Intangible Assets (Notes)

12 Months Ended

Jan. 01, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Franchise Rights. Amounts allocated to franchise rights for each acquisition of Burger King and Popeyes restaurants are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one twenty-year renewal period. As described in Note 2, the Company reviews its franchise rights for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. There was $0.2 million of impairment charges recorded related to the Company's franchise rights during the year ended January 1, 2023 as a result of a restaurant closure during the period which had been previously acquired and had a remaining franchise rights carrying value. No impairment charges were recorded related to the Company's franchise rights during the years ended January 2, 2022 and January 3, 2021.

The following is a summary of the Company's franchise rights as of the respective balance sheet dates:


Balance at January 3, 2021	$	334,597
Acquisitions of restaurants (Note 3)	6,025
Amortization expense	(13,853)
Balance at January 2, 2022	326,769

Amortization expense	(13,965)
Impairment	(245)
Balance at January 1, 2023	$	312,559

Amortization expense related to franchise rights for the year ended January 3, 2021 was $14.3 million. The Company expects annual amortization to be $14.0 million in 2023 and 2024 and $13.9 million in 2025, 2026 and 2027.

Goodwill. The Company is required to review goodwill for impairment annually, or more frequently when events and circumstances indicate that the carrying amount may be impaired. The Company evaluated the impact of a sustained decline in the Company's stock price during the second quarter of 2022 due to the impact of continued increases in input costs on the Company's operating margins which resulted in an implied equity premium that was outside of an observable range and was determined to be an indicator of an impairment. As a result, the Company performed a quantitative interim goodwill impairment test for its reporting units in the second quarter of 2022. As part of this interim goodwill impairment test, the Company considered certain qualitative and quantitative factors, such as the Company's performance, business forecasts, capital expenditure plans, a discount rate approximating the Company's weighted average cost of capital, and an evaluation of peer company multiples, among other factors. Using both the income approach and the market approach, the Company compared the fair value of each of its reporting units to their respective carrying values. Based on the results of this analysis, the Company determined that the fair value of its Popeyes reporting unit was less than its carrying value, and as a result, recorded a non-cash goodwill impairment of $16.7 million. The non-cash goodwill impairment represented a full write-down of the goodwill for the Popeyes reporting unit and is included in impairment and other lease charges on the condensed consolidated statements of comprehensive loss.

The Company performs its annual goodwill impairment test as of the end of the eighth month of its fiscal year. As part of the annual goodwill impairment test, the Company considered certain qualitative and quantitative factors, such as the Company's performance, business forecasts, capital expenditure plans, a discount rate approximating the Company's weighted average cost of capital, and an evaluation of peer company multiples, among other factors. Given the nature of the qualitative and quantitative factors considered, there is a degree of uncertainty associated with these judgments and estimates. Notably, the business forecasts and market conditions considered within the Company's annual goodwill impairment test reflect the Company's long-standing history of operating Burger King restaurants in various business cycles. The forecasts do not reflect an immediate change in commodity costs or wage pressures, but do reflect a normalization of these costs over time. Using both the income approach and the discounted cash flow approach, the Company compared the fair value of the Burger King reporting unit to the carrying value for the reporting unit. Based on the results of this analysis, the fair value of the reporting unit exceeded its carrying value and goodwill was not impaired. There can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors. These estimates and judgments may not be within the control of the Company and accordingly it is possible that the factors, judgments, and estimates could change in future periods.

The Company assessed events and circumstances from the date of its annual goodwill impairment test through January 1, 2023 and there were no indicators representing a further triggering event.


Goodwill at January 3, 2021	$	122,619
Acquisition of restaurants (Note 3)	1,832
Goodwill at January 2, 2022	124,451
Impairment of goodwill	(16,700)
Goodwill at January 1, 2023	$	107,751

During the year ended January 1, 2023, $16.7 million of goodwill impairment losses were recorded. There were no goodwill impairment losses recorded during the years ended January 2, 2022 and January 3, 2021.