Impairment and Closure Charges

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Closure and long-lived tangible asset impairment charges for the three and six months ended June 30, 2021 were as follows:


Impairment and Closure Charges	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(In millions)
Closure charges	$	1.0	$	0.7	$	2.9	$	0.7
Long-lived tangible asset impairment	1.6		17.2		1.7		17.2
Goodwill impairment	—		92.2		—		92.2
Tradename impairment	—		11.0		—		11.0
Impairment of reacquired franchise rights	—		3.3		—		3.3
Total impairment and closure charges	$	2.6	$	124.4	$	4.6	$	124.4

Closure Charges

The closure charges of $1.0 million for the three months ended June 30, 2021 related to the establishment of or revision

to closure reserves for approximately 30 IHOP restaurants. The closure charges of $2.9 million for the six months ended June 30, 2021 related to the establishment of or revision to closure reserves for approximately 50 IHOP restaurants.

Long-lived Tangible Asset Impairment

The long-lived asset impairment of $1.6 million for the three months ended June 30, 2021 related to three IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows. The long-lived asset impairment of $1.7 million for the six months ended June 30, 2021 related to four IHOP franchisee-operated restaurants. The impairment recorded represented the difference between the carrying value and the estimated fair value. The impairments related to operating lease right-of-use assets that had been recorded in 2019 upon adoption of new lease accounting guidance codified in Accounting Standards Codification Topic 842.

Goodwill and Intangible Assets

For the three and six months ended June 30, 2021, the Company determined that there were no indicators for impairment to goodwill and intangible assets.

Impairment in 2020

Most of the Company's goodwill and intangible assets arose from the November 29, 2007 acquisition of Applebee's. The Company evaluates its goodwill and the indefinite-lived Applebee's tradename for impairment annually in the fourth quarter of each year or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. Definite-lived intangible assets and long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.

In the second quarter of 2020, the Company noted that its common stock had recovered less of its early March 2020 (pre-pandemic) market value than the overall U.S. stock market had recovered. The Company also was able to assess several additional months of data as to the impact of the COVID-19 pandemic on its operations and, in turn, assess the impact that might have on the risk premium incorporated into its discount rate. Based on these developments, the Company determined that an interim quantitative test of goodwill and indefinite-lived intangible assets for impairment should be performed as of May 24, 2020. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The fair value technique used in this instance is classified as Level 3, where unobservable inputs are used when little or no market data is available.

In performing the quantitative test for impairment of goodwill, the Company used the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost of debt. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied.

In performing the impairment review of the tradename, the Company used the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

As a result of performing the quantitative test of impairment, the Company recognized an impairment of $92.2 million to the goodwill of the Applebee's franchise unit and an impairment of $11.0 million to Applebee's tradename during the three months ended June 30, 2020. The majority of the impairment was due to an increase in the assessed risk premium incorporated into the discount rate assumption.

In addition, the Company reviewed its reacquired franchising rights and determined that the carrying amount exceeded the estimated fair value by $3.3 million and has recorded an impairment to that intangible asset.