Quarterly report pursuant to Section 13 or 15(d)

Impairment and Closed Restaurant Costs

v3.20.1
Impairment and Closed Restaurant Costs
3 Months Ended
Mar. 29, 2020
Impairment & closed restaurant costs [Abstract]  
Restructuring, Settlement and Impairment Provisions
Impairment and Closed Restaurant Costs
The Company reviews long-lived assets, such as property and equipment and intangibles, subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment of historical undiscounted cash flows and other relevant factors and circumstances. The Company evaluates future cash flow projections in conjunction with qualitative factors and future operating plans and regularly reviews any restaurants with a deficient level of cash flows for the previous 24 months to determine if impairment testing is necessary. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the restaurant to its estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value, we determine if there is an impairment loss by comparing the carrying value of the restaurant to its estimated fair value. Based on this analysis, if the carrying value of the restaurant exceeds its estimated fair value, an impairment charge is recognized by the amount by which the carrying value exceeds the fair value.

We make assumptions to estimate future cash flows and asset fair values. The estimated fair value is generally determined using the depreciated replacement cost method, the income approach, or discounted cash flow projections. Estimated future cash flows are highly subjective assumptions based on the Company’s projections and understanding of our business, historical operating results, and trends in sales and restaurant level operating costs.
The Company’s impairment assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are based upon a significant degree of management judgment. The estimates used in the impairment analysis represent a Level 3 fair value measurement. The Company continues to assess the performance of restaurants and monitors the need for future impairment. Changes in the economic environment, real estate markets, capital spending, overall operating performance and underlying assumptions could impact these estimates and result in future impairment charges.
The Company recorded impairment and closed restaurant costs as follows:
 
Thirteen Weeks Ended
 
March 29, 2020
 
March 31, 2019
Right of use asset impairment
$
3,133

 

Property, plant, and equipment impairment
15,144

 
$

Non-cash impairment charge
18,277

 
$

 
 
 
 
Closed restaurant costs
496

 
372

Impairment and closed restaurant costs
$
18,773

 
$
372


Closed restaurant costs represents on-going expenses to maintain the restaurants closed during fiscal 2019 such as rent expense, utility and insurance costs.
COVID-19 had a negative impact on our assumptions for future restaurant level cash flows as well as changes in the expected life of certain operating lease assets. These changes in assumptions resulted in elevated impairment charges for the three months ended March 29, 2020.