Asset Impairment and Restaurant Closures |
9 Months Ended |
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Oct. 02, 2016 | |
| Restructuring and Related Activities [Abstract] | |
| Asset Impairment and Restaurant Closures |
Asset Impairment and Restaurant Closures
During the twelve and forty weeks ended October 2, 2016, the Company determined that two and eight Company-owned restaurants were impaired and recognized non-cash impairment charges of $3.8 million and $7.7 million. The Company recognized the impairment charges based on the continuing and projected future results of these restaurants, primarily through projected cash flows. The fair value measurement for asset impairment is based on significant inputs not observed in the market and thus represents a level 3 fair value measurement. In addition, the Company recognized a $0.8 million asset impairment charge due to the relocation of a restaurant during the forty weeks ended October 2, 2016. No impairments were recorded during the forty weeks ended October 4, 2015.
On September 30, 2016, the Company closed nine Red Robin Burger Works restaurants that were underperforming relative to Company expectations and recognized $5.5 million of restaurant closure costs, which comprised $3.7 million in fixed asset disposal costs, $1.5 million in charges related to future lease obligations, and immaterial one-time termination benefits, inventory write off costs, and other closure-related costs.
The Company evaluates restaurants that are sold or closed and allocates goodwill based on the relative fair value of the disposed restaurants to the Company’s reporting unit. Because 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 Red Robin Burger Works restaurants that were closed during the forty weeks ended October 2, 2016, because those restaurants did not have positive cash flow and consequently did not have positive fair value.
The Company closed one restaurant at the end of its lease term during the second quarter of 2016. The Company also closed one restaurant during the first quarter of 2016 and sold the property for an immaterial loss. The Company closed one restaurant at the end of its lease term during the forty weeks ended October 4, 2015.
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