Goodwill

The significant majority of the Company's goodwill arose from the November 29, 2007 acquisition of Applebee's. Changes in the carrying amount of goodwill for the years ended December 31, 2017, 2016 and 2015 are as follows:



	Applebee's Franchise Unit			IHOP Franchise Unit		Total
	(In millions)
Balance at December 31, 2015:
Goodwill, gross	$	686.7		$	10.8	$	697.5
Accumulated impairment loss	—			—		—
Goodwill	686.7			10.8		697.5
2016 impairment loss	—			—		—
Balance at December 31, 2016:
Goodwill, gross	$	686.7		$	10.8	$	697.5
Accumulated impairment loss	—			—		—
Goodwill	686.7			10.8		697.5
2017 impairment loss	(358.2		)	—		(358.2		)
Balance at December 31, 2017:
Goodwill, gross	686.7			10.8		697.5
Accumulated impairment loss	(358.2		)	—		(358.2		)
Goodwill	$	328.5		$	10.8	$	339.2

The Company assessed goodwill for impairment in accordance with its policy described in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies. In the third quarter of 2017, the Company noted that the decline in the market price of the Company's common stock since December 31, 2016, which the Company had believed to be temporary, persisted throughout the first eight months of 2017 and that the favorable trend in Applebee's domestic same-restaurant sales experienced in the second quarter of 2017 did not continue into the first two months of the third quarter of 2017. The Company also noted a continuing increase in Applebee's bad debt expense and in royalties not recognized in income until paid in cash. Additionally, the Company also determined an increasing shortfall in franchisee contributions to the Applebee's national advertising fund could require a larger amount of future subsidization in the form of additional franchisor contributions to the fund than previously estimated. Based on these unfavorable developments, the Company determined that indicators of impairment existed and that an interim test of goodwill for impairment should be performed in the third quarter of 2017.

In performing the quantitative test of goodwill, the Company primarily used the income approach method of valuation that included the discounted cash flow method and the market approach that included the guideline public company method to determine the fair value of goodwill and intangible assets. Significant assumptions used to determine fair value under the discounted cash flow model included expected future trends in sales, operating expenses, overhead expenses, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost of debt.

As a result of performing the quantitative test of impairment, the Company recognized an impairment of Applebee's goodwill of $358.2 million. The Company adopted the guidance in FASB Accounting Standards Update 2017-04 on January 1, 2017; accordingly, the amount of the goodwill impairment was determined as the amount by which the carrying amount of the goodwill exceeded the fair value of the Applebee's franchise reporting unit as estimated in the impairment test. The impairment of goodwill is not deductible for federal income tax purposes and therefore had no associated tax benefit.

In the fourth quarter of fiscal 2017, the Company performed a qualitative assessment of the goodwill of the Applebee's franchise unit and the IHOP franchise unit and concluded it was more-likely-than-not that the fair values exceeded the respective carrying amounts.

In the fourth quarter of fiscal 2016, the Company performed a quantitative test of the goodwill of the Applebee's franchise reporting unit and a qualitative test of the goodwill of the IHOP franchise unit. The Company considers a reporting unit at risk when its fair value is not higher than its carrying amount by more than 10%. Since the fair value of the Applebee's Franchise Reporting Unit exceeded the carrying value of the unit by 9%, the goodwill of the Applebee's Franchise Reporting Unit was considered at risk as of December 31, 2016.