Acquisitions

2015 Acquisitions

During the year ended January 3, 2016, the Company acquired an aggregate of 55 restaurants from other franchisees, which are referred to as the "2015 acquired restaurants", in the following transactions:



Closing Date		Number of Restaurants	Purchase Price		Number of Fee-Owned Restaurants (1)	Market Location
March 31, 2015		4	$	794		Northern Vermont
August 4, 2015		5	663			Charlotte, North Carolina
October 1, 2015	(2)	5	5,044		1	Wheeling, West Virginia
October 20, 2015		1	709			Kalamazoo, Michigan
November 17, 2015		2	618			Evansville, Indiana
November 17, 2015	(2)	6	10,945		5	Evansville, Indiana
December 1, 2015	(2)	23	26,175		10	Detroit, Michigan
December 8, 2015		9	7,802			Northern New Jersey
		55	$	52,750	16

(1)

The 2015 acquisitions included the purchase of 16 fee-owned properties. Three of these fee-owned properties were sold in sale-leaseback transactions during the fourth quarter of 2015 for net proceeds of $4.3 million. The remaining thirteen fee-owned properties valued at $18.3 million are expected to be sold in sale-leaseback transactions in 2016 although there can be no assurance that such transactions will be completed in 2016 or at all.


(2)	Acquisitions resulting from the exercise of the ROFR.

The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the acquisitions at their estimated fair values. The following table summarizes the final allocation of the aggregate purchase price for the eight 2015 acquisitions:



Inventory	$	544
Land and buildings	22,614
Restaurant equipment	2,844
Restaurant equipment - subject to capital lease	443
Leasehold improvements	1,770
Franchise fees	1,000
Franchise rights	20,666
Favorable leases	1,475
Goodwill	2,645
Capital lease obligations for restaurant equipment	(494		)
Unfavorable leases	(324		)
Other liabilities	(433		)
Net assets acquired	$	52,750

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2015 acquired restaurants contributed restaurant sales of $12.9 million during the year ended January 3, 2016. It is impracticable to disclose net earnings for the post-acquisition periods as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision. During the year ended January 3, 2016, acquisition costs of approximately $1.0 million related to the 2015 acquisitions were recorded in general and administrative expense.

The pro forma impact on the results of operations for the 2015 acquisitions is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the 2015 acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes the Company's unaudited proforma operating results:



	Year Ended
	January 3, 2016		December 28, 2014			(1)
Restaurant sales	$	918,456	$	862,357
Net income (loss)	$	6,447	$	(27,252	)
Basic and diluted net income (loss) per share	$	0.14	$	(0.88	)

(1) Includes pro forma adjustments for 2014 acquisitions of restaurant sales of $100.8 million and net income of $4.8 million.

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any transaction costs related to the 2015 acquired restaurants.

2014 Acquisitions

During the year ended December 28, 2014, the Company acquired an aggregate of 123 restaurants from other franchisees, which are referred to as the "2014 acquired restaurants", in the following transactions:



Closing Date		Number of Restaurants	Purchase Price		Number of Fee-Owned Restaurants (1)	Market Location
April 30, 2014	(1)	4	$	681		Fort Wayne, Indiana
June 30, 2014	(1)	4	3,819		1	Pittsburgh, Pennsylvania
July 22, 2014		21	8,609			Rochester, New York and Southern Tier of Western New York
October 8, 2014	(1)	30	20,330		12	Wilmington and Greenville, North Carolina
November 4, 2014		64	18,761			Nashville, Tennessee; Indiana and Illinois
		123	$	52,200	13


(1)	The 2014 acquisitions included the purchase of 13 fee-owned properties. Ten of these fee-owned properties were sold in sale-leaseback transactions during the fourth quarter of 2014 for net proceeds of $12,961 and one property was sold in a sale-leaseback transaction in 2015 for net proceeds of $1,123.


(2)	In connection with the acquisition on November 4, 2014, the Company entered into an agreement with BKC to remodel 46 of the restaurants acquired over a five-year period beginning in 2014.



Inventory	$	1,267
Land and buildings	15,955
Restaurant equipment	5,818
Restaurant equipment - subject to capital lease	1,381
Leasehold improvements	1,804
Franchise fees	3,064
Franchise rights	17,098
Favorable leases	2,096
Deferred income taxes	1,526
Other assets	65
Goodwill	9,631
Capital lease obligation for restaurant equipment	(1,458		)
Unfavorable leases	(5,912		)
Other liabilities	(135		)
Net assets acquired	$	52,200

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2014 acquired restaurants and contributed restaurant sales of $144.6 million and $34.0 million in the years ended January 3, 2016 and December 28, 2014, respectively. It is impracticable to disclose net earnings for the post-acquisition periods as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision. During the years ended January 3, 2016 and December 28, 2014, transaction and integration costs of approximately $0.2 million and $1.9 million, respectively, related to the 2014 acquisitions were recorded in general and administrative expense.

The pro forma impact on the results of operations for the 2014 acquisitions is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the 2014 acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes the Company's unaudited proforma operating results:



	Year ended
	December 28, 2014			December 29, 2013
Restaurant sales	$	793,521		$	800,264
Net income (loss)	$	(31,364	)	$	(9,964	)
Basic and diluted net loss per share	$	(1.02	)	$	(0.43	)

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any transaction costs related to the 2014 acquired restaurants.

Valuation Methodology

The Company engaged a third party valuation specialist to assist with the valuation of certain leasehold improvements, franchise rights and favorable and unfavorable leases. The Company estimated that the carrying value of restaurant equipment, subject to certain adjustments, and restaurant equipment subject to capital leases was equivalent to fair value of this equipment at the date of the acquisitions. The fair value determination of franchise agreements assumed for certain restaurants was based on the amounts paid for such agreements as if the terms were at market rates. The fair values of acquired land, buildings and certain leasehold improvements were determined using both the cost approach and market approach.

The fair value of the favorable and unfavorable leases acquired, as well as the fair value of land, buildings and leasehold improvements acquired, were measured using significant inputs observable in the open market. As such, the Company categorizes these as Level 2 inputs under ASC 820. The fair value of acquired franchise rights was primarily determined using the income approach.

Goodwill recorded in connection with these acquisitions was attributable to the workforce of the acquired restaurants and synergies expected to arise from cost savings opportunities. Acquired goodwill that is expected to be deductible for income tax purposes was $3,311 in 2015 and $7,221 in 2014. Deferred income tax assets are primarily due to the book and tax bases difference of net favorable and unfavorable leases.

The weighted average amortization period of the amortizable intangible assets acquired is as follows:



	2015 Acquisitions	2014 Acquisitions
Favorable leases	15.5	13.4
Unfavorable leases	6.5	15.0
Franchise rights	26.6	30.4