Acquisitions and Divestitures

12 Months Ended

Dec. 25, 2016

Acquisition and Divestitures

Acquisitions and Divestitures

7.  Acquisitions and Divestitures

Acquisitions

We acquired restaurants from our domestic franchisees in 2016, 2015 and 2014, which are summarized as follows:  

	2016		2015		2014
Number of restaurants acquired	25		7		13
Location of restaurants acquired	Florida, Georgia		North Carolina		Georgia,
	Kentucky and		Missouri and		North Carolina
	Texas		Colorado		Illinois and
					Texas
Purchase price (in thousands):
Cash payment	$	13,352	$	922	$	4,773
Cancellation of accounts and notes receivable		406		—		412
Total purchase price	$	13,758	$	922	$	5,185
Final fair value allocation of purchase price (in thousands):
Property and equipment	$	1,362	$	648	$	555
Franchise rights		2,092		113		844
Goodwill		10,166		152		3,661
Other		138		9		125
Total purchase price	$	13,758	$	922	$	5,185

The restaurant acquisitions described above were accounted for by the purchase method of accounting, whereby operating results subsequent to the acquisition date are included in our consolidated financial results. The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill for the Domestic Company-owned restaurants segment and is eligible for deduction over 15 years under U.S. tax regulations. 

Divestitures

In the fourth quarter of 2016, we sold 42 Company-owned restaurants in Phoenix, AZ. The total consideration received was $16.8 million and was received in cash at closing. The sale of the restaurants resulted in an $11.6 million gain in 2016 and is recognized in refranchising and impairment gains/(losses), net in our consolidated statements of income. 

In September 2015, the Company decided to refranchise the China Company-owned market and is planning a sale of its existing China operations, consisting of 42 Company-owned restaurants and a commissary. We expect to sell the business during 2017; upon completion of the sale, the Company will not have any Company-owned international restaurants. We have classified the assets as held for sale within the consolidated balance sheet. Upon the classification of these assets to held for sale in 2015, no loss was recognized as their fair value exceeded their carrying value.

In 2016, due to the length of time the China operations had been on the market, we determined that the fair value no longer exceeded the carrying value of the associated assets held for sale.  Because of the decrease in fair value, we also reassessed the amount of goodwill that had been previously allocated to the assets held for sale based on the estimated fair value of the assets in relation to the fair value of the entire China reporting unit, which resulted in a reduction of the allocated goodwill to assets held for sale of $979,000.  As a result of our impairment analysis, we recorded an impairment loss of $1.4 million for the period ended December 25, 2016.  This amount is included in the refranchising and impairment gains/(losses), net in the consolidated statements of income.  This charge includes the a write-off of all goodwill associated with the assets held for sale, an impairment loss for stores we expect to close in 2017, and a valuation allowance on the remaining assets held for sale. See Note 5 for additional information on the determination of fair value on the assets held for sale.

The following summarizes the associated assets that are classified as held for sale (in thousands):

		December 25, 2016		December 27, 2015
Inventories	$	621	$	667
Prepaid expenses		517		672
Net property and equipment		4,767		5,571
Goodwill		—		1,690
Other assets		568		699
Valuation allowance		(216)		—
Total assets held for sale	$	6,257	$	9,299

The Company-owned China operations have incurred losses before income taxes of $2.3 million in 2016, $1.2 million in 2015, and $3.4 million in 2014. The loss in 2016 includes the impairment charge of $1.4 million noted above.  The loss in 2014 includes an impairment charge of $1.0 million for eleven Company-owned restaurants in China. These results are reported in our International segment.