Acquisition of Franchised Restaurants (Notes)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Acquisition of Franchised Restaurants

Acquisition of Franchised Restaurants

On July 2, 2014, the Company acquired 16 restaurants from one of its franchisees. The cash purchase price was $13.6 million and the Company incurred acquisition costs related to the transaction of $0.06 million reflected in General and Administrative expense for the three quarters ended September 30, 2014. The consolidated statements of income include the results of operations for the restaurants from the date of acquisition. The pro forma impact of the acquisition is not presented as the impact was not material to reported results.

The acquisition of the 16 restaurants was accounted for using the purchase method as defined in ASC 805, Business Combination. The goodwill generated by the acquisition is not amortizable for book purposes but is amortizable and deductible for tax purposes. The Company has completed a preliminary allocation of the purchase price to the fair value of acquired assets and assumed liabilities as follows (in thousands):

	Fair Value at July 2, 2014
Inventories	292
Prepaid expenses and other assets	27
Property and equipment	5,649
Intangibles	1,421
Goodwill	6,521
Deferred Rent and Other Liabilities	(275		)
Total purchase price	$	13,635

Of the $1.4 million of intangible assets, $1.3 million are related to reacquired franchise rights, which will be amortized on a straight-line basis over an average life of approximately 15 years and $0.1 million are related to favorable leases, which will be amortized on a straight-line basis over an average life of eight years. The unfavorable leases, which were included in deferred rent in the accompanying condensed consolidated balance sheets, will be amortized on a straight-line basis over an average period of seven years. The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a Level 3 measurement that is subject to change.