Quarterly report pursuant to Section 13 or 15(d)

Acquisitions of Red Robin Franchised Restaurants

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Acquisitions of Red Robin Franchised Restaurants
 4 Months Ended
Apr. 17, 2016
Business Combinations [Abstract]  
Acquisitions of Red Robin Franchised Restaurants
Acquisition of Red Robin Franchised Restaurants
The Company acquires franchised restaurants from time to time. On March 21, 2016, the Company acquired 13 restaurants, including real estate at four of the locations, from one of its U.S. franchisees for a purchase price of $40.0 million in cash. The pro forma impact of this acquisition and the operating results of the acquired restaurants are not presented as the impact was not material to reported results.
The acquisition was accounted for using the purchase method as defined in ASC 805, Business Combinations. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the acquired operations with the Company. The goodwill generated by the acquisition is not amortizable for book purposes but is amortizable and deductible for tax purposes. The Company preliminarily allocated the purchase price to the fair value of the assets acquired and liabilities assumed as follows (in thousands):
 
 
Fair Value at Acquisition Date
Property and equipment
 
18,831

Intangible assets
 
6,540

Deferred tax assets
 
2,935

Deferred tax liabilities
 
(2,791
)
Goodwill
 
14,285

Other assets and liabilities, net
 
220

Total purchase price
 
40,020


Of the $18.8 million in property and equipment, $7.5 million is related to land. Of the $6.5 million of intangible assets, $5.6 million is related to reacquired franchise rights, which will be amortized on a straight-line basis over a weighted average of 15.0 years, and $0.9 million is related to acquired favorable leases. 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 fair value measurement.
Following this preliminary valuation, the items with the highest likelihood of changing upon finalization of the valuation process include property and equipment, goodwill, and deferred taxes.