Acquisitions

In 2012, as part of an acquisition of restaurants from Burger King Corporation ("BKC"), the Company was assigned BKC's right of first refusal on franchisee restaurant sales in 20 states (the "ROFR"). Since the beginning of 2016, the Company has acquired an aggregate of 116 restaurants from other franchisees in the following transactions, some of which were subject to the ROFR:



Closing Date		Number of Restaurants	Purchase Price			Fee-Owned (1)	Market Location
2016 Acquisitions:
February 23, 2016	(2)	12	$	7,127			Scranton/Wilkes-Barre, Pennsylvania
May 25, 2016		6	12,080			5	Detroit, Michigan
July 14, 2016	(2)	4	5,445			3	Detroit, Michigan
August 23, 2016		7	8,755			6	Portland, Maine
October 4, 2016		3	1,623				Raleigh, North Carolina
November 15, 2016		17	7,251				Pittsburgh and Johnstown, Pennsylvania
December 1, 2016		7	5,807			1	Columbus, Ohio
		56	48,088			15
2017 Acquisitions:
February 28, 2017		43	20,373				Cincinnati, Ohio
June 6, 2017	(2)	17	16,190		(3)		Baltimore, Maryland and Washington, DC
Total 2016 and 2017 Acquisitions		116	$	84,651		15


(1)	The 2016 acquisitions included the purchase of 15 fee-owned restaurants, of which 14 were sold in sale-leaseback transactions during 2016 for net proceeds of $19.1 million.


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


(3)	The purchase price and the related allocation for this acquisition (included in the presentation below) is preliminary and subject to adjustment related to working capital settlement and related deferred income tax considerations.

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 preliminary allocation of the aggregate purchase price for the 2017 acquisitions reflected in the consolidated balance sheet as of July 2, 2017.



Trade and other receivables	$	486
Inventory	566
Prepaid expenses	192
Other assets	52
Restaurant equipment	3,244
Restaurant equipment - subject to capital lease	235
Leasehold improvements	2,326
Franchise fees	1,292
Franchise rights (Note 3)	24,156
Favorable leases (Note 3)	1,100
Deferred income taxes	(4,456		)
Goodwill (Note 3)	13,477
Capital lease obligations for restaurant equipment	(278		)
Unfavorable leases (Note 3)	(2,997		)
Accounts payable	(880		)
Accrued payroll, related taxes and benefits	(270		)
Other liabilities	(1,682		)
Net assets acquired	$	36,563

Goodwill recorded in connection with these acquisitions represents costs in excess of fair values assigned to the underlying net assets of acquired restaurants. Goodwill of $6.5 million is expected to be deductible for income tax purposes for the 2017 acquisitions. Deferred income tax assets and liabilities are due primarily to the book and tax bases difference of franchise rights, property and equipment, net favorable and unfavorable leases and other liabilities.

The restaurants acquired in 2016 and 2017 contributed restaurant sales of $34.4 million and $55.1 million in the three and six months ended July 2, 2017, respectively, and $5.1 million and $7.0 million in the three and six months ended July 3, 2016, respectively. It is impracticable to disclose net earnings for the post-acquisition period for the acquired restaurants as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision.

The unaudited pro forma impact on the results of operations for the restaurants acquired in 2017 and 2016 for the three and six months ended July 2, 2017 and July 3, 2016 is included below. The unaudited pro forma results of operations are not necessarily indicative of the results that would have occurred had the 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 pro forma operating results:



	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Restaurant sales	$	285,952	$	266,630	$	541,112	$	523,210
Net income	$	6,659	$	12,481	$	1,716	$	16,629
Basic and diluted net income per share	$	0.15	$	0.28	$	0.04	$	0.37

This unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any integration costs related to the acquired restaurants. The unaudited pro forma financial results exclude transaction costs recorded as general and administrative expenses of $0.4 million and $1.2 million during the three and six months ended July 2, 2017, respectively, and $0.2 million and $0.6 million during the three and six months ended July 3, 2016, respectively.