9. Goodwill and Other Intangibles

9 Months Ended

Jul. 04, 2012

Notes to Financial Statements

9. Goodwill and Other Intangibles

Note 9. Goodwill and Other Intangibles

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions. There was no change to the carrying value of goodwill from September 28, 2011.

We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The analysis of potential impairment of goodwill requires a two-step approach. The first step is the estimation of fair value of each reporting unit. If step one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

During the quarter ended September 28, 2011, we performed our annual assessment of the recoverability of our goodwill related to four reporting units related to our Steak n Shake operations. During the second quarter of fiscal year 2012, we performed our annual assessment of our recoverability of goodwill related to two reporting units related to our Western operations. The valuation methodology and underlying financial information included in our determination of fair value require significant judgments to be made by management. We use both market and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

Other Intangibles

Other intangibles are composed of the following:

	July 4, 2012							September 28, 2011
		Gross carrying amount		Accumulated amortization			Total		Gross carrying amount		Accumulated amortization			Total
Right to operate	$	1,480	$	(1,208	)	$	272	$	1,480	$	(1,117	)	$	363
Franchise agreement		5,310		(1,195	)		4,115		5,310		(797	)		4,513
Other		810		(524	)		286		810		(480	)		330
Total		7,600		(2,927	)		4,673		7,600		(2,394	)		5,206
Intangible assets with indefinite lives		1,744		—			1,744		1,744		—			1,744
Total intangible assets	$	9,344	$	(2,927	)	$	6,417	$	9,344	$	(2,394	)	$	6,950

Intangible assets subject to amortization consist of franchise agreements acquired in connection with the acquisition of Western, a right to operate and favorable leases acquired in connection with prior acquisitions and are being amortized over their estimated weighted average useful lives ranging from eight to twelve years.

Amortization expense for the twelve weeks ended July 4, 2012 and July 6, 2011 was $169 and $186, respectively. Amortization expense for the forty weeks ended July 4, 2012 and July 6, 2011 was $533 and $567, respectively. Total annual amortization expense for each of the next five years will approximate $625.

Intangible assets with indefinite lives consist of a trade name acquired in connection with the acquisition of Western and reacquired franchise rights acquired in connection with previous acquisitions.