Annual report pursuant to Section 13 and 15(d)

Impairment and Restaurant Closures

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Impairment and Restaurant Closures
12 Months Ended
Dec. 27, 2015
Restructuring and Related Activities [Abstract]  
Impairment and Restaurant Closures
Impairment and Restaurant Closures
Restaurant Impairment
During the fourth quarter of 2015, the Company determined that two Company-owned restaurants were impaired and recognized a non-cash impairment charge of $0.6 million. During 2014 and 2013, the Company impaired long-lived assets of three and four Company-owned restaurants, and recognized non-cash impairment charges of $1.2 million and $1.5 million.
The Company recognized the impairment charges resulting from the continuing and projected future results of these restaurants, primarily through projected cash flows. Each restaurant’s past and present operating performance was reviewed combined with projected future results, primarily through projected undiscounted cash flows, which indicated possible impairment. The Company compared the carrying amount of each restaurant’s assets to its fair value as estimated by management. The fair value of the long-lived assets is generally determined using a discounted cash flow projection model to estimate expected future cash flows. In certain cases, management uses market information, when available, to estimate the fair value of a restaurant. The impairment charges represent the excess of each restaurant’s carrying amount over its estimated fair value.
Impairment of Software in Development
During the fourth quarter of 2014, the Company determined that certain software in development related to the supply chain and human resource management modules of an Enterprise Resource Planning (“ERP”) system would not meet the Company’s requirements if they were implemented. As the result, the Company recorded a $7.6 million impairment charge to write down the capitalized costs associated with the supply chain and human resource management system modules.
Restaurant Closures
During 2015, the Company closed one restaurant at the end of its lease term. In 2014, the Company closed three restaurants that operated below acceptable profitability levels and temporarily closed one restaurant due to public construction which reopened in 2015. The three restaurants permanently closed in 2014 had been impaired in 2013. The Company did not close any restaurants in 2013. The Company recorded immaterial restaurant closure expenses in 2015 and 2014.
The Company evaluates restaurants that are sold or closed and allocates goodwill based on the relative fair value of the disposal restaurants to the Company’s reporting unit. Since restaurant operations are typically valued based on cash flow from operations, the Company compares the historical cash flow from the closed restaurants to the cash flow from the reporting unit to determine the relative value. The Company allocates goodwill to disposed restaurants, if necessary. No goodwill was allocated to the restaurants that were closed in 2015 or 2014, because those restaurants did not have positive cash flow and consequently did not have positive fair value.