Annual report pursuant to Section 13 and 15(d)

Note 6 - Franchise Rights and Goodwill

v3.7.0.1
Note 6 - Franchise Rights and Goodwill
12 Months Ended
Dec. 25, 2016
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]
(6)
Franchise Rights and Goodwill
 
During the
fourth
quarter of each year, the Company completes an analysis to determine if goodwill and certain intangible assets are impaired as of the balance sheet date. The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are inherently uncertain. During the
fourth
quarter of fiscal year
2015,
the Company changed its testing date for determining whether goodwill and other intangible assets are impaired from the last day of the fiscal year to the last day of the Company’s
48
th
fiscal week, which in fiscal year
2016
was
November
27,
2016.
The change was made to align our testing date with the timing of our budgeting and year-end reporting processes. We have determined that the change in our testing date, which represents a change in method of applying an accounting principal, is preferable under the circumstances. The change in testing date did not avoid, delay, cause or accelerate an impairment of goodwill or other intangible assets.
 
Franchise Rights
 
In accordance with FASB ASC Topic
350,
owned franchise rights that have been determined to have indefinite lives must be reviewed for potential impairment annually and when triggering events are detected.
No
impairment charges related to franchise rights were recognized in fiscal years
2016,
2015
or
2014.
 
 
To determine the fair value of acquired franchise rights, the Company used a multi-period excess earnings approach. This approach involves projecting after-royalty future earnings, discounting those earnings using an appropriate market discount rate and subtracting a contributory charge for net working capital, property and equipment, assembled workforce and customer relationships to arrive at excess earnings attributable to these franchise rights. The Company calculated the present value of cash flows generated from future excess earnings and determined that the fair values exceeded the financial statement carrying value as of
December
25,
2016.
 
Goodwill
 
No
impairment charges related to goodwill were recognized in fiscal years
2016,
2015
or
2014.
 
In performing the fiscal year
2016
evaluation of goodwill impairment under FASB ASC Topic
350
-
20,
the Company compared the carrying value of its reporting unit, which is considered to be the steakhouse operating segment, to its fair value. Consistent with the valuation of restaurant operations, the Company utilized a multiple of EBITDA to approximate the fair value of the reporting unit for purposes of completing Step
1
of the evaluation. The Company considered EBITDA multiples of publicly held companies, including its own, as well as recent industry acquisitions. As of
November
27,
2016,
the estimated fair value of the reporting unit substantially exceeded its carrying value.
 
If a reporting unit’s fair value did not exceed its carrying value as the balance sheet date, the Company would have completed Step
2
of the evaluation by comparing the implied fair value of goodwill with the net asset value of the reporting unit. The Company would have calculated the implied fair value by allocating the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the unit.
 
 
The financial statement carrying values of the Company’s franchise rights and goodwill were as follows (amounts in thousands):
 
 
 
Franchise Rights
 
 
Gross Goodwill
 
 
Accumulated
Goodwill
Impairment Losses
 
 
Net Carrying
Value of Goodwill
 
Balance as of December 27, 2015
  $
32,200
    $
34,851
    $
(10,558
)   $
24,293
 
Balance as of December 25, 2016
  $
32,200
    $
34,851
    $
(10,558
)   $
24,293