Impairment of Long-Lived Assets and Restaurant Closure Charges

8 Months Ended

Sep. 08, 2020

Restructuring and Related Activities [Abstract]

Impairment of Long-Lived Assets and Restaurant Closure Charges

Impairment of Long-Lived Assets and Restaurant Closure Charges

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company evaluates such cash flows for individual restaurants and franchise agreements on an undiscounted basis. If it is determined that the carrying amounts of such long-lived assets are not recoverable, the assets are written down to their estimated fair values. We generally estimate fair value using the discounted value of the estimated cash flows associated with the respective restaurant or agreement, using Level 3 inputs. The impairment charges represent the excess of each operating lease right-of-use asset, furniture, fixtures and equipment and leasehold improvement's carrying amount over its estimated fair value.

During the twelve and thirty-six weeks ended September 8, 2020, the Company evaluated certain restaurants having indicators of impairment based on operating performance, taking into consideration the negative impact of the COVID-19 pandemic on forecasted restaurant performance, which resulted in elevated impairment charges for the thirty-six weeks ended September 8, 2020. No impairment charges were recorded during the twelve weeks ended September 8, 2020. During the thirty-six weeks ended September 8, 2020, the Company recorded a non-cash impairment charge totaling $8.3 million related to eight restaurants based on the estimate of future recoverable cash flows.

During the twelve weeks ended September 10, 2019, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $1.4 million related to one restaurant based on the estimate of future recoverable cash flows. During the thirty-six weeks ended September 10, 2019, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $5.1 million related to three restaurants based on the estimate of future recoverable cash flows.

Restaurant Closure Charges

The restaurant closure liability was $0.5 million and $0.4 million at September 8, 2020 and December 31, 2019, respectively, and relates to the non-lease executory costs associated with company-operated restaurants that were closed during the fourth quarter of 2015. A summary of the restaurant closure liability activity for these closed restaurants consisted of the following (in thousands):

	36 Weeks Ended
	September 8, 2020		September 10, 2019
Beginning Balance	$	437	$	2,092
Reclassified to operating lease right-of-use assets	—		(1,900)
Cash payments	(2)		(192)
Adjustments to estimates based on current activity	—		118
Accretion	16		—
Ending Balance	$	451	$	118

During the thirty-six weeks weeks ended September 10, 2019, in connection with the adoption of ASU 2016-02, Leases, the Company reclassified $1.9 million of the lease-related restaurant closure liability to offset the respective operating lease right-of-use assets.

The current portion of the restaurant closure liability was $0.2 million and $0.1 million as of September 8, 2020 and December 31, 2019, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability was $0.3 million as of both September 8, 2020 and December 31, 2019, respectively, and is included in other non-current liabilities in the consolidated balance sheets. The restaurant closure liability is expected to be settled by 2022.