Closed Restaurant Reserve

12 Months Ended

Jan. 01, 2019

Restructuring and Related Activities [Abstract]

losure Costs and Asset Disposals

The following table presents restaurant impairments, closure costs and asset disposals for fiscal years 2018, 2017 and 2016 (in thousands):



	2018		2017		2016
Restaurant impairments⁽¹⁾	$	1,453	$	16,154	$	41,615
Closure costs⁽¹⁾	4,149		20,052		2,251
Loss on disposal of assets and other ⁽²⁾	1,540		1,240		3,445
	$	7,142	$	37,446	$	47,311

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(1)	Restaurant impairments and closure costs in all periods presented above include amounts 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.

Restaurant Impairments

During 2018, 2017 and 2016, one restaurant, 34 restaurants and 54 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.

Restaurant Closures

During 2018, 2017 and 2016, the Company recognized $4.1 million, $20.1 million and $2.3 million of closure costs, respectively. The closure costs recognized during 2018 are primarily related to the 19 restaurants closed throughout 2018, most of which were approaching the expiration of their leases, as well as ongoing costs from restaurants closed in previous years. 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 previous years, and the closure costs recognized during 2016 are primarily related to the ongoing costs of 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 discount rates in effect on the closure date. The discount rates used to calculate the present value of the remaining non-cancellable lease payments after the closing date, net of estimated subtenant income, range from 4.45% to 6.15%. The following table contains a summary of the changes in the liability for closed restaurants as of January 1, 2019 and January 2, 2018 (in thousands):



	2018			2017
Closed restaurant reserves, beginning of period	$	8,179		$	1,880
Additions—restaurant closing costs recognized and accretion	2,843			18,341
Decreases—payments	(8,005		)	(12,042		)
Closed restaurant reserves, end of period	$	3,017		$	8,179

As of January 1, 2019 and January 2, 2018, the current portion of the liability, $1.7 million and $2.4 million, respectively, is included in accrued expenses and other current liabilities, and the long-term portion, $1.3 million and $5.8 million, respectively, is included in other long-term liabilities in the Consolidated Balance Sheets.