Acquisitions

2019 Acquisitions

During the year ended December 29, 2019, the Company acquired a total of 234 restaurants from other franchisees, which are referred to as the "2019 acquired restaurants", in the following transactions:



Closing Date		Number of Restaurants	Purchase Price
April 30, 2019	(1)	220	$	259,083	Southeastern states, primarily TN, MS, LA
June 11, 2019		13	15,788		Baltimore, Maryland
August 20, 2019	(2)	1	1,108		Pennsylvania
		234	$	275,979


(1)	During the second quarter of 2019, the Company completed the merger with New CFH, LLC ("Cambridge") and acquired 165 Burger King restaurants and 55 Popeyes restaurants. See further discussion below.


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

On April 30, 2019 the Company completed a merger with Cambridge ("the Cambridge Merger") for a purchase price of $259.1 million through the issuance of shares of stock which consisted of (i) approximately 7.4 million shares of common stock, (ii) 10,000 shares of the Company's newly designated Series C Convertible Preferred Stock, which were converted into approximately 7.5 million shares of common stock on August 29, 2019, and (iii) the retirement of approximately $113.8 million of the indebtedness of Cambridge, net of cash acquired. All shares issued are subject to a two year restriction on sale or transfer subject to certain limited exceptions. As part of the transaction, Cambridge Franchise Holdings LLC ("Cambridge Holdings") has the right to designate up to two director nominees and two Cambridge Holdings executives joined the Company's Board of Directors on April 30, 2019.

Under the purchase method of accounting, the aggregate purchase price is allocated to the net tangible and intangible assets based on their estimated fair values on the acquisition date. The purchase price allocation valued the common stock at $145.3 million based on the $9.81 closing price of the Company's stock on the date of acquisition.

The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the Cambridge Merger at their estimated fair values. The Company engaged a third party valuation specialist to assist with the valuation of franchise rights, leasehold improvements and favorable and unfavorable leases included in the operating right-to-use assets acquired. The fair value of other property and equipment and franchise agreements was based on the assets carrying value due to recent valuations completed by Cambridge on the acquisition of 132 restaurants and construction of 33 new restaurants in the last three years. The fair value of the right-of-use liability is based upon the lease payments over the remaining lease term discounted by the Company's incremental borrowing rate.

Goodwill recorded in connection with the Cambridge Merger represents the excess of the purchase price over the aggregate fair value of net assets acquired and is related to the benefits expected as a result of the merger, including sales, operating synergies, development and growth opportunities. We believe that Cambridge's existing Burger King and Popeyes restaurant portfolios provide the Company with significant growth and development opportunities and due to the geographic location of the restaurants mitigate the dependence on the economic performance of any one particular geographic location or restaurant concept. A deferred income tax liability of approximately $44.3 million was recorded representing book and tax differences primarily related to the fair value of the acquired franchise rights.

The following table summarizes the final allocation of the aggregate purchase price for the Cambridge Merger reflected in the condensed consolidated balance sheets as of December 29, 2019.



Inventory	$	2,839
Prepaid expenses	2,947
Other assets	1,846
Land and buildings	21,257
Restaurant equipment	25,358
Restaurant equipment - subject to finance leases	488
Right-of-use assets	251,431
Leasehold improvements	3,498
Franchise fees	7,300
Franchise rights (Note 4)	174,500
Deferred taxes	(44,292		)
Goodwill (Note 4)	84,060
Finance lease obligations for restaurant equipment	(568		)
Operating lease liabilities	(255,897		)
Accounts payable	(8,014		)
Accrued payroll, related taxes and benefits	(3,133		)
Other liabilities	(4,537		)
Net assets acquired	$	259,083

The Company allocated the aggregate purchase price for the 2019 acquisitions in addition to the Cambridge Merger at their estimated fair values. The following table summarizes the final allocation of the aggregate purchase price for the 2019 acquisitions in addition to the Cambridge Merger reflected in the condensed consolidated balance sheets as of December 29, 2019.



Inventory	$	158
Restaurant equipment	743
Restaurant equipment - subject to finance leases	150
Right-of-use assets	9,515
Leasehold improvements	6,205
Franchise fees	394
Franchise rights (Note 4)	9,809
Deferred income taxes	29
Goodwill (Note 4)	86
Operating lease liabilities	(9,968		)
Finance lease obligations for restaurant equipment	(185		)
Accounts payable	(40		)
Net assets acquired	$	16,896

The results of operations for the restaurants acquired are included from the closing date of the acquisition. The 2019 acquired restaurants contributed restaurant sales of $201.9 million and other revenue of $10.2 million during the year ended December 29, 2019. 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.

The pro forma impact on the results of operations for restaurants acquired in 2019 and 2018 is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the restaurants acquired in 2019 and 2018 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 29, 2019			December 30, 2018
Restaurant sales	$	1,568,533		$	1,518,841
Net income (loss)	$	(25,586	)	$	27,730
Basic and diluted net income (loss) per share	$	(0.59	)	$	0.60

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any integration costs related to the 2019 acquired restaurants. The proforma results exclude transaction costs recorded as general and administrative expenses of $4.1 million and $1.4 million during the years ended December 29, 2019 and December 30, 2018, respectively.

2018 Acquisitions

During the year ended December 30, 2018 the Company acquired a total of 44 restaurants from other franchisees, which are referred to as the "2018 acquired restaurants", in the following transactions:



Closing Date		Number of Restaurants	Purchase Price		Market Location
February 13, 2018	(1)	1	$	—	New York
August 21, 2018	(2)	2	1,666		Detroit, Michigan
September 5, 2018	(2)	31	25,930		Western Virginia
October 2, 2018		10	10,506		South Carolina and Georgia
		44	$	38,102


(1)	This acquisition resulted in a bargain purchase gain because the fair value of net assets acquired, largely representing a franchise right asset of $0.3 million, exceeded the total fair value of consideration paid by $0.2 million. The Company recognized this gain and recorded it as "Gain on bargain purchase" in the consolidated statements of comprehensive income.


(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 four 2018 acquisitions:



Inventory	$	401
Restaurant equipment	2,092
Restaurant equipment - subject to capital lease	43
Leasehold improvements	1,329
Franchise fees	1,264
Franchise rights (Note 4)	31,275
Favorable leases (Note 4)	587
Deferred taxes	346
Goodwill (Note 4)	1,677
Capital lease obligations for restaurant equipment	(49		)
Unfavorable leases (Note 4)	(624		)
Accounts payable	(9		)
Net assets acquired	$	38,332

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2018 acquired restaurants contributed restaurant sales of $52.9 million and $16.9 million during the years ended December 29, 2019 and December 30, 2018, 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.

The pro forma impact on the results of operations for restaurants acquired in 2018 and 2017 is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the restaurants acquired in 2018 and 2017 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 30, 2018		December 31, 2017
Restaurant sales	$	1,217,891	$	1,170,627
Net income	$	13,684	$	12,464
Basic and diluted net income per share	$	0.30	$	0.28

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any integration costs related to the 2018 acquired restaurants. The proforma results exclude acquisition costs recorded as general and administrative expenses of $1.4 million and $1.8 million during the years ended December 30, 2018 and December 31, 2017, respectively.

2017 Acquisitions

During the year ended December 31, 2017, the Company acquired a total of 64 restaurants from other franchisees, which are referred to as the "2017 acquired restaurants", in the following transactions:



Closing Date		Number of Restaurants	Purchase Price		Market Location
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

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



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

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2017 acquired restaurants contributed restaurant sales of $90.2 million and $64.9 million during the years ended December 30, 2018 and December 31, 2017, 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.

The pro forma impact on the results of operations for restaurants acquired in 2017 is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the restaurants acquired in 2017 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 31, 2017
Restaurant sales	$	1,114,642
Net income	$	9,546
Basic and diluted net income per share	$	0.21

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any integration costs related to the 2017 acquired restaurants. The proforma results exclude acquisition costs recorded as general and administrative expenses of $1.8 million during the year ended December 31, 2017.

Acquired Intangible Assets

Goodwill recorded in connection with the acquisitions in 2019, 2018 and 2017 represents costs in excess of fair values assigned to the underlying net assets of acquired restaurants. Acquired goodwill that is expected to be deductible for income tax purposes was $47.2 million in 2019, $0.5 million in 2018 and $6.7 million in 2017.

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



	2019 Acquisitions	2018 Acquisitions	2017 Acquisitions
Favorable leases	—	17.2	15.2
Unfavorable leases	—	18.3	14.3
Franchise rights	32.7	31.6	27.9

Beginning in 2019, favorable and unfavorable leases are included as a component of the Company's operating right-of-use assets.