Goodwill and Other Intangible Assets

8 Months Ended

Sep. 08, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the carrying amount of goodwill for the thirty-six weeks ended September 8, 2020 are as follows (in thousands):


	Goodwill
Balance as of December 31, 2019	$	192,739
Goodwill reclassified from held for sale	3,517
Impairment of goodwill	(87,277)
Balance as of September 8, 2020	$	108,979

The decrease in goodwill was primarily due to an impairment of $87.3 million during the thirty-six weeks ended September 8, 2020. In March 2020, the outbreak of the COVID-19 pandemic prompted authorities in most jurisdictions where the Company operates to issue stay-at-home orders, leading to an unexpected significant disruption to the Company's business requiring the Company to close restaurant dining rooms and operate with only drive-thru, take-out and delivery orders. As such, the consequences of the outbreak of the COVID-19 pandemic coupled with a sustained decline in the Company's stock price were determined to be indicators of impairment. As such, using Level 3 inputs, the Company performed a quantitative goodwill impairment assessment during the first quarter of 2020 using both the discounted cash flow method and guideline public company method to determine the fair value of its reporting unit. Significant assumptions and estimates used in determining fair value include future revenues, operating costs, working capital changes, capital expenditures, a discount rate that approximates the Company's weighted average cost of capital and a selection of comparable companies. Based on the quantitative assessment, the Company determined that the fair value of its reporting unit was less than its carrying value and recognized a non-cash goodwill impairment charge of $87.3 million, equal to the excess of the reporting unit's carrying value above its fair value. The impairment charge was recorded in impairment of goodwill on the consolidated statements of comprehensive income (loss). Since June 30, 2015, the date of the business combination between Del Taco and Levy Acquisition Corporation, accumulated goodwill impairment losses were $205.6 million and $118.3 million as of September 8, 2020 and December 31, 2019, respectively.

In conjunction with the quantitative goodwill impairment assessment during the first quarter of 2020, the Company also performed a quantitative impairment assessment of its indefinite-lived trademarks. Using Level 3 inputs, the Company used the relief from royalty method to determine the fair value of its trademarks. Significant assumptions and estimates used in determining fair value include future revenues, the royalty rate, franchise attrition, brand maintenance expenses and a discount rate that approximates the Company's weighted average cost of capital. Based on the quantitative assessment, the Company determined the fair value of its trademarks was less than its carrying value and recognized a non-cash impairment charge of $11.9 million during the thirty-six weeks ended September 8, 2020, equal to the excess of the trademarks' carrying value above their fair value. The impairment charge was recorded in impairment of trademarks on the consolidated statements of comprehensive income (loss).

The Company’s other intangible assets at September 8, 2020 and December 31, 2019 consisted of the following (in thousands):


	September 8, 2020										December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Sublease assets	$	1,820	$	(157)	$	1,663	$	1,340	$	(82)	$	1,258
Franchise rights	13,995		(6,118)		7,877		14,298		(5,465)		8,833
Reacquired franchise rights	943		(281)		662		943		(207)		736
Total amortized other intangible assets	$	16,758	$	(6,556)	$	10,202	$	16,581	$	(5,754)	$	10,827

The Company recorded sublease assets of $0.5 million and $1.0 million during the thirty-six weeks ended September 8, 2020 and September 10, 2019, respectively, in connection with the sale of company-operated restaurants (see Note 4 for more information).

During the thirty-six weeks ended September 8, 2020, the Company wrote off $0.3 million of franchise rights associated with the closure of five franchise-operated restaurants. During the thirty-six weeks ended September 10, 2019, the Company reclassified $0.5 million of franchise rights as reacquired franchise rights related to the Company's acquisition of four franchise-operated restaurants and wrote off $11,000 of franchise rights associated with the closure of one franchise-operated restaurant.