Asset Impairment and Restaurant Closures |
12 Months Ended |
|---|---|
Dec. 25, 2016 | |
| Restructuring and Related Activities [Abstract] | |
| Asset Impairment and Restaurant Closures |
Asset Impairment and Restaurant Closures
Restaurant Impairment
During 2016, the Company determined that 19 Company-owned restaurants were impaired and recognized a non-cash impairment charge of $24.4 million. During 2015 and 2014, the Company impaired long-lived assets of two and three Company-owned restaurants, and recognized non-cash impairment charges of $0.6 million and $1.2 million.
The Company recognized the impairment charges resulting from 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. Each restaurant’s past and present operating performance was reviewed combined with projected future results, primarily through projected undiscounted cash flows. 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. In certain cases, management uses other 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.
In addition, the Company recognized a $0.8 million asset impairment charge due to the relocation of a restaurant during 2016. No impairments were recorded in 2015 or 2014 related to the relocation of restaurants.
Impairment of Software
During the fourth quarter of 2016, the Company determined certain software related to its Enterprise Resource Planning (“ERP”) system would be obsolete upon migration to a cloud-based ERP system in 2017. The Company also determined certain software in development for supply chain management would not meet the Company’s requirements if it were implemented. As a result, the Company recorded a $2.5 million impairment charge to write down the capitalized costs associated with this software.
No impairments related to software in development or use were recorded in 2015. During 2014, the Company determined certain software in development related to the supply chain and human resource management modules of an ERP system would not meet the Company’s requirements if they were implemented. As a 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 2016, the Company closed nine Red Robin Burger Works restaurants, a smaller non-traditional prototype with a limited menu and limited service, that were underperforming relative to Company expectations and recognized $6.7 million of restaurant closure costs, which comprised $3.7 million in fixed asset disposal costs; $2.7 million in charges related to future lease obligations and contract termination costs; and immaterial termination benefits, inventory write off costs, and other closure-related costs.
During 2016, the Company closed two Red Robin restaurants at the end of their lease terms, closed one Red Robin restaurant and sold the property for an immaterial loss, and temporarily closed one Red Robin restaurant that is expected to reopen in 2017. During 2015, the Company closed one Red Robin restaurant at the end of its lease term. In 2014, the Company closed three Red Robin restaurants that were underperforming relative to Company expectations and temporarily closed one Red Robin restaurant due to public construction which reopened in 2015. The three restaurants permanently closed in 2014 had been impaired 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 2016, 2015, or 2014, because those restaurants did not have positive cash flow and consequently did not have positive fair value.
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