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Acquisitions and Dispositions | 12 Months Ended
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Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Dispositions | Acquisitions and Dispositions 2020 Dispositions On April 1, 2020, the Company sold a corporate housing property to an employee for $375,000 in cash with an approximate gain of $20,000. On May 22, 2020, the Company sold land adjacent to one of our Bombshells locations in Houston for $1.5 million in cash. Net gain on the transaction was $583,000 after closing costs. The net proceeds of $1.4 million were used to pay down related debt. On August 6, 2020, the Company sold another corporate housing property for $176,000 in cash with an approximate gain of $26,000. The net proceeds of $160,500 were used to pay down related debt. 2021 Acquisitions On December 28, 2020, the Company acquired the real estate and other business assets of a club in Centreville, Illinois for $500,000 in cash. The Company is leasing out this property to a club operator for $48,000 annually. On January 26, 2021, the Company acquired land for a future Bombshells location in Arlington, Texas for $2.9 million. The Company paid approximately $754,000 in cash including closing costs and financed $2.175 million with a bank lender for a 20-year promissory note with an initial interest rate of 3.99% per annum. See Note 9. On March 10, 2021, the Company acquired approximately 57,000-square foot of land across the street from our corporate office for $475,000 in cash. The Company plans to build a warehouse on that land. On March 22, 2021, the Company acquired land adjacent to a Bombshells location in Houston, Texas for $1.04 million in cash. On April 7, 2021, the Company acquired land near our Bombshells location in Pearland, Texas for $1.275 million in cash. 2021 Dispositions On May 7, 2021, the Company sold one of the properties held for sale for $3.1 million. The property had a carrying value of $2.3 million. We recorded a net gain of approximately $657,000 after closing costs and we paid related debt amounting to $2.0 million from the proceeds of the sale. See Note 7. On September 21, 2021, the Company sold land where a club used to be operated for $2.25 million with a net gain of approximately $54,000 after closing costs. We paid $1.2 million of related debt with the proceeds of the sale. 2022 Acquisitions On October 18, 2021, we and certain of our subsidiaries completed our acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property for a total agreed acquisition price of $88.0 million (with a total consideration preliminary fair value of $87.9 million based on the Company’s stock price at acquisition date and discounted due to the lock-up period, with interest rates on promissory notes reflective of market yields). We used the Finnerty Model to estimate the discount on stock marketability. The acquisition was structured by entering into nine asset purchase agreements, which allowed the Company to acquire from each club all of the tangible and intangible assets and personal property in that business except certain excluded assets, and two stock purchase agreements, where a newly formed subsidiary purchased 100% of the capital stock of two club-owning entities. Along with the asset and stock purchase agreements, the Company also entered into a real estate purchase and sale agreement for six real estate properties, and an intellectual property purchase agreement for substantially all of the intellectual property used in the adult entertainment establishment business owned and operated by the sellers. The acquisition gives the Company presence in four additional states. We paid for the acquisition with $36.8 million in cash, $21.2 million in four seller-financed notes (see Note 9), and 500,000 shares of our common stock. The preliminary fair value of the consideration transferred is as follows (in thousands):
Cash | $ | 36,800 |
Notes payable | 21,200 |
Common stock | 29,933 |
Total consideration fair value | $ | 87,933 |
We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending receipt of the final valuations for those assets. Based on the allocation of the preliminary fair value of the acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated at $15.4 million. Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $7.1 million of the recognized goodwill will be deductible for tax purposes. The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of October 18, 2021:
Current assets | $ | 386 |
Property and equipment | 19,273 |
Licenses | 47,390 |
Tradenames | 6,934 |
Leases acquired in-place | 261 |
Deferred tax liability | (1,741) |
Total net assets acquired | 72,503 |
Goodwill | 15,430 |
Acquisition price fair value | $ | 87,933 |
Licenses and tradenames, except for those associated with certain leased locations, will not be amortized but will be tested at least annually for impairment. The Company entered into leases with third parties for certain acquired clubs where the real estate was not part of the acquisition. See Note 20. In connection with this acquisition, we incurred acquisition-related expenses of approximately $414,000, of which $173,000 was recognized in fiscal 2021 and $241,000 was recognized in fiscal 2022, and in both periods included in selling, general and administrative expenses in our consolidated statements of operations. We recorded $1.8 million in measurement period adjustments related to amortization of definite-lived intangibles and debt discount during fiscal 2022. From the date of acquisition until September 30, 2022, the eleven acquired clubs contributed revenues of $35.4 million and income from operations of $12.5 million, which are included in our consolidated statement of operations for the year ended September 30, 2022. The following table presents the unaudited pro forma combined results of operations of the Company and the eleven acquired clubs and related assets as though the acquisition occurred at the beginning of fiscal 2021 (in thousands, except per share amount and number of shares):
| 2022 |  | 2021
Pro forma revenues | $ | 269,347 |  |  | $ | 217,996 |
Pro forma net income attributable to RCIHH common stockholders | $ | 45,623 |  |  | $ | 25,290 |
Pro forma earnings per share - basic and diluted | $ | 4.86 |  |  | $ | 2.66 |
Pro forma weighted average number of common shares outstanding - basic and diluted | 9,383,445 |  | 9,504,744
The above unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2021. The unaudited pro forma financial information reflects material, nonrecurring adjustments directly attributable to the acquisition including acquisition-related expenses, interest expense, and any related tax effects. Since we do not have a final valuation of the assets that we acquired yet, the unaudited pro forma financial information only includes preliminary adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects. Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to the 28 private lender group notes and 4 seller-financed notes in the acquisition as if they were incurred as of the first day of fiscal 2021. Pro forma weighted average number of common shares outstanding includes the impact of 500,000 shares of our common stock issued as partial consideration for the acquisition. On November 8, 2021, the Company acquired a club and related real estate in Newburgh, New York for a total preliminary purchase price of $3.5 million, of which $2.5 million was paid in cash at closing and $1.0 million through a seller-financed 7-year promissory note with an interest rate of 4.0% per annum. The $3.5 million acquisition price is preliminarily allocated $2.1 million to real estate, $200,000 to tangible assets, and $1.2 million to goodwill, which is deductible for tax purposes. The note is payable $13,669 per month, including principal and interest. See Note 9. The Company incurred approximately $21,000 of acquisition-related costs for this acquisition, of which $11,000 was incurred in fiscal 2021 and $10,000 was incurred in fiscal 2022, both of which were included in selling, general and administrative expenses in our consolidated statements of operations. From the date of acquisition until September 30, 2022, the acquired club contributed revenues of $1.6 million and income from operations of $276,000, which are included in our consolidated statement of operations for the year ended September 30, 2022. The Company is not providing supplemental pro forma disclosures to this acquisition as it does not materially contribute to the consolidated operations of the Company. On December 30, 2021, the Company acquired the real estate of one of its clubs in South Florida, which the Company previously leased, for $7.0 million in an all-cash purchase. At closing, the Company wrote off the balance of its operating lease right-of-use assets and corresponding operating lease liability related to the discontinued lease, both of which amounted to $5.9 million. On March 1, 2022, the Company acquired real estate in Stafford, Texas for $3.5 million for a future Bombshells location. The Company secured a $2.6 million loan in relation to the purchase. See Note 9. On March 1, 2022, the Company acquired real estate in Lubbock, Texas for $400,000 to move one of our existing clubs due to eminent domain on the current location. See 2023 Disposition below. On May 2, 2022, the Company completed an acquisition of a club in Miami, Florida for a total acquisition price of $16.0 million. The acquisition price includes $3.0 million for the real estate property covered in a stock purchase agreement payable in cash at closing, and $13.0 million for the adult entertainment business covered in a separate stock purchase agreement payable as follows: (1) $2.0 million in cash at closing; (2) $6.0 million under a 10% three-year promissory note payable in 35 equal monthly payments of $79,290 in principal and interest based on a ten-year amortization schedule, with a balloon payment for the remaining principal plus accrued interest due at maturity; and (3) $5.0 million under a 10% ten-year interest-only promissory note payable in 119 equal monthly payments of $41,667 in interest, with a balloon payment of the total $5.0 million in principal plus accrued interest due at maturity. The Company acquired 100% of the capital stock of the acquired companies in each of the stock purchase agreements mentioned above. The $5.0 million promissory note may be earlier canceled if there are any regulatory changes that would prohibit the business from operating as an adult entertainment establishment within ten years of the closing date of the stock purchase agreement. Based on recent renewals of licenses of similar businesses in the region where the club operates, the Company believes that the probability of any changes to the regulatory environment is low as of the reporting date and would not materially impact the fair value of the debt. We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets and the fair value of the contingent debt consideration are provisional pending receipt of the final valuations for those items. Based on the allocation of the preliminary fair value of the acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated to be $6.8 million. Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities. Goodwill will not be amortized but will be tested at least annually for impairment. The recognized goodwill will not be deductible for tax purposes. The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of May 2, 2022:
Current assets | $ | 172 |
Property and equipment | 5,336 |
Licenses | 4,900 |
Tradenames | 1,460 |
Deferred tax liability | (2,627) |
Total net assets acquired | 9,241 |
Goodwill | 6,759 |
Acquisition price fair value | $ | 16,000 |
Licenses and tradenames will not be amortized but will be tested at least annually for impairment. In connection with the acquisition, we incurred acquisition-related expenses of approximately $28,000, which is included in selling, general and administrative expenses in our consolidated statement of operations for the year ended September 30, 2022. From the date of acquisition until September 30, 2022, the acquired club contributed revenues of $2.8 million and income from operations of $1.4 million, which are included in our consolidated statement of operations for the year ended September 30, 2022. The seller has not maintained historical U.S. GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities. On May 23, 2022, the Company acquired real estate in Rowlett, Texas for $3.3 million for a future Bombshells location. The Company secured a $2.2 million loan in relation to the purchase. See Note 9. On July 21, 2022, the Company acquired a club in Odessa, Texas for a total acquisition price of $1.8 million, of which $1.0 million was for the real estate and $800,000 for the adult entertainment business. The Company paid $1.0 million in cash at closing for the real estate and executed an $800,000 6% seller-financed promissory note for the business. The promissory note matures in seven years and is payable in 84 equal monthly installments of $11,687 of principal and interest. See Note 9. The $1.8 million acquisition price is preliminarily allocated $11,000 to current assets, $1.1 million to property and equipment, and $684,000 to licenses. From the date of acquisition until September 30, 2022, the acquired club contributed very minimal revenues and income from operations. The Company is not providing supplemental pro forma disclosures to this acquisition as it does not materially contribute to the consolidated operations of the Company. On July 27, 2022, the Company completed the acquisition of a club in Hallandale Beach, Florida for a total acquisition price of $25.0 million. The acquisition includes (1) $20.0 million for the adult entertainment business covered in a stock purchase agreement paid $10.0 million in cash at closing and $10.0 million under a 6% ten-year promissory note payable in 120 equal monthly payments of $111,020 in principal and interest, and (2) $5.0 million for the real estate property covered in an asset purchase agreement payable under a 6% ten-year promissory note payable in 120 equal monthly payments of $55,510 in principal and interest. In the stock purchase agreement, the Company acquired 100% of the capital stock of the company which owned the adult entertainment business. The total preliminary fair value of the consideration transferred is $23.4 million, which includes a discount on the $10.0 million promissory note to reflect market participant yield expectations. We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets and the fair value of the contingent debt consideration are provisional pending receipt of the final valuations for those items. Based on the allocation of the preliminary fair value of the acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated to be $5.6 million. Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities. Goodwill will not be amortized but will be tested at least annually for impairment. The recognized goodwill will not be deductible for tax purposes. The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of July 27, 2022:
Current assets | $ | 71 |
Property and equipment | 4,921 |
Licenses | 16,810 |
Deferred tax liability | (3,979) |
Total net assets acquired | 17,823 |
Goodwill | 5,577 |
Acquisition price fair value | $ | 23,400 |
From the date of acquisition until September 30, 2022, the acquired club contributed revenues of $2.0 million and income from operations of $802,000, which are included in our consolidated statement of operations for the year ended September 30, 2022. In connection with this acquisition, we incurred acquisition-related expenses of approximately $161,000, which was included in selling, general and administrative expenses in our consolidated statements of operations of fiscal 2022.The seller has not maintained historical U.S. GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities. On August 18, 2022, the Company purchased real estate in Hunstville, Alabama amounting to $2.1 million for a future Bombshells location. The Company paid $525,000 in cash at closing and entered into a bank financing for the $1.6 million remainder (see Note 9). On September 12, 2022, the Company entered into a joint venture with a private investment company to acquire real estate in Austin, Texas amounting to $2.2 million for a future Bombshells location. The Company has a 51% interest in the joint venture and paid its $1.1 million share for the real estate purchase while the investment of the private investment company was recorded as noncontrolling interest in our consolidated balance sheet. 2022 Dispositions On October 8, 2021, the Company sold one of its clubs in South Houston for $300,000. On July 12, 2022, the Company received $6.0 million from the Philadelphia Regional Port Authority for one of the Company's rental properties, with a carrying value of $4.9 million, due to eminent domain. The Company paid the current lessee a termination fee of $250,000, which is included in other charges/gains, net in our consolidated statement of operations. The Company used $2.1 million of the proceeds to pay down a loan related to the property. See also Note 7 for dispositions of real estate properties that had been classified as held-for-sale. 2023 Acquisitions On October 10, 2022, the Company purchased real estate in Lubbock, Texas amounting to $3.4 million for a future Bombshells location. The Company paid $1.1 million in cash at closing and entered into a bank financing for the $2.3 million remainder (see Note 9). The site includes extra land that will be listed for sale once the Bombshells unit is completed. On October 11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $754,000 in cash. On October 26, 2022, the Company completed the acquisition of a club in Dickinson, Texas for a total acquisition price of $9.0 million. The acquisition includes (1) $2.5 million for the adult entertainment business covered in a stock purchase agreement paid fully in cash at closing and (2) $6.5 million for the real estate property covered in a real estate purchase agreement paid $1.5 million in cash at closing and $5.0 million under a 6% 15-year promissory note (see Note 9). In the stock purchase agreement, the Company acquired 100% of the capital stock of the company which owned the adult entertainment business. Due to the proximity of the closing date to the filing of this report, we have not completed our valuation analysis and related calculations in sufficient detail necessary to arrive at the fair values of the net assets acquired and the debt consideration, along with the determination of any goodwill or gain on the transaction. The seller has not maintained historical U.S. GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities. On November 8, 2022, the Company purchased real estate in Aurora, Colorado amounting to $850,000 in cash for a future Bombshells location. On December 5, 2022, the Company purchased real estate in Central City, Colorado amounting to $2.4 million in cash for the development of a Rick's Cabaret Steakhouse and Casino business. On December 12, 2022, we and certain subsidiaries entered into definitive agreements to acquire five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total purchase price of $66.5 million, payable with a total of $25.0 million in cash, a total of $25.5 million in seller financing, and 200,000 restricted shares of common stock based on an $80 per share price, subject to lock-up, leak out restrictions. The five clubs, which are all located in Texas, are being purchased through five different asset purchase agreements, under which a newly formed wholly-owned subsidiary of the Company will acquire from each club-owning entity all of the tangible and intangible assets and personal property used in the business of that club, except for certain excluded assets. 2023 Disposition On November 4, 2022, the Company received $1.0 million from the Texas Department of Transportation for one of the Company's club properties in Lubbock, Texas due to eminent domain.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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