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 the sale of franchisee-operated restaurants in 20 states (the "ROFR"). Since the beginning of 2017, the Company has acquired an aggregate of 98 restaurants from other franchisees in the following transactions, some of which were subject to the ROFR:



Closing Date		Number of Restaurants	Purchase Price		Market Location
2017 Acquisitions:
February 28, 2017		43	$	20,366	Cincinnati, Ohio
June 5, 2017	(1)	17	16,355		Baltimore, Maryland and Washington, DC
November 28, 2017		4	1,202		Maine
		64	$	37,923
2018 Acquisitions:
February 13, 2018	(2)	1	—		New York
August 21, 2018	(1)	2	1,666		Detroit, MI
September 5, 2018	(1)	31	25,929		Western Virginia
Total 2017 and 2018 Acquisitions		98	$	65,518


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


(2)	This acquisition resulted in a bargain purchase gain because the fair value of assets acquired, largely representing a franchise right asset of $290, exceeded the total fair value of consideration paid by $230. The Company recognized this gain and recorded it as "Gain on bargain purchase" in the condensed consolidated statements of comprehensive income.

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 2018 acquisitions reflected in the consolidated balance sheet as of September 30, 2018.



Inventory	$	252
Restaurant equipment	1,680
Restaurant equipment - subject to capital lease	19
Leasehold improvements	1,329
Franchise fees	971
Franchise rights (Note 3)	22,037
Favorable leases (Note 3)	587
Deferred income taxes	346
Goodwill (Note 3)	1,261
Capital lease obligations for restaurant equipment	(24		)
Unfavorable leases (Note 3)	(624		)
Accounts payable	(9		)
Net assets acquired	$	27,825

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 $1.3 million is not expected to be deductible for income tax purposes for the 2018 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 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 three 2017 acquisitions as of December 31, 2017:



Trade and other receivables	$	486
Inventory	616
Prepaid expenses	192
Other assets	52
Restaurant equipment	3,290
Cap lease assets	264
Leasehold improvements	2,496
Franchise fees	1,315
Franchise rights	24,691
Favorable leases	1,100
Deferred taxes	(4,357		)
Goodwill	13,923
Capital lease obligation for equipment	(316		)
Unfavorable leases	(2,997		)
Accounts payable	(880		)
Accrued payroll, related taxes and benefits	(270		)
Other liabilities, long-term	(1,682		)
Net assets acquired	$	37,923

The restaurants acquired in 2017 and 2018 contributed restaurant sales of $25.6 million and $71.2 million in the three and nine months ended September 30, 2018 and the restaurant acquired in 2017 contributed restaurant sales of $22.0 million and $42.6 million in the three and nine months ended October 1, 2017, 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 2018 for the three and nine months ended September 30, 2018 and October 1, 2017 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				Nine Months Ended
	September 30, 2018		October 1, 2017		September 30, 2018		October 1, 2017
Restaurant sales	$	304,274	$	297,181	$	899,197	$	862,328
Net income	$	4,808	$	3,631	$	11,100	$	6,798
Basic and diluted net income per share	$	0.11	$	0.08	$	0.25	$	0.15

This unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies, 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 $0.8 million and $1.0 million during the three and nine months ended September 30, 2018 and $0.5 million and $1.7 million during the three and nine months ended October 1, 2017.