Summary of Refranchising and Franchise Acquisitions

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 restaurants’ inventory and equipment and retains ownership of the leasehold interest to the real estate to sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as a result, the cash consideration received 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 lease assets or unfavorable lease 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. The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in revenue as earned.

The Company sold thirteen company-operated restaurants to franchisees during the twenty-four weeks ended June 18, 2019. There was no refranchising activity during the twenty-four weeks ended June 19, 2018. The following table summarizes the related net loss recognized during the twenty-four weeks ended June 18, 2019 (dollars in thousands):



	24 Weeks Ended June 18, 2019
Company-operated restaurants sold to franchisees	13

Proceeds from the sale of company-operated restaurants	$	2,090
Net assets sold (primarily furniture, fixtures and equipment) ^(a)	(2,051		)
Goodwill related to the company-operated restaurants sold to franchisees	(83		)
Allocation to deferred franchise fees	(281		)
Favorable sublease assets, net ^(b)	260
Loss on sale of company-operated restaurants ^(c)	$	(65	)

^(a) Included in assets held for sale at January 1, 2019.

^(b)Comprised of favorable sublease assets of $1.0 million and unfavorable lease liabilities of $0.7 million.

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

The Company acquired three franchise-operated restaurants during the twenty-four weeks ended June 18, 2019. 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. There were no franchise acquisitions during the twenty-four weeks ended June 19, 2018. The following table provides detail of the combined acquisitions for the twenty-four weeks ended June 18, 2019 (dollars in thousands):



	June 18, 2019
Franchise-operated restaurants acquired from franchisees	3

Goodwill	$	2,672
Restaurant and other equipment and leasehold improvements	578
Operating lease right-of-use assets	858
Operating lease liabilities	(858		)
Unfavorable lease liabilities ^(a)	(130		)
Total consideration	$	3,120

^(a) The unfavorable lease liabilities of $0.1 million was recorded as an adjustment to the respective operating lease right-of-use asset.