)
 
(25,636
)
 
 7 (e)
 
2,918

 
 9 (a)
 
1,209

 
 11 (b)
 
(25,990
)
Other  
(1,439
)
 
446

 
—

 
 
 
—

 
 
 
3

 
 11 (a)
 
(990
)
(Loss) income before income taxes
(24,391
)
 
7,919

 
(24,738
)
 
 
 
2,918

 
 
 
10,302

 
 
 
(27,990
)
Income tax (benefit) expense
(12,934
)
 
225

 
(7,828
)
 
 7 (f)
 
1,021

 
 9 (b)
 
(265
)
 
 11 (a)
 
(19,781
)
Net (loss) income from continuing operations
$
(11,457
)
 
$
7,694

 
$
(16,910
)
 
 
 
$
1,897

 
 
 
$
10,567

 
 
 
$
(8,209
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income from continuing operations per average common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
$
(0.53
)
 
$
—

 
 
 
 
 
 
 
 
 
 
 
12

 
$
(0.24
)
Diluted:
$
(0.53
)
 
—

 
 
 
 
 
 
 
 
 
 
 
12

 
$
(0.24
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
21,570

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
34,508

Diluted:
21,570

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
34,508

(1)
For the year ended January 2, 2018
See notes to unaudited pro forma condensed combined financial information.

6


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statements of Operations
Fiscal Year Ended December 27, 2016
(Amounts in thousands, except per share data)
 Historical Del Frisco
 
Disposal Adjustments
 
 
 
 Pro Forma Combined
Revenues
$
351,681

 
$
(77,797
)
 
 11 (a)
 
$
273,884

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
99,181

 
(22,862
)
 
 11 (a)
 
76,319

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
169,300

 
(36,877
)
 
 11 (a)
 
132,423

Marketing and advertising costs
8,260

 
(2,471
)
 
 11 (a)
 
5,789

Pre-opening costs
3,446

 
—

 
 
 
3,446

General and administrative costs
25,131

 
(5,017
)
 
 11 (a)
 
20,114

Reorganization severance
793

 
—

 
 
 
793

Lease termination and closing costs
1,031

 
(889
)
 
 11 (a)
 
142

Impairment charges
598

 
(598
)
 
 11 (a)
 
—

Depreciation and amortization
18,865

 
(3,962
)
 
 11 (a)
 
14,903

Total costs and expenses
326,605

 
(72,676
)
 
 
 
253,929

Operating income
25,076

 
(5,121
)
 
 
 
19,955

Other income (expense), net:
 
 
 
 
 
 
 
Interest, net of capitalized interest
(70
)
 
—

 
 
 
(70
)
Other  
(432
)
 
3

 
 11 (a)
 
(429
)
(Loss) income before income taxes
24,574

 
(5,118
)
 
 
 
19,456

Income tax (benefit) expense
6,808

 
(1,317
)
 
 11 (a)
 
5,491

Net (loss) income from continuing operations
$
17,766

 
$
(3,801
)
 
 
 
$
13,965

 
 
 
 
 
 
 
 
Net (loss) income from continuing operations per average common share:
 
 
 
 
 
 
 
Basic:
$
0.76

 
 
 
12

 
$
0.60

Diluted:
$
0.76

 
 
 
12

 
$
0.60

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic:
23,322

 
 
 
 
 
23,322

Diluted:
23,435

 
 
 
 
 
23,435



See notes to unaudited pro forma condensed combined financial information.

7


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statements of Operations
Fiscal Year Ended December 29, 2015
(Amounts in thousands, except per share data)
 Historical Del Frisco
 
Disposal Adjustments
 
 
 
 Pro Forma Combined
Revenues
$
331,612

 
$
(78,983
)
 
 11 (a)
 
$
252,629

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
95,963

 
(23,703
)
 
 11 (a)
 
72,260

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
156,337

 
(36,515
)
 
 11 (a)
 
119,822

Marketing and advertising costs
7,745

 
(2,344
)
 
 11 (a)
 
5,401

Pre-opening costs
5,228

 
—

 
 
 
5,228

General and administrative costs
23,111

 
(5,145
)
 
 11 (a)
 
17,966

Lease termination and closing costs
1,386

 
(5
)
 
 11 (a)
 
1,381

Impairment charges
3,248

 
—

 
 
 
3,248

Depreciation and amortization
16,776

 
(3,951
)
 
 11 (a)
 
12,825

Total costs and expenses
309,794

 
(71,663
)
 
 
 
238,131

Operating income
21,818

 
(7,320
)
 
 
 
14,498

Other income (expense), net:
 
 
 
 
 
 
 
Interest, net of capitalized interest
(77
)
 
—

 
 
 
(77
)
Other  
(236
)
 
20

 
 11 (a)
 
(216
)
(Loss) income before income taxes
21,505

 
(7,300
)
 
 
 
14,205

Income tax (benefit) expense
5,507

 
(2,345
)
 
 11 (a)
 
3,162

Net (loss) income from continuing operations
$
15,998

 
$
(4,955
)
 
 
 
$
11,043

 
 
 
 
 
 
 
 
Net (loss) income from continuing operations per average common share:
 
 
 
 
 
 
 
Basic:
$
0.68

 
 
 
12

 
$
0.47

Diluted:
$
0.68

 
 
 
12

 
$
0.47

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic:
23,380

 
 
 
 
 
23,380

Diluted:
23,517

 
 
 
 
 
23,517



See notes to unaudited pro forma condensed combined financial information.


8


DEL FRISCO’S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1 - Description of the Transactions
On May 7, 2018, the Company entered into a Purchase Agreement (as defined below) to (i) purchase of all of the outstanding equity interests of RCP Barteca Corp., a Delaware corporation (“RCP Blocker”) and General Atlantic (BT) Blocker, LLC, a Delaware limited liability company (“GA Blocker” and, together with RCP Blocker, the “Blockers”) and (ii) merger of Bentley Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Merger Sub”), with and into Barteca Holdings, LLC, a Delaware limited liability company (“Barteca”), with Barteca surviving such merger as a wholly owned subsidiary of the Company. The acquisition occurred pursuant to the terms of the Purchase Agreement and Plan of Merger (the “Purchase Agreement”) by and among the Company, Merger Sub, Barteca, RCP Blocker, GA Blocker, the owners of the Blockers and the Sellers’ Representative named therein. The acquisition closed on June 27, 2018 (the "Closing Date") for a purchase price of $325 million, subject to customary adjustments for debt, cash and working capital (“Barteca Acquisition”).
In connection with the completion of the acquisition, on the Closing Date, the Company entered into a new credit agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent, the other agents and arrangers party thereto and the several lenders party thereto, to fund a portion of the $325 million purchase price. The Credit Agreement provided for (i) senior secured term loans in aggregate principal amount of $390 million (“Term Loan B”) and (ii) senior secured revolving credit commitments in an aggregate principal amount of $50 million (“Related Transactions”).
On August 1, 2018, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Piper Jaffray & Co. and J.P. Morgan Securities LLC, as representatives of the underwriters (collectively, the “Underwriters”), with respect to (i) the sale by the Company of 11,250,000 shares of the Company’s common stock, par value $0.001 per share, to the Underwriters and (ii) the grant by the Company to the Underwriters of an option (the “Option”) to purchase up to 1,687,500 additional shares of the Company’s common stock (together, the Shares”). The sale of the Shares, including the exercise in full of the Option, closed on August 6, 2018 (“Public Offering of Common Stock”). The total proceeds of $97.8 million from Public Offering of Common Stock were used to repay portion of Term Loan B (“Term Loan B repayment”).
On August 27, 2018 the Company amended Term Loan B (“First Amendment”). The First Amendment amends the Credit Agreement, to, among other things, provide the Company with additional term loans in an aggregate principal amount of $18,000,000 (the “Additional Term Loans”). The First Amendment also amends the Credit Agreement to increase the interest rate applicable to the Additional Term Loans and the existing term loans outstanding under the Credit Agreement (collectively, the “Term Loans”) to, at the Company’s option, a rate per annum equal to either a LIBOR rate or a base rate, plus an applicable margin, which is equal to 6.00% for LIBOR rate loans and 5.00% for base rate loans.
The transactions described above are collectively referred to as the “Transactions."
On September 17, 2018, the Company entered into a definitive Asset and Equity Purchase Agreement (the “Purchase Agreement”) with Sullivan’s Holding LLC, a Delaware limited liability company (“Buyer”), which is an affiliate of Romano’s Macaroni Grill. Pursuant to, and subject to the terms and conditions of, the Purchase Agreement, the Company will sell to the Buyer all of the outstanding equity interest of its Sullivan’s Steakhouse business, including Sullivan’s of Alaska, Inc., Sullivan’s of Arizona, Inc., Sullivan’s of Baltimore, Inc., California Sullivan’s, Inc., Sullivan’s of Delaware, Inc., Sullivan’s of Illinois, Inc., Sullivan’s of Indiana, Inc., Sullivan’s of Kansas, Inc., Louisiana Steakhouse, Inc., Sullivan’s Restaurants of Nebraska, Inc., Sullivan’s of North Carolina, Inc., North Philadelphia Sullivan’s, Inc., and Sullivan’s Franchise Corporation (the “Sullivan’s Subsidiaries”) and certain other assets of the Company and its subsidiaries related to the Sullivan’s Steakhouse restaurant business (the “Sullivan’s Divestiture”). The aggregate consideration payable by Buyer to the Company in the Transaction is $32 million, subject to customary adjustments set forth in the Purchase Agreement for inventory, debt of the Sullivan’s Subsidiaries and cash, which will be paid to the Company at the initial closing. The initial closing in respect of all of the Sullivan’s Subsidiaries other than Sullivan’s of North Carolina, Inc. and Sullivan’s of Delaware, Inc. occurred on September 21, 2018. Secondary closings in respect of Sullivan’s of North Carolina, Inc. and Sullivan’s of Delaware, Inc. are expected to occur by the end of the Company’s first quarter of 2019. The unaudited pro forma condensed combined statement of operations for the year ended December 29, 2015 does not reflect the estimated loss on sale of approximately $25.4 million, as the amount is non-recurring and not expected to have a continuing impact. This loss is reflected in retained earnings within the unaudited pro forma condensed combined balance sheet as of June 26, 2018.
Note 2 - Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”).

9


The acquisition method of accounting requires use of the fair value concepts defined in ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and it is possible the application of reasonable judgment could result in different assumptions causing a range of alternative estimates using the same facts and circumstances.
ASC 805 requires the determination of the accounting acquirer, the acquisition date, the fair value of assets and liabilities of the acquiree and the measurement of goodwill. Del Frisco’s has been identified as the acquirer for accounting purposes based on the facts and circumstances specific to this transaction. As a result, Del Frisco’s will record the business combination in its financial statements and will apply the acquisition method to account for the acquired assets and liabilities of Barteca. Applying the acquisition method includes recording the identifiable assets acquired and liabilities assumed at their fair values, and recording goodwill for the excess of the consideration transferred over the aggregate fair value of the identifiable assets acquired and liabilities assumed. For purposes of the unaudited pro forma condensed combined financial information, the fair values of Barteca’s identifiable assets acquired and liabilities assumed were based on preliminary estimates. The final determination of the fair values of assets acquired and liabilities assumed could result in material changes to the amounts presented in the unaudited pro forma condensed combined financial information and future results of operations and financial position.
The unaudited pro forma condensed combined financial information was prepared on a combined basis. There were no material transactions between Del Frisco’s and Barteca during the periods presented that would need to be eliminated.
The Sullivan’s Divestiture, which is accounted for as a discontinued operation in accordance with ASC 205-20, Presentation of Financial Statements, Discontinued Operations. ASC 205-20 states that a component of a reporting entity that is disposed of or meets the criteria to be classified as held for sale should be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. As a result of the sale, the results of operations of Sullivan’s will be presented as discontinued operations in consolidated statements of operations for all periods presented in the annual financial statements to be filed on Form 10-K for the year ended December 25, 2018.
Footnotes Related to the Barteca Acquisition
Note 3 - Conforming Accounting Policies
During the preparation of the unaudited pro forma condensed combined financial information, the Company performed an initial review of the accounting policies of Barteca to determine if differences in accounting policies require reclassification or adjustment. As result of that review, the Company did not become aware of any material differences between the accounting policies of the two companies, other than certain reclassifications necessary to conform to Del Frisco’s financial statement presentation. These reclassifications are described in Note 4 below. When management completes a final review of Barteca’s accounting policies, additional differences may be identified that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
Note 4 - Reclassifications
Certain reclassification adjustments have been made to conform Barteca’s financial statement presentation to that of Del Frisco’s as indicated in the tables below.
a)
The reclassification adjustments to conform Barteca’s balance sheet presentation to that of Del Frisco’s have no impact on net assets and are summarized below:

10


Unaudited Condensed Consolidated Balance Sheet As of April 3, 2018
(Amounts in thousands)
 Historical Barteca
 
 Reclassifications to Del Frisco's Presentation
 
 Historical Barteca as presented
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
3,005

 
$
—

 
$
3,005

Accounts receivable
1,000

 
(1,000
)
 
—

Tenant allowance receivables
2,133

 
(2,133
)
 
—

Inventory
2,058

 
—

 
2,058

Due from employees
1,275

 
(1,275
)
 
—

Lease incentives receivable
—

 
2,133

 
2,133

Prepaid expenses and other assets
2,424

 
2,275

 
4,699

Total current assets
11,895

 
—

 
11,895

Property and equipment:
 
 
 
 
 
Leasehold improvements
43,469

 
—

 
43,469

Furniture, fixtures, and equipment
18,965

 
—

 
18,965

Building improvements
15,572

 
—

 
15,572

Construction in progress
3,616

 
—

 
3,616

Property and equipment, gross
81,622

 
—

 
81,622

Less accumulated depreciation
(20,045
)
 
—

 
(20,045
)
Property and equipment, net
61,577

 
—

 
61,577

Security deposits
1,387

 
(1,387
)
 
—

Liquor license
821

 
(821
)
 
—

Interest rate swap
144

 
(144
)
 
—

Intangible assets - other, net
340

 
(340
)
 
—

Intangible asset - trade names
2,250

 
(2,250
)
 
—

Goodwill
24,756

 
—

 
24,756

Intangible assets, net
—

 
2,590

 
2,590

Other assets
—

 
2,352

 
2,352

Total assets
$
103,170

 
$
—

 
$
103,170

 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
3,287

 
$
—

 
$
3,287

Deferred revenue
—

 
1,068

 
1,068

Accrued expenses
2,448

 
(2,448
)
 
—

Current portion of long-term debt
3,272

 
—

 
3,272

Current portion of financing lease obligations
1,066

 
(1,066
)
 
—

Sales tax payable
1,061

 
43

 
1,104

Accrued payroll
1,626

 
—

 
1,626

Gift card liabilities
1,068

 
(1,068
)
 
—

Other current liabilities
—

 
3,471

 
3,471

Total current liabilities
13,828

 
—

 
13,828

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
55,520

 
—

 
55,520

Financing lease obligations, net of current portion
4,524

 
(4,524
)
 
—

Obligation under capital lease
—

 
4,524

 
4,524

Interest rate swap liability
—

 
—

 
—

Deferred rent obligations
6,978

 
—

 
6,978

Total liabilities
80,850

 
—

 
80,850

Commitments and contingencies
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
Preferred stock
—

 
—

 
—

Common stock
—

 
3,085

 
3,085

Class A Common Units
3,085

 
(3,085
)
 
—

Class B and Class C Common Units
—

 
—

 
—

Members' equity
19,235

 
(19,235
)
 
—

Treasury stock
—

 
—

 
—

Additional paid in capital
—

 
—

 
—

Retained earnings
—

 
19,235

 
19,235

Total stockholders' equity
22,320

 
—

 
22,320

Total liabilities and stockholders' equity
$
103,170

 
$
—

 
$
103,170



11


b)
The reclassification adjustments to conform Barteca’s statements of operations presentation to that of Del Frisco’s have no impact on net income and are summarized below:
Unaudited Condensed Consolidated Statement of Operations
Period from April 4, 2018 to June 26, 2018
(Amounts in thousands)
 Historical Barteca
 
 Reclassifications
to Del Frisco's
Presentation
 
 Historical Barteca as presented
Revenues
$
—

 
$
36,938

 
$
36,938

Food
21,356

 
(21,356
)
 
—

Wine, liquor, beer and other beverages
15,454

 
(15,454
)
 
—

Other revenues
128

 
(128
)
 
—

Costs and expenses:
 
 
 
 
 
Cost of sales
—

 
8,956

 
8,956

Cost of restaurant sales
8,956

 
(8,956
)
 
—

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
—

 
17,444

 
17,444

Insurance recovery
—

 
—

 
—

Marketing and advertising costs
—

 
—

 
—

Pre-opening costs
353

 
—

 
353

General and administrative costs
3,363

 
9,048

 
12,411

Donations
—

 
—

 
—

Consulting project costs
—

 
—

 
—

Acquisition and disposition costs
—

 
1,124

 
1,124

Reorganization severance costs
—

 
—

 
—

Lease termination and closing costs
—

 
—

 
—

Impairment charges
—

 
—

 
—

Depreciation and amortization
1,969

 
—

 
1,969

Share-based compensation
8,932

 
(8,932
)
 
—

Deal expense
1,124

 
(1,124
)
 
—

Restaurant labor
11,190

 
(11,190
)
 
—

Restaurant occupancy costs
1,734

 
(1,734
)
 
—

Management fees
116

 
(116
)
 
—

Loss (gain) from settlement
—

 
—

 
—

Restaurant operating expenses
4,520

 
(4,520
)
 
—

Total costs and expenses
42,257

 
—

 
42,257

Insurance settlements
—

 
—

 
—

Operating income
(5,319
)
 
—

 
(5,319
)
Other income (expense), net:
 
 
 
 
 
Interest, net of capitalized interest
—

 
(1,172
)
 
(1,172
)
Interest expense
(1,172
)
 
1,172

 
—

Loss on disposal of assets
(1
)
 
1

 
—

Other
—

 
(1
)
 
(1
)
Income before income taxes
(6,492
)
 
—

 
(6,492
)
Income tax expense
218

 
—

 
218

Net income
$
(6,710
)
 
$
—

 
$
(6,710
)





12


Unaudited Condensed Consolidated Statement of Operations
Thirteen Weeks Ended April 3, 2018
(Amounts in thousands)
 Historical Barteca
 
 Reclassifications
to Del Frisco's
Presentation
 
 Historical Barteca as presented
Revenues
$
—

 
$
31,280

 
$
31,280

Food
17,874

 
(17,874
)
 
—

Wine, liquor, beer and other beverages
13,278

 
(13,278
)
 
—

Other revenues
128

 
(128
)
 
—

Costs and expenses:
 
 
 
 
 
Cost of sales
—

 
7,735

 
7,735

Cost of restaurant sales
7,735

 
(7,735
)
 
—

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
—

 
15,733

 
15,733

Insurance recovery
—

 
—

 
—

Marketing and advertising costs
—

 
—

 
—

Pre-opening costs
396

 
—

 
396

General and administrative costs
3,462

 
84

 
3,546

Donations
—

 
—

 
—

Consulting project costs
—

 
—

 
—

Acquisition and disposition costs
—

 
—

 
—

Reorganization severance costs
—

 
—

 
—

Lease termination and closing costs
—

 
—

 
—

Impairment charges
—

 
—

 
—

Depreciation and amortization
1,689

 
—

 
1,689

Restaurant labor
10,045

 
(10,045
)
 
—

Restaurant occupancy costs
1,392

 
(1,392
)
 
—

Management fees
84

 
(84
)
 
—

Loss (gain) from settlement
—

 
—

 
—

Restaurant operating expenses
4,296

 
(4,296
)
 
—

Total costs and expenses
29,099

 
—

 
29,099

Insurance settlements
—

 
—

 
—

Operating income
2,181

 
—

 
2,181

Other income (expense), net:
 
 
 
 
 
Interest, net of capitalized interest
—

 
(1,075
)
 
(1,075
)
Interest expense
(1,075
)
 
1,075

 
—

Loss on disposal of assets
—

 
—

 
—

Other
—

 
—

 
—

Income before income taxes
1,106

 
—

 
1,106

Income tax expense
72

 
—

 
72

Net income
$
1,034

 
$
—

 
$
1,034








13



Consolidated Statement of Operations
Year Ended January 2, 2018
(Amounts in thousands)
 Historical Barteca
 
 Reclassifications
to Del Frisco's
Presentation
 
 Historical Barteca as presented
Revenues
$
—

 
$
128,169

 
$
128,169

Food
72,584

 
(72,584
)
 
—

Wine, liquor, beer and other beverages
55,041

 
(55,041
)
 
—

Other revenues
544

 
(544
)
 
—

Costs and expenses:
 
 
 
 
 
Cost of sales
—

 
31,869

 
31,869

Cost of restaurant sales
31,869

 
(31,869
)
 
—

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
—

 
63,629

 
63,629

Insurance recovery
—

 
—

 
—

Marketing and advertising costs
—

 
—

 
—

Pre-opening costs
2,134

 
—

 
2,134

General and administrative costs
12,847

 
407

 
13,254

Donations
—

 
—

 
—

Consulting project costs
—

 
—

 
—

Acquisition and disposition costs
—

 
—

 
—

Reorganization severance costs
—

 
—

 
—

Lease termination and closing costs
—

 
—

 
—

Impairment charges
—

 
—

 
—

Depreciation and amortization
6,112

 
—

 
6,112

Restaurant labor
40,303

 
(40,303
)
 
—

Restaurant occupancy costs
5,759

 
(5,759
)
 
—

Management fees
407

 
(407
)
 
—

Loss (gain) from settlement
(674
)
 
674

 
—

Restaurant operating expenses
17,567

 
(17,567
)
 
—

Total costs and expenses
116,324

 
674

 
116,998

Insurance settlements
—

 
—

 
—

Operating income
11,845

 
(674
)
 
11,171

Other income (expense), net:
 
 
 
 
 
Interest, net of capitalized interest
—

 
(3,698
)
 
(3,698
)
Interest expense
(3,698
)
 
3,698

 
—

Loss on disposal of assets
(228
)
 
228

 
—

Other
—

 
446

 
446

Income before income taxes
7,919

 
—

 
7,919

Income tax (benefit) expense
225

 
—

 
225

Net income
$
7,694

 
$
—

 
$
7,694




14


Note 5 - Preliminary Purchase Price Allocation
The following table summarizes the preliminary calculation of consideration transferred and the allocation of the purchase price to the net assets acquired as if the acquisition had been completed on June 26, 2018 (amounts in thousands).
Preliminary purchase consideration:
 
 
Contractual purchase price
 
$
325,000

Barteca historical cash balance
 
3,005

Barteca cash received for settlement of employee note
 
1,115

Pro forma preliminary consideration transferred
 
$
329,120

 
 
 
Less: Net assets acquired:
 
 
Total current assets
 
11,895

Property and equipment
 
67,465

Intangible assets
 
137,340

Other assets
 
2,352

Total current liabilities
 
(10,763
)
Deferred tax liabilities
 
(16,244
)
Obligation under capital lease
 
(4,524
)
Total net assets acquired
 
187,521

 
 
 
Goodwill attributable to Barteca acquisition
 
$
141,599

Note 6 - Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of pro forma Balance Sheet date
a)
Cash and cash equivalents - The increase in cash and cash equivalents of $2.1 million, was determined as follows (amounts in thousands):
 Sources
 
 Amount
 
 Uses
 
 Amount
New Term Loan B
 
$
390,000

 
 Consideration transferred, net of cash acquired
 
$
325,000

New Revolver
 
4,500

 
 Repayment of Del Frisco's debt
 
38,109

Cash from Del Frisco's historical balance sheet
 
897

 
 Estimated fees and expenses
 
21,599

Reclass Del Frisco's cash overdraft
 
(4,655
)
 
 Cash to Del Frisco's pro forma balance sheet
 
6,034

 Total Sources
 
$
390,742

 
 Total Uses
 
$
390,742

b)
Prepaid expenses and other assets - The decrease in prepaid expenses and other assets of $1.1 million reflects the contractually stipulated settlement of the due from employee note receivable recorded in Barteca’s historical balance sheet. The note was settled in cash at the close of the transaction. The settlement of the note is factually supportable and directly related to the Transactions.
c)
Property and equipment, net - The increase in property and equipment, net of $5.9 million represents the change from Barteca’s historical net book value to preliminary estimated fair value as follows (amounts in thousands):
Asset Class
 
Estimated Preliminary Fair Value
 
Historical Book Value
 
Pro Forma Adjustment
Leasehold improvements
 
$
37,960

 
$
43,469

 
$
(5,509
)
Furniture, fixtures and equipment
 
12,392

 
18,965

 
(6,573
)
Building improvements
 
13,497

 
15,572

 
(2,075
)
Construction in progress
 
3,616

 
3,616

 
—

Accumulated Depreciation
 
—

 
(20,045
)
 
20,045

Total property and equipment, net
 
$
67,465

 
$
61,577

 
$
5,888


15


d)
Goodwill - The increase in goodwill of $116.8 million is calculated as follows (amounts in thousands):
Consideration transferred
$
329,120

Less: Fair value of net assets acquired
187,521

Total estimated goodwill
141,599

Less: Barteca historical goodwill
24,756

Pro forma adjustment to goodwill
$
116,843

e)
Intangible assets, net - The increase in intangible assets, net of $134.8 million represents the change from Barteca’s historical net book value to preliminary estimated fair value as follows (amounts in thousands):
Asset Class
 
 Estimated Preliminary Fair Value
 
 Historical Book Value
 
 Pro Forma Adjustment
Trade names - Barcelona Wine Bar
 
$
47,000

 
$
2,000

 
$
45,000

Trade names - Bartaco
 
90,000

 
250

 
89,750

Intangible assets - other
 
340

 
340

 
—

Total intangible asset, net
 
$
137,340

 
$
2,590

 
$
134,750

The Barcelona Wine Bar and bartaco trade names have indefinite lives.
f)
Financing transactions - The Transactions include repayment of Barteca’s outstanding indebtedness, repayment of Del Frisco’s outstanding indebtedness, and borrowings under the Credit Agreement which provides for senior secured term loans in an aggregate principal amount of $390 million and revolving credit commitments in an aggregate principal amount of $50 million, of which $4.5 million was drawn at the acquisition date. These financing transactions had the following effect on the unaudited pro forma condensed combined balance sheet:
•
increase in other assets of $1.3 million related to debt issuance costs incurred on the revolving credit facility;
•
increase in current portion of long-term debt of $0.6 million related to the $3.9 million current portion of the senior secured term loans offset by repayment of $3.3 million of Barteca’s outstanding indebtedness as of the pro forma balance sheet date;
•
decrease in other current liabilities of $0.2 million related to repayment of accrued interest outstanding on the Del Frisco’s and Barteca debt; and
•
increase of $278.8 million in long-term debt related to the incurrence of $390.0 million in borrowings under the senior secured term loan, net of $3.9 million in current portion of long-term debt, $4.5 million in revolving credit commitments, offset by debt issuance costs of $18.3 million and the repayment of $38.0 million of Del Frisco’s indebtedness (without a permanent reduction in commitment) and $55.5 million of Barteca indebtedness outstanding as of the pro forma balance sheet date.
g)
Other current liabilities - The increase in other current liabilities of $0.1 million reflects an increase in accrued compensation of $0.3 million for a key executive, offset by a decrease of $0.2 million related to repayment of accrued interest outstanding on the Del Frisco’s and Barteca debt.
h)
Deferred rent obligations - The decrease in deferred rent of $7.0 million results from fully eliminating the account balance in purchase accounting.
i)
Deferred income taxes, net - The increase in deferred income taxes, net of $16.2 million reflects the deferred tax impact of the fair value adjustments discussed above. Preliminary deferred taxes have been estimated based on a tax rate of 21%, which approximates the statutory tax rate in effect as of the pro forma balance sheet date. The actual effective tax rate of Del Frisco’s could be materially different from the rate presented in the unaudited pro forma condensed combined financial information.
j)
Stockholders’ equity -The decrease in equity balances, consists of the following:
(Amounts in thousands)
 Common stock
 
 Retained earnings
 
 Total adjustment to equity
Elimination of historical equity of Barteca
$
(3,085
)
 
$
(19,235
)
 
$
(22,320
)
Transaction expenses incurred by Del Frisco's
—

 
(2,060
)
 
(2,060
)
Pro forma adjustment to total stockholders' equity
$
(3,085
)
 
$
(21,295
)
 
$
(24,380
)

16


Note 7 - Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations for the twenty six weeks ended June 26, 2018 and the fiscal year ended December 26, 2017
a)
Restaurant operating expenses (excluding depreciation and amortization shown separately below) - The increase in restaurant operating expenses of $0.1million for the twenty six weeks ended June 26, 2018 and $0.2 million for the year ended December 26, 2017 reflect incremental rent expense calculated for Barteca lease agreements with escalating rent payments. Rent expense was recalculated on a straight-line basis starting from the acquisition date and based on the remaining term of the assumed lease.
b)
General and administrative costs - For the twenty six weeks ended June 26, 2018, the decrease in general and administrative costs of $1.6 million primarily consists of the following:
•
elimination of management fees historically paid by Barteca to Rosser Capital Partners of $0.2 million as the agreement was terminated as of the acquisition date; and
•
net decrease of $1.4 million in share-based compensation expense to reflect impact of employment agreements entered into with Barteca executives receiving replacement awards upon transaction closing.    
For the year ended December 26, 2017, the decrease in general and administrative costs of $0.3 million consists of the following:
•
elimination of management fees historically paid by Barteca to Rosser Capital Partners of $0.4 million as the agreement was terminated as of the acquisition date; and
•
increase of $0.1 million in stock-based compensation expense to reflect new compensation agreements entered into with Barteca executives as of the acquisition date.

General and administrative costs include approximately $7.5 million in incremental share-based compensation costs, which have not been reversed in these pro forma financial statements, related to the accelerated vesting of Barteca awards upon a change in control.
c)
Acquisition and disposition costs - The decrease of $5.4 million in acquisition and disposition costs for the twenty six weeks ended June 26, 2018 represents the elimination of costs directly related to the Transactions of $4.3 million and $1.1 million included in the historical financial statements of Del Frisco’s and Barteca, respectively.
d)
Depreciation and amortization - The net decrease in depreciation expense of $1.0 million for the twenty six weeks ended June 26, 2018 and $0.8 million for the year ended December 26, 2017 was determined as follows, based on preliminary estimates of fair value and estimated useful lives (amounts in thousands):
Asset Class
 
 Useful Life
 
 Estimated Preliminary Fair Value
 
 26 Weeks Ended
June 26, 2018
 
 Fiscal Year Ended December 26, 2017
Leasehold improvements
 
13
 
$
37,960

 
$
1,460

 
$
2,920

Furniture, fixtures, and equipment
 
3-7
 
12,392

 
966

 
1,935

Building improvements
 
30
 
13,497

 
224

 
450

Construction in progress
 
—
 
3,616

 
—

 
—

Total recalculated depreciation expense
 
 
 
$
67,465

 
$
2,650

 
$
5,305

Less: Historical Barteca depreciation expense
 
 
 
 
 
3,658

 
6,112

Total pro forma adjustment to depreciation expense
 
 
 
$
(1,008
)
 
$
(807
)
A 10% change in the valuation of property and equipment would cause a corresponding increase or decrease in the balance of goodwill, and annual depreciation expense would increase or decrease by approximately $0.5 million, assuming an overall weighted-average useful life of 14 years.
e)
Interest, net of capitalized interest - The following table summarizes key terms of the Credit Agreement. The stated rate of the term loan pursuant to the term loan documentation and agreed with the arrangers is LIBOR + 4.75%, which equals 6.875% as of the acquisition date. Refer to Note 9(a) below for discussion regarding changes in the interest rates pursuant to the First Amendment (amounts in thousands):

17


 
Principal
 
Stated Interest Rate
 
Term in Years
Term loan
$
390,000

 
6.88
%
 
7
Revolving credit facility
4,500

 
5.63
%
 
5
Total
$
394,500

 
 
 
 
The net increase in interest expense was determined as follows, taking into consideration the above terms related to the Credit Agreement (amounts in thousands):
Components of pro forma interest expense adjustment:
 26 Weeks Ended
June 26, 2018
 
 Fiscal Year Ended December 26, 2017
Cash interest expense
$
13,447

 
$
26,965

Commitment fee on revolving credit facility
114

 
228

Amortization of deferred financing costs on term loan
1,306

 
2,613

Amortization of revolving credit facility fees
126

 
250

Total pro forma interest expense
14,993

 
30,056

Less: Historical Del Frisco's interest expense
(747
)
 
(722
)
Less: Historical Barteca interest expense
(2,247
)
 
(3,698
)
Total adjustment to pro forma interest expense
$
11,999

 
$
25,636

There was approximately $394.5 million aggregate principal amount of variable-rate indebtedness on a pro forma basis. As such, financing costs are sensitive to changes in interest rates. For each 0.125% increase or decrease in actual or assumed interest rates, annual interest expense would increase or decrease by approximately $0.5 million. For each 0.25% increase or decrease in actual or assumed interest rates, annual interest expense would increase or decrease by approximately $1.0 million. For each $25 million decrease in principal amount of variable-rate indebtedness, annual interest expense would decrease by approximately $1.7 million.
f)
Income tax (benefit) expense - The net increase in income tax benefit reflects the tax effect of pro forma adjustments and additional estimated federal income tax assuming Barteca was a taxable entity for the periods presented. Tax expense was determined using statutory rates of 21% and 35% the twenty six weeks ended June 26, 2018, and for the year ended December 26, 2017, respectively. The Del Frisco’s effective tax rate could be materially different from the rate presented in this unaudited pro forma condensed combined financial information.
Footnotes Related Offering and Financing Adjustments
Note 8 - Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 26, 2018
a)
Cash and cash equivalents - The increase in cash and cash equivalents of $4.4 million reflects the $18.0 million increase in borrowings pursuant to the First Amendment offset by original issuance discount (“OID”) and debt issuance costs of $13.1 million, and by offering issuance cost of $0.4 million.
b)
Financing transactions - The Transactions include repayment of $97.8 million of Del Frisco’s outstanding indebtedness, write-off of the $18.3 million in deferred issuance costs described in Note 6(f), and an increase of $18.0 million due to borrowings under the First Amendment offset by OID and debt issuance costs of $13.2 million. These financing transactions had the following effect on the unaudited pro forma condensed combined balance sheet:
•
decrease in current portion of long-term debt of $1.0 million due to the change in outstanding indebtedness, and
•
decrease of $73.7 million in long-term debt due to the repayment of $97.8 million of Del Frisco’s indebtedness offset by $18.0 million in additional borrowings pursuant to the First Amendment, reclass of $1.0 million in debt from current to non-current, and a decrease of $5.1 million in capitalized OID and debt issuance costs.
c)
Common stock and Additional paid in capital - The increase in common stock and additional paid in capital of $97.3 million reflects issuance of 12,937,500 shares of common stock through the Public Offering of Common Stock.


18


d)
Retained earnings - The decrease of $18.3 million in retained earnings reflects the write-off of debt issuance costs incurred in connection with the original issuance of $390.0 million in long-term debt (described in Note 6f) in accordance with debt extinguishment guidance in ASC 470-50, Modifications and extinguishments.
Note 9 - Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations for the twenty six weeks ended June 26, 2018 and the fiscal year ended December 26, 2017
a)
Interest, net of capitalized interest - The net decrease of $1.4 million and $2.9 million in interest expense for the twenty six weeks ended June 26, 2018 and the year ended December 26, 2017, respectively, reflects the reduction of interest expense as a result of the $73.7 million reduction in debt (refer to tickmark 8(b) above) offset by an increase in the stated interest rate from 6.88% (as noted in tickmark 7(e) above) to 8.13%. The First Amendment increases the stated rate of interest for the term loan to LIBOR + 6.00%.
After the Public Offering of Common Stock, there was approximately $314.5 million aggregate principal amount of variable-rate indebtedness on a pro forma basis as of the balance sheet date. As such, financing costs are sensitive to changes in interest rates. For each 0.125% increase or decrease in actual or assumed interest rates, annual interest expense would increase or decrease by approximately $0.4 million.
b)
Income tax (benefit) expense - The net increase in income tax expense reflects the tax effect of pro forma adjustments. Tax expense was determined using statutory rates of 21% and 35% for the twenty six weeks ended June 26, 2018 and for the year ended December 26, 2017, respectively. The Del Frisco’s effective tax rate could be materially different from the rate presented in this unaudited pro forma condensed combined financial information.
Footnotes Related to the Sullivan’s Divestiture
Note 10 - Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 26, 2018
a)
Cash and cash equivalents - The increase in cash and cash equivalents of $10.4 million reflects the receipt of $29.9 million in net proceeds associated with the sale of Sullivan’s and repayment of Del Frisco’s outstanding indebtedness of $19.5 million.
b)
The adjustment reflects the removal of assets and liabilities associated with the sale of Sullivan’s.
c)
Deferred income taxes, net - The adjustment reflects the removal of deferred income tax asset associated with Sullivan’s.
d)
Financing transactions - The Sullivan’s Divestiture includes repayment of $19.5 million of Del Frisco’s outstanding indebtedness and write-off of $0.6 million in OID described in Note 8(b). These financing transactions had the following effect on the unaudited pro forma condensed combined balance sheet:
•
decrease in noncurrent portion of long-term debt of $18.9 million related the change in outstanding indebtedness; and
•
decrease of $0.6 million in retained earnings as a result of OID write off.
e)
Retained earnings - The decrease of $26.0 million reflects the $25.4 million loss arising from the sale of Sullivan’s, offset by the $0.6 million in write-off of OID. The loss was not included in the pro forma condensed consolidated statements of operations as this non-recurring item that is not expected to have a continuing impact.
Note 11 - Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations for the twenty six weeks ended June 26, 2018 and the fiscal years ended December 26, 2017, December 27, 2016, and December 29, 2015
a)
The adjustment represents the elimination of revenues, costs and expenses, other income (expenses) and income tax expense of Sullivan’s for each reporting period presented.
b)
Interest, net of capitalized interest - For the twenty six weeks ended June 26, 2018 and the year ended December 26, 2017, the adjustment represents the net decrease in interest expense of $0.6 million and $1.2 million, respectively, associated with the reduction in debt described in Note 10(d) above.
Note 12 - Net (loss) income from continuing operations per average common share
The unaudited pro forma condensed combined basic and diluted earnings per share calculations are based on the condensed combined basic and diluted average shares of Del Frisco’s.

19


(Amounts in thousands, except per share data)
 26 Weeks Ended
June 26, 2018
 
Fiscal Year Ended December 26, 2017
 
Fiscal Year Ended December 27, 2016
 
Fiscal Year Ended December 29, 2015
Pro forma net income (loss) from continuing operations attributable to common shareholders
$
(7,059
)
 
$
(8,209
)
 
$
13,965

 
$
11,043

Basic weighted average number of common shares outstanding - historical
20,347

 
21,570

 
23,322

 
23,380

Diluted weighted average number of common shares outstanding - historical
20,347

 
21,570

 
23,435

 
23,517

Common shares issued
12,938

 
12,938

 
—

 
—

Basic weighted average number of common shares outstanding - pro forma
33,285

 
34,508

 
23,322

 
23,380

Diluted weighted average number of common shares outstanding - pro forma
33,285

 
34,508

 
23,435

 
23,517

Net income (loss) from continuing operations per average common share:
 
 
 
 
 
 
 
Basic - pro forma
$
(0.21
)
 
$
(0.24
)
 
$
0.60

 
$
0.47

Diluted - pro forma
$
(0.21
)
 
$
(0.24
)
 
$
0.60

 
$
0.47


20

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