Other Charges |
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| Other Income and Expenses [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Charges |
Other Charges
Other charges consist of the following (in thousands):
Asset Impairment and Restaurant Closure Costs
For fiscal years 2017, 2016, and 2015, asset impairment and restaurant closure costs consisted of the following:
Restaurant Impairment. During 2017, the Company determined 13 Company-owned restaurants were impaired and recognized a non-cash impairment charge of $6.9 million. During 2016 and 2015, the Company impaired long-lived assets of 19 and two Company-owned restaurants, and recognized non-cash impairment charges of $24.4 million and $0.6 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 in combination 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.
The Company recognized a $0.8 million asset impairment charge due to the relocation of a restaurant during 2016.
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.
Restaurant Closures. During 2017, the Company closed two Red Robin restaurants at the end of their lease terms and closed one Red Robin restaurant that was underperforming relative to Company expectations. The related restaurant closure costs were immaterial.
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 which reopened in 2017. During 2015, the Company closed one Red Robin restaurant at the end of its lease term. The related restaurant closure costs were immaterial.
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 goodwill allocated to the restaurants closed in 2017, 2016, and 2015 was immaterial.
Litigation Contingencies
In 2016, the Company recorded $3.9 million of litigation contingencies for employment-related claims. Refer to Note 12, Commitments and Contingencies.
Reorganization Costs
During the fourth quarter of 2016, the Company recorded $1.3 million of severance costs related to Company reorganization in the U.S. and Canada.
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