Impairment of Long-Lived Assets and Other Lease Charges

3 Months Ended

Apr. 03, 2022

Property, Plant and Equipment [Abstract]

Impairment of Long-Lived Assets and Other Lease Charges

Impairment of Long-Lived Assets and Other Lease Charges (Recoveries)

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.

A summary of impairment of long-lived assets and other lease charges (recoveries) is as follows:

	Three Months Ended
	April 3, 2022		April 4, 2021
Impairment of long-lived assets	$	—	$	110
Other lease charges (recoveries)	(702)		(162)
	$	(702)	$	(52)

Impairment and other lease charges (recoveries) for the three months ended April 3, 2022 consist of gains from lease terminations of $(0.7) million.

Impairment charges for the three months ended April 4, 2021 related primarily to impairment of equipment from previously impaired and closed restaurants. For the three months ended April 4, 2021, other lease charges (recoveries) related primarily to a gain from a lease termination.

The Company determines the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilizes third-party information such as a broker quoted value to determine the fair value of the property, when applicable. The Company also utilizes discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilizes current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. There were no impairment charges for the three months ended April 3, 2022.