Wingstop Inc. 10-Q

Item 1. Financial Statements WINGSTOP INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands, except share and par value amounts) September 25, 2021 December 26, 2020 (Unaudited) Assets Current assets Cash and cash equivalents $ 50,125 $ 40,858 Restricted cash 3,456 4,815 Accounts receivable, net 6,052 4,929 Prepaid expenses and other current assets 4,156 5,532 Advertising fund assets, restricted 25,013 16,486 Total current assets 88,802 72,620 Property and equipment, net 49,151 27,948 Goodwill 56,877 53,690 Trademarks 32,700 32,700 Customer relationships, net 10,626 11,600 Other non-current assets 22,243 13,007 Total assets $ 260,399 $ 211,565 Liabilities and stockholders' deficit Current liabilities Accounts payable $ 4,382 $ 3,658 Other current liabilities 29,914 26,729 Current portion of debt — 3,600 Advertising fund liabilities 25,013 16,486 Total current liabilities 59,309 50,473 Long-term debt, net 469,084 466,933 Deferred revenues, net of current 27,154 24,962 Deferred income tax liabilities, net 6,475 4,480 Other non-current liabilities 12,509 6,027 Total liabilities 574,531 552,875 Commitments and contingencies (see Note 8) Stockholders' deficit Common stock, $ 0.01 par value; 100,000,000 shares authorized; 29,825,763 and 29,687,123 shares issued and outstanding as of September 25, 2021 and December 26, 2020, respectively 299 297 Additional paid-in-capital 1,067 421 Retained deficit ( 315,326 ) ( 342,028 ) Accumulated other comprehensive loss ( 172 ) — Total stockholders' deficit ( 314,132 ) ( 341,310 ) Total liabilities and stockholders' deficit $ 260,399 $ 211,565 See accompanying notes to consolidated financial statements. 4 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (amounts in thousands, except per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Revenue: Royalty revenue, franchise fees and other $ 32,829 $ 28,806 $ 97,570 $ 80,863 Advertising fees 15,575 19,653 59,672 55,590 Company-owned restaurant sales 17,380 15,529 53,232 49,076 Total revenue 65,784 63,988 210,474 185,529 Costs and expenses: Cost of sales (1) 15,206 11,804 42,692 36,367 Advertising expenses 16,232 20,240 61,560 57,660 Selling, general and administrative 15,020 16,542 44,872 42,155 Depreciation and amortization 2,061 2,334 5,379 5,287 Gain on sale of restaurants and other expenses, net ( 3,567 ) ( 1,233 ) ( 3,567 ) ( 3,249 ) Total costs and expenses 44,952 49,687 150,936 138,220 Operating income 20,832 14,301 59,538 47,309 Interest expense, net 3,724 4,405 11,230 12,764 Other income ( 22 ) — ( 22 ) — Income before income tax expense 17,130 9,896 48,330 34,545 Income tax expense (benefit) 5,840 ( 185 ) 12,568 4,829 Net income $ 11,290 $ 10,081 $ 35,762 $ 29,716 Earnings per share Basic $ 0.38 $ 0.34 $ 1.20 $ 1.00 Diluted $ 0.38 $ 0.34 $ 1.19 $ 1.00 Weighted average shares outstanding Basic 29,799 29,642 29,748 29,572 Diluted 29,963 29,854 29,936 29,791 Dividends per share $ 0.17 $ 0.14 $ 0.45 $ 0.36 Other comprehensive income (loss) Currency translation adjustment $ ( 63 ) $ — $ ( 172 ) $ — Other comprehensive income (loss) ( 63 ) — ( 172 ) — Comprehensive income $ 11,227 $ 10,081 $ 35,590 $ 29,716 (1) Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately. See accompanying notes to consolidated financial statements. 5 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Deficit For the Thirty-Nine Weeks Ended September 26, 2020 and September 25, 2021 (amounts in thousands, except share data) (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit Balance at December 28, 2019 29,457,228 $ 295 $ 552 $ ( 210,275 ) $ — $ ( 209,428 ) Net income — — — 8,096 — 8,096 Shares issued under stock plans 128,585 1 504 — — 505 Tax payments for restricted stock upon vesting ( 2,419 ) — — ( 229 ) — ( 229 ) Stock-based compensation expense — — 1,331 — — 1,331 Dividends declared on common stock and equivalents — — ( 2,168 ) ( 1,055 ) — ( 3,223 ) Balance at March 28, 2020 29,583,394 296 219 ( 203,463 ) — ( 202,948 ) Net income — — — 11,539 — 11,539 Shares issued under stock plans 13,057 — 57 — — 57 Tax payments for restricted stock upon vesting ( 104 ) — — ( 12 ) — ( 12 ) Stock-based compensation expense — — 1,969 — — 1,969 Dividends declared on common stock and equivalents — — ( 2,202 ) ( 1,075 ) — ( 3,277 ) Balance at June 27, 2020 29,596,347 296 43 ( 193,011 ) — ( 192,672 ) Net income — — — 10,081 — 10,081 Shares issued under stock plans 87,751 1 328 — — 329 Tax payments for restricted stock upon vesting ( 633 ) — — ( 99 ) — ( 99 ) Stock-based compensation expense — — 3,007 — — 3,007 Dividends declared on common stock and equivalents — — ( 2,882 ) ( 1,301 ) — ( 4,183 ) Balance at September 26, 2020 29,683,465 $ 297 $ 496 $ ( 184,330 ) $ — $ ( 183,537 ) 6 Common Stock Shares Amount Additional Paid-In Capital Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit Balance at December 26, 2020 29,687,123 $ 297 $ 421 $ ( 342,028 ) $ — $ ( 341,310 ) Net income — — — 13,160 — 13,160 Shares issued under stock plans 60,958 1 155 — — 156 Tax payments for restricted stock upon vesting ( 11,243 ) — — ( 1,862 ) — ( 1,862 ) Stock-based compensation expense — — 2,316 — — 2,316 Dividends declared on common stock and equivalents — — ( 2,866 ) ( 1,322 ) — ( 4,188 ) Balance at March 27, 2021 29,736,838 298 26 ( 332,052 ) — ( 331,728 ) Net income — — — 11,312 — 11,312 Shares issued under stock plans 6,613 — — — — — Tax payments for restricted stock upon vesting ( 76 ) — — ( 11 ) — ( 11 ) Stock-based compensation expense — — 2,456 — — 2,456 Dividends declared on common stock and equivalents — — ( 1,888 ) ( 2,275 ) — ( 4,163 ) Currency translation adjustment — — — — ( 109 ) ( 109 ) Balance at June 26, 2021 29,743,375 298 594 ( 323,026 ) ( 109 ) ( 322,243 ) Net income — — — 11,290 — 11,290 Shares issued under stock plans 82,553 1 500 — — 501 Tax payments for restricted stock upon vesting ( 165 ) — — ( 28 ) — ( 28 ) Stock-based compensation expense — — 2,051 — — 2,051 Dividends declared on common stock and equivalents — — ( 2,078 ) ( 3,562 ) — ( 5,640 ) Currency translation adjustment — — — — ( 63 ) ( 63 ) Balance at September 25, 2021 29,825,763 $ 299 $ 1,067 $ ( 315,326 ) $ ( 172 ) $ ( 314,132 ) See accompanying notes to consolidated financial statements. 7 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands) (Unaudited) Thirty-Nine Weeks Ended September 25, 2021 September 26, 2020 Operating activities Net income $ 35,762 $ 29,716 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,379 5,287 Deferred income taxes 2,167 377 Stock-based compensation expense 6,823 6,307 Gain on disposal of assets ( 3,567 ) ( 3,247 ) Amortization of debt issuance costs 1,056 1,228 Changes in operating assets and liabilities: Accounts receivable ( 1,123 ) ( 203 ) Prepaid expenses and other assets ( 689 ) 668 Advertising fund assets and liabilities, net 9,426 12,578 Accounts payable and other current liabilities ( 2,224 ) ( 4,165 ) Deferred revenue 2,318 958 Other non-current liabilities ( 1,283 ) ( 2,725 ) Cash provided by operating activities 54,045 46,779 Investing activities Purchases of property and equipment ( 16,543 ) ( 3,729 ) Acquisitions of restaurants from franchisees ( 4,876 ) ( 5,635 ) Proceeds from sales of assets 7,207 4,800 Payments for investments (Note 6) ( 4,163 ) — Cash used in investing activities ( 18,375 ) ( 4,564 ) Financing activities Proceeds from exercise of stock options 657 891 Borrowings of long-term debt — 16,000 Repayments of long-term debt ( 2,400 ) ( 800 ) Tax payments for restricted stock upon vesting ( 1,901 ) ( 340 ) Dividends paid ( 14,690 ) ( 10,683 ) Cash provided by (used in) financing activities ( 18,334 ) 5,068 Net increase in cash, cash equivalents, and restricted cash 17,336 47,283 Cash, cash equivalents, and restricted cash at beginning of period 59,270 21,175 Cash, cash equivalents, and restricted cash at end of period $ 76,606 $ 68,458 Supplemental information: Accrued capital expenditures $ 8,943 $ — See accompanying notes to consolidated financial statements. 8 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation and Update to Significant Accounting Policies Nature of operations. Wingstop Inc., together with its consolidated subsidiaries (collectively, “Wingstop” or the “Company”), is in the business of franchising and operating Wingstop restaurants. As of September 25, 2021, the Company had 1,461 domestic franchised restaurants and 180 international franchised restaurants. As of September 25, 2021, the Company owned and operated 32 restaurants. Basis of presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Balance sheet amounts are as of September 25, 2021 and December 26, 2020, and operating results are for the thirteen and thirty-nine weeks ended September 25, 2021 and September 26, 2020. The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income represents the unrealized impact of translating our foreign investment. This amount is not included in Net income and would only be realized upon disposition of our investment. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets. In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. Fiscal year. The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2021 and 2020 each have 52 weeks . Cash, Cash Equivalents, and Restricted Cash. Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of September 25, 2021 and December 26, 2020 were as follows (in thousands): September 25, 2021 December 26, 2020 Cash and cash equivalents $ 50,125 $ 40,858 Restricted cash 3,456 4,815 Restricted cash, included in Advertising fund assets, restricted 23,025 13,597 Total cash, cash equivalents, and restricted cash $ 76,606 $ 59,270 Change in presentation. Beginning in the first quarter of 2021, headcount-related expenses that support our national advertising fund are presented within Advertising expenses on the Consolidated Statements of Comprehensive Income. Prior to the first quarter of 2021, these expenses were presented within Selling, general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash flows. Headcount related expenses associated with the national advertising fund were $ 2.0 million for each of the thirteen weeks ended September 25, 2021 and September 26, 2020, and were $ 5.9 million for each of the thirty-nine weeks ended September 25, 2021 and September 26, 2020. Recently issued accounting pronouncements. We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. (2) Earnings per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect 9 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) of the exercise and vesting of stock options and restricted stock units, respectively, as determined using the treasury stock method. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands): Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Basic weighted average shares outstanding 29,799 29,642 29,748 29,572 Dilutive shares 164 212 188 219 Diluted weighted average shares outstanding 29,963 29,854 29,936 29,791 For each of the thirteen weeks ended September 25, 2021 and September 26, 2020, equity awards representing approximately 400 shares were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive. For the thirty-nine weeks ended September 25, 2021 and September 26, 2020, equity awards representing approximately 4,000 and 400 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive. (3) Dividends The Company’s Board of Directors declared a quarterly dividend of $ 0.14 per share of common stock in each of the first two quarters, and a quarterly dividend of $ 0.17 per share of common stock in the third quarter, resulting in aggregate dividend payments of $ 13.4 million, or $ 0.45 per share of common stock, during the thirty-nine weeks ended September 25, 2021. Subsequent to the third quarter, on November 2, 2021, the Company’s Board of Directors declared a quarterly dividend of $ 0.17 per share of common stock for stockholders of record as of November 19, 2021. The regular quarterly dividend is to be paid on December 10, 2021, totaling approximately $ 5.1 million. (4) Fair Value Measurements Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows: Level 1 — Unadjusted quoted prices for identical instruments traded in active markets. Level 2 — Observable market-based inputs or unobservable inputs corroborated by market data. Level 3 — Unobservable inputs reflecting management’s estimates and assumptions. The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature. Fair value of debt is determined on a non-recurring basis, which results are summarized as follows (in thousands): Fair Value Hierarchy September 25, 2021 December 26, 2020 Carrying Value Fair Value Carrying Value Fair Value Securitized Financing Facility: 2020-1 Class A-2 Senior Secured Notes (1) Level 2 $ 477,600 $ 486,187 $ 480,000 $ 483,365 (1) The fair value of the 2020-1 Class A-2 Senior Secured Notes was estimated using available market information. The Company also measures certain non-financial assets (primarily long-lived assets, intangible assets, and goodwill) at fair value on a non-recurring basis in connection with its periodic evaluations of such assets for potential impairment. 10 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (5) Income Taxes Income tax expense (benefit) and the effective tax rate were $ 5.8 million and 34.1 %, respectively, for the thirteen weeks ended September 25, 2021, and $( 0.2 ) million and ( 1.9 )%, respectively, for the thirteen weeks ended September 26, 2020. Income tax expense and the effective tax rate were $ 12.6 million and 26.0 %, respectively, for the thirty-nine weeks ended September 25, 2021, and $ 4.8 million and 14.0 %, respectively, for the thirty-nine weeks ended September 26, 2020. Income tax expense (benefit) for the thirteen and thirty-nine weeks ended September 25, 2021 included $ 0.1 million and $ 0.6 million, respectively, in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation, as compared to $ 2.9 million and $ 4.4 million in tax benefits for the thirteen and thirty-nine weeks ended September 26, 2020, respectively. (6) Investments In the second quarter of 2021, a wholly-owned subsidiary of the Company acquired a 20 % non-controlling interest in Wingstop’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd., (“LPH”) for an aggregate amount of $ 4.2 million. Substantially all of the investment consisted of bonds issued by a subsidiary of LPH, which are recorded on an amortized cost basis. The fair value of the bonds approximates the current carrying value and was determined using level 3 inputs. In addition, the Company received 20 % of the outstanding stock, which will be accounted for using the equity method of accounting, under which the Company’s share of the income of the investee will be recorded in Other income on the Consolidated Statements of Comprehensive Income. (7) Debt Obligations Long-term debt consisted of the following components (in thousands): September 25, 2021 December 26, 2020 2020-1 Class A-2 Senior Secured Notes $ 477,600 $ 480,000 Debt issuance costs, net of amortization ( 8,516 ) ( 9,467 ) Total debt 469,084 470,533 Less: current portion of debt — ( 3,600 ) Long-term debt, net $ 469,084 $ 466,933 The Company’s outstanding debt consists of (i) Series 2020-1 2.84 % Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Class A-2 Notes”) issued by Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of Wingstop Inc. and (ii) Series 2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes” and together with the Class A-2 Notes, the “2020 Notes”), which permit borrowings of up to a maximum principal amount of $ 50 million which may be used to borrow amounts on a revolving basis and to issue letters of credit. As of September 25, 2021 and December 26, 2020, the Company had $ 477.6 million and $ 480.0 million of 2020 Class A-2 Notes outstanding, respectively. There were no borrowings outstanding under the 2020 Variable Funding Notes as of September 25, 2021 and December 26, 2020. Further, as of September 25, 2021 and December 26, 2020, $ 3.5 million and $ 4.9 million, respectively, of letters of credit were outstanding against the 2020 Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture. There were no amounts drawn down on the letters of credit as of September 25, 2021 or December 26, 2020. As of September 25, 2021, the Company’s leverage ratio under the Class A-2 Notes was less than 5.0 x. Per the terms of the Company’s debt agreements, principal payments can be suspended at the borrower’s election until the repayment date as long as the Company maintains a leverage ratio of less than 5.0 x. Accordingly, the Company has elected to suspend payments following the principal payment made in the third quarter, and the entire outstanding balance of the Class A-2 notes has been classified as long-term debt. The 2020 Notes were issued in a securitization transaction pursuant to which certain of the Company’s domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements and intellectual property, were contributed or otherwise transferred to the Issuer and certain other limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company that act as guarantors of the Notes and that have pledged substantially all of their assets. 11 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (8) Commitments and Contingencies The Company is subject to legal proceedings, claims, and liabilities, such as employment-related claims and premises-liability cases, which arise in the ordinary course of business and are generally covered by insurance. In the opinion of management, the amount of ultimate liability with respect to such actions is not likely to have a material adverse impact on the Company’s financial position, results of operations, or cash flows. (9) Stock-Based Compensation During the thirty-nine weeks ended September 25, 2021, the Company granted stock options to purchase 42,703 shares of common stock and 23,191 restricted stock units (“RSUs”) to certain employees. The stock options vest in equal annual amounts over a three-year period subsequent to the grant date, and have a maximum contractual term of ten years . The stock options were granted with a weighted-average exercise price of $ 129.11 per share and had a weighted-average grant-date fair value of $ 42.51 per share. The RSUs granted to certain employees generally vest in equal annual amounts over a three-year period, subsequent to the grant date and had a weighted-average grant-date fair value of $ 135.51 per unit. In addition, the Company granted 32,733 performance stock units (“PSUs”) to certain employees during the thirty-nine weeks ended September 25, 2021. Of the total PSUs granted, 25,623 PSUs are subject to a service condition and a performance vesting condition based on return on incremental invested capital (“ROI PSUs”). The ROI PSUs are generally eligible to cliff-vest approximately three years from the grant date, and the maximum vesting percentage that could be realized for each of the ROI PSUs is 250 % based on the level of performance achieved for the awards. The remaining 7,110 PSUs granted are subject to a service condition and a performance vesting condition based on the number of net new restaurants opened over the performance period (“NNR PSUs”). The NNR PSUs vest in equal annual amounts over a three-year period, and the maximum vesting percentage that could be realized for each of the NNR PSUs is 100 % based on the level of performance achieved for the awards. The PSUs had a weighted-average grant-date fair value of $ 131.16 per unit. Total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome. Total compensation expense related to all share-based awards was $ 6.8 million and $ 6.3 million for the thirty-nine weeks ended September 25, 2021 and September 26, 2020, respectively, and was included in Selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Comprehensive Income. (10) Revenue from Contracts with Customers The following table represents a disaggregation of revenue from contracts with customers for the thirteen and thirty-nine weeks ended September 25, 2021 and September 26, 2020 (in thousands): Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Royalty revenue $ 30,039 $ 26,007 $ 89,262 $ 72,761 Advertising fees and related income 15,575 19,653 59,672 55,590 Franchise fees 902 1,151 2,961 2,914 Franchise fee, development fee, and international territory fee payments received by the Company are recorded as deferred revenue on the Consolidated Balance Sheets, which represents a contract liability. Deferred revenue is reduced as fees are recognized in revenue over the term of the franchise license for the respective restaurant. As the term of the franchise license is typically ten years , substantially all of the franchise fee revenue recognized in the thirteen and thirty-nine weeks ended September 25, 2021 was included in the deferred revenue balance as of December 26, 2020. Approximately $ 10.3 million and $ 9.8 million of deferred revenue as of September 25, 2021 and December 26, 2020, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized. The weighted average remaining amortization period for deferred franchise and renewal fees related to open restaurants is 7.3 years. The Company did not have any material contract assets as of September 25, 2021. 12 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (11) Acquisitions and Refranchising of Company-owned Restaurants During the third fiscal quarter 2021, the Company completed the sale of six company-owned restaurants in the Colorado market to an existing franchisee for aggregate proceeds of $ 7.2 million. In connection with the sale of the restaurants, the Company recorded a $ 3.6 million pre-tax gain on the sale of the related assets and liabilities, which was net of an $ 80,000 reduction in goodwill. The net gain on these store sales was recorded in Gain on sale of restaurants and other expenses, net in the Company’s Consolidated Statements of Comprehensive Income as of September 25, 2021. In the third fiscal quarter 2021, the company acquired three existing restaurants from franchisees. The combined purchase price was $ 4.9 million and was funded by cash flow from operations. The following table summarizes the preliminary allocations of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands): Purchase Price Allocation Working capital $ 61 Property and equipment 148 Reacquired franchise rights 1,400 Goodwill 3,267 Operating lease right-of-use assets 1,526 Operating lease liabilities ( 1,526 ) Total purchase price $ 4,876 The estimates of fair value are preliminary, and are therefore subject to further refinement. The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill and is attributable to the benefits expected as a result of the acquisition, including sales and unit growth opportunities. All of the goodwill from the acquisition is expected to be deductible for federal income tax purposes. Pro-forma financial information of the combined entities is not presented due to the immaterial impact of the financial results of the acquired restaurant on our consolidated financial statements. 13