Closed Restaurant Reserve

12 Months Ended

Jan. 02, 2018

Restructuring and Related Activities [Abstract]

losure Costs and Asset Disposals

The following table presents restaurant impairments, closure costs and asset disposals for fiscal years 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
Restaurant impairments⁽¹⁾	$	16,154	$	41,615	$	25,436
Closure costs⁽¹⁾	20,052		2,251		3,076
Loss on disposal of assets and other ⁽²⁾	1,240		3,445		1,104
	$	37,446	$	47,311	$	29,616

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(1)	Restaurant impairments and closure costs can include expenditures related to restaurants previously impaired or closed.


(2)	Included in loss on disposal of assets and other for the fiscal year 2016 is a $1.1 million charge to reduce capitalized labor and overhead as a result of the reduced growth for new restaurant development and a $0.5 million gain from insurance proceeds received for property damage in excess of the loss recognized.

Restaurant Impairments

During 2017, 2016 and 2015, 34 restaurants, 54 restaurants and 39 restaurants were identified as impaired, respectively. Impairment is based on management’s current assessment of the expected future cash flows of various restaurants based on recent results and other specific market factors. Impairment expense is a Level 3 fair value measure and was determined by comparing the carrying value of restaurant assets to the estimated fair market value of the restaurant assets at resale value.

In performing its impairment testing, the Company forecasts the future undiscounted cash flows by looking at recent restaurant level performance, restaurant level operating plans, sales trends and cost trends for cost of sales, labor and operating expenses. The Company compares this cash flow forecast to the asset’s carrying value at the restaurant. Based on this analysis, if the carrying amount of the assets is greater than the estimated future undiscounted cash flows, an impairment charge is recognized, measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value is determined based on a discounted cash flows analysis using a discount rate of 10% or at salvage value if expected cash flows are not material.

Restaurant Closures

During 2017, 2016 and 2015, the Company recognized $20.1 million, $2.3 million and $3.1 million of closure costs, respectively. The closure costs recognized during 2017 are primarily related to the 55 restaurants closed during the first quarter of 2017 and ongoing costs of restaurants closed in the fourth quarter of 2015. The closure costs recognized during 2016 are related to the ongoing costs of restaurants closed during 2015, and closure costs recognized during 2015 relate to the 16 restaurants closed in the fourth quarter of 2015. Closure costs can include fees from real estate advisors and brokers related to terminations of the leases and charges resulting from final adjustments to liabilities as lease terminations occur.

The measurement of an estimated closed restaurant operating lease liability is a Level 3 fair value measure. The Company provides for closed restaurant operating lease liabilities using a discount rate of 4.64% to calculate the present value of the remaining non-cancellable lease payments after the closing date, net of estimated subtenant income. The following table contains a summary of the changes in the liability for closed restaurants as of January 2, 2018 and January 3, 2017 (in thousands):



	2017			2016
Closed restaurant reserves, beginning of period	$	1,880		$	4,746
Additions—restaurant closing costs recognized and accretion	18,341			858
Decreases—payments	(12,042		)	(3,724		)
Closed restaurant reserves, end of period	$	8,179		$	1,880

As of January 2, 2018 and January 3, 2017, the current portion of the liability, $2.4 million and $0.9 million, respectively, is included in accrued expenses and other current liabilities, and the long-term portion, $5.8 million and $1.0 million, respectively, is included in other long-term liabilities in the Consolidated Balance Sheets.