Impairment of Long-Lived Assets and Goodwill

3 Months Ended

Dec. 31, 2019

Goodwill and Intangible Asset Impairment [Abstract]

Impairment of Long-Lived Assets and Goodwill

Note 12. Impairment of Long-Lived Assets and Goodwill

Long-Lived Assets. We review our long-lived assets including land, property and equipment for impairment when there are factors that indicate that the carrying amount of an asset may not be recoverable. We assess recovery of assets at the individual restaurant level and typically include an analysis of historical cash flows, future operating plans, and cash flow projections in assessing whether there are indicators of impairment. Recoverability of assets to be held and used is measured by comparing the net book value of the assets of an individual restaurant to the fair value of those assets. This impairment process involves significant judgment in the use of estimates and assumptions pertaining to future projections and operating results.

Given the results of our analysis at September 24, 2019, we identified five restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets.

Two of these restaurants are Good Times restaurants in the greater Denver metropolitan area. We recorded a non-cash charge of $391,000, related to the impairment of these restaurants in the fiscal quarter ending September 24, 2019. In July of 2019, the Company entered into a sublease agreement for one of these two restaurants whereby the Company, upon lease commencement subject to due diligence provisions, will receive sublease income substantially equal to its cash lease costs associated with this location. We continued to operate the restaurant until December 31, 2019 and the sublease commenced in early February 2020.

Three of these restaurants are Bad Daddy’s restaurants, two in the Denver/front-range communities of Colorado and Greenville, South Carolina. We recorded non-cash charges of $2,380,000 related to the impairment of these restaurants during the fiscal quarter ending September 24, 2019.

Trademarks. Trademarks have been determined to have an indefinite life. We evaluate our trademarks for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the trademarks with their carrying amount. There was no impairment required to the acquired trademarks as of December 31, 2019 and December 25, 2018.

Goodwill. Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of two reporting units: (1) Good Times restaurants and (2) Bad Daddy’s restaurants. As of December 31, 2019, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and $15,054,000 of goodwill attributable to its Bad Daddy’s reporting unit. No goodwill impairment charges were recognized as of December 31, 2019 and December 25, 2018.