FAIR VALUE MEASUREMENTS

9 Months Ended

Mar. 25, 2020

Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value, as follows:


•	Level 1 - inputs are quoted prices in active markets for identical assets or liabilities.


•	Level 2 - inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.


•	Level 3 - inputs are unobservable and reflect our own assumptions.

Non-Financial Assets Measured on a Non-Recurring Basis

We review the carrying amounts of property and equipment, operating lease assets, reacquired franchise rights and transferable liquor licenses semi-annually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount. We record an impairment charge for the excess of the carrying amount over the fair value. All impairment charges were included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income for the periods presented. Refer to Note 6 - Other Gains and Charges for more information. Refer to Note 2 - Novel Coronavirus Pandemic for further details on the analysis of the COVID-19 pandemic as a potential triggering event for impairment in the third quarter of fiscal 2020.

During the thirty-nine week period ended March 25, 2020, we impaired certain long-lived and lease assets primarily related to 10 underperforming Chili’s restaurants. Additionally, we impaired certain finance and operating lease assets related to previously closed Chili’s restaurants. During the thirty-nine week period ended March 27, 2019, we impaired certain long-lived assets primarily related to two underperforming restaurants. We determined the fair value of these assets based on Level 3 fair value measurements. The table below presents the carrying values and related impairment expenses recorded on these impaired restaurants for the periods presented.



					Impairment Charges
	Pre-Impairment Carrying Value				Thirty-Nine Week Periods Ended
	March 25, 2020		March 27, 2019		March 25, 2020		March 27, 2019
Underperforming restaurants
Long-lived assets	$	4.5	$	1.0	$	4.5	$	1.0
Finance lease assets	0.1		—		0.1		—
Total underperforming restaurants	$	4.6	$	1.0	$	4.6	$	1.0
Closed restaurants
Operating lease assets	$	6.4	$	—	$	1.8	$	—
Finance lease assets	5.8		—		1.4		—
Total closed restaurants	$	12.2	$	—	$	3.2	$	—

Intangibles, net in the Consolidated Balance Sheets (Unaudited) includes indefinite-lived intangible assets such as the transferable liquor licenses and definite-lived intangible assets that include reacquired franchise rights and other items such as trademarks. Intangibles, net included accumulated amortization associated with definite-lived intangible assets at March 25, 2020 and June 26, 2019, of $7.1 million and $7.0 million, respectively.

We determine the fair value of transferable liquor licenses based on prices in the open market for licenses in the same or similar jurisdictions that is considered Level 2. During the thirteen and thirty-nine week periods ended March 25, 2020 and March 27, 2019, no indicators of impairment were identified.

Goodwill

We review the carrying amounts of goodwill annually or when events or circumstances indicate that the carrying amount may not be recoverable. We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value. If a qualitative assessment is not performed, or if the result of the qualitative assessment indicates a potential impairment, then the reporting unit’s fair value is compared to its carrying value. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the implied fair value of the goodwill.

Related to the qualitative assessment, changes in circumstances existing at the measurement date or at other times in the future, such as declines in our market capitalization, as well as in the market capitalization of other companies in the restaurant industry, declines in sales at our restaurants, and significant adverse changes in the operating environment for the restaurant industry could result in an impairment loss of all or a portion of our goodwill.

We performed our goodwill impairment tests at the end of the second quarter of fiscal 2019 and fiscal 2020 in accordance with our policy and no indicators of impairment were identified. Refer to Note 2 - Novel Coronavirus Pandemic for further details on the updated analysis of the COVID-19 pandemic as a triggering event for impairment in the third quarter of fiscal 2020.

Chili’s Restaurant Acquisition

In the first quarter of fiscal 2020, we completed the acquisition of 116 Chili’s restaurants. The fair value of assets acquired, including goodwill, and liabilities assumed for these restaurants utilized Level 3 inputs. The fair values of intangible assets acquired were primarily based on significant inputs not observable in an active market, including estimates of replacement costs, future cash flows, and discount rates. Refer to Note 3 - Chili’s Restaurant Acquisition for further details.

Other Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of the short maturity of these items. The carrying amount of debt outstanding related to the amended revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2). The fair values of the 3.875% and 5.000% notes are based on quoted market prices and are considered Level 2 fair value measurements.

The carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values of the 3.875% notes and 5.000% notes are as follows, refer to Note 10 - Debt for further details:



	March 25, 2020				June 26, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
3.875% notes	$	298.9	$	194.3	$	298.6	$	296.3
5.000% notes	346.5		213.5		345.9		356.2

The decrease in fair value of the 3.875% notes and 5.000% notes from June 26, 2019 to March 25, 2020 was due to the impact of the COVID-19 pandemic, refer to Note 2 - Novel Coronavirus Pandemic for further details.

Long-Term Note Receivable

During fiscal 2018, we received an $18.0 million long-term note receivable as consideration related to the sale of our equity interest in the Chili’s joint venture in Mexico. We determined the fair value of this note based on an internally developed analysis relying on Level 3 inputs at inception. This analysis was based on a credit rating we assigned to the counterparty and comparable interest rates associated with similar debt instruments observed in the market. As a result of the initial analysis, we determined the fair value of this note was approximately $16.0 million and recorded this fair value as its initial carrying value. We believe the fair value of the note receivable continues to approximate the carrying value, which at March 25, 2020 was $7.0 million. The current portion of the note, which represents the cash payments to be received over the next 12 months, is included within Accounts receivable, net while the long-term portion of the note is included in Other assets in the Consolidated Balance Sheets (Unaudited). Refer to Note 6 - Other Gains and Charges for further details about this note receivable.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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