REFRANCHISING

Held for Sale

The Company classifies assets as held for sale when it commits to a plan to dispose of the assets by refranchising specific stores in their current condition at a price that is reasonable, and the Company believes completing the sale within one year is probable without significant changes. Assets held for sale are recorded at the lower of their carrying value or fair value, less costs to sell and depreciation is ceased on assets at the time they are classified as held for sale.

The Company has begun to execute its previously announced refranchising strategy, which includes increasing the proportion of its domestic stores that are franchise locations. In March 2016, the Company completed an asset purchase agreement to sell 84 of its company-owned stores to a franchisee with the sale expected to occur in the second quarter of 2016. The Company also expects to complete a sale of 10 of its stores to another franchisee in 2016, half of which are expected to close in the second quarter.

As of March 31, 2016, the Company classified as held for sale, within “Prepaid and other current assets” in the accompanying consolidated balance sheet, the applicable assets of 94 company-owned stores the Company expects to sell during the next 12 months as described above with a corresponding reduction to inventory, goodwill and property, plant and equipment, net. The fair values of these assets exceeded their respective carrying values. The following summarizes the financial statement carrying amounts of assets as held for sale at March 31, 2016:



	(in thousands)
Inventory	$	7,803
Goodwill	3,849
Property, plant and equipment, net	1,736
Total held for sale assets	$	13,388

Gains on Refranchising

Refranchising pre-tax gains of approximately $20 million are expected to be recorded associated with the sale of 94 company-owned stores as explained above, the majority of which will be recognized in the second quarter of 2016. These gains are calculated by subtracting the carrying value of applicable assets disposed of from the sales proceeds. In addition, the initial franchise fee received is included in the gain along with any other costs incurred by the Company to get the underlying assets ready for sale. The Company recognizes gains on refranchising after the asset purchase agreement is signed, the franchisee has taken possession of the store and management is satisfied that the franchisee can meet its financial obligations. Gains of $1.0 million and $0.3 million were recorded in the current quarter and prior year quarter, respectively.