Summary of Refranchising and Franchise Acquisitions

Refranchising

In connection with the sale of company-operated restaurants to franchisees, the Company typically enters into several agreements, in addition to an asset purchase agreement, with franchisees including franchise and lease agreements. The Company typically sells the restaurants' inventory and equipment and retains ownership of the leasehold interest on the real estate of the lease and/or sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as such, the cash consideration is allocated to the separate elements based on their relative selling price. Cash consideration generally includes up-front consideration for the sale of the restaurants and franchise fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in allocating the initial cash consideration received. The Company compares the stated rent under the lease and/or sublease agreements with comparable market rents and the Company records favorable or unfavorable lease assets/liabilities with a corresponding offset to the gain or loss on the sale of the company-operated restaurants. The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements which are charged for separate standalone arrangements. Therefore, the Company recognizes the franchise fees when earned. Future royalty income is also recognized in revenue as earned.

The Company sold 5 company-operated restaurants to franchisees during the fifty-two weeks ended January 2, 2018. The Company did not sell any company-operated restaurants to franchisees during the fifty-two weeks ended January 1, 2019 or the fifty-three weeks ended January 3, 2017. The following table provides detail of the related gain recognized during the fifty-two weeks ended January 2, 2018 (dollars in thousands):



	52 Weeks Ended January 2, 2018
Company-operated restaurants sold to franchisees	5

Proceeds from the sale of company-operated restaurants	$	2,192
Net assets sold (primarily furniture, fixtures and equipment)	(1,261		)
Goodwill related to the company-operated restaurants sold to franchisees	(247		)
Net unfavorable lease liabilities ^(a)	(548		)
Other costs	(5		)
Gain on sale of company-operated restaurants ^(b)	$	131

^(a) The Company recorded favorable lease assets of $0.1 million and unfavorable lease liabilities of $0.6 million as a result of subleasing land, buildings and leasehold improvements to franchisees, in connection with the sale of company-operated restaurants.

^(b) Included in loss on disposal of assets, net on the consolidated statements of comprehensive income.

Franchise Acquisitions

The Company acquired three franchise-operated restaurants during the fifty-two weeks ended January 1, 2019, one franchise-operated restaurant during the fifty-two weeks ended January 2, 2018 and six franchise-operated restaurants during the fifty-three weeks ended January 3, 2017. The Company accounts for the acquisition of franchise-operated restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the market position and future growth potential of the markets acquired and is expected to be deductible for income tax purposes.

The following table provides detail of the combined acquisitions for both the fifty-two weeks ended January 1, 2019, fifty-two weeks ended January 2, 2018 and the fifty-three weeks ended January 3, 2017 (dollars in thousands):



	52 Weeks Ended January 1, 2019		52 Weeks Ended January 2, 2018			53 Weeks Ended January 3, 2017
Franchise-operated restaurants acquired from franchisees	3		1			6

Goodwill	$	893	$	860		$	969
Property and equipment	798		360			821
Land and building	—		—			2,127
Reacquired franchise rights	150		—			—
Unfavorable lease liability	—		(85		)	—
Liabilities assumed	—		(7		)	(26		)
Total Consideration	$	1,841	$	1,128		$	3,891

Total consideration for the franchise-operated restaurants excluding the land and building acquired from a franchisee was $1.8 million during the fifty-three weeks ended January 3, 2017.

During the fifty-two weeks ended January 1, 2019, the Company wrote-off $0.6 million of unfavorable lease liabilities related to franchise subleases, offset by $0.1 million of straight line deferred rent assets (included in other assets) which were terminated in connection with the Company's acquisition of the related franchise-operated restaurants.