Texas Roadhouse, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Tabular amounts in thousands, except share and per share data)F-11
was not due to any goodwill impairment concerns within any of our reporting units. In addition, we determined this did
not represent a material change to a method of applying an accounting principle.
In the first step of the review process, we compare the estimated fair value of the restaurant with its carrying value,
including goodwill. If the estimated fair value of the restaurant exceeds its carrying amount, no further analysis is
needed. If the estimated fair value of the restaurant is less than its carrying amount, the second step of the review
process requires the calculation of the implied fair value of the goodwill by allocating the estimated fair value of the
restaurant to all of the assets and liabilities of the restaurant as if it had been acquired in a business combination. The
residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the carrying value of the
goodwill associated with the restaurant exceeds the implied fair value of the goodwill, an impairment loss is recognized
for that excess amount.
The valuation approaches used to determine fair value are subject to key judgments and assumptions that are
sensitive to change such as judgments and assumptions about appropriate revenue growth rates, operating margins,
weighted average cost of capital and comparable company and acquisition market multiples. In estimating the fair value
using the capitalization of earnings method or discounted cash flows, we consider the period of time the restaurant has
been open, the trend of operations over such period and future periods, expectations of future sales growth and terminal
value. Assumptions about important factors such as the trend of future operations and sales growth are limited to those
that are supportable based upon the plans for the restaurant and actual results at comparable restaurants. When
developing these key judgments and assumptions, we consider economic, operational and market conditions that could
impact fair value. The judgments and assumptions used are consistent with what we believe hypothetical market
participants would use. However, estimates are inherently uncertain and represent only our reasonable expectations
regarding future developments. If the estimates used in performing the impairment test prove inaccurate, the fair value
of the restaurants may ultimately prove to be significantly lower, thereby causing the carrying value to exceed the fair
value and indicating impairment has occurred.
In 2019, 2018 and 2017, as a result of our annual goodwill impairment analysis, we determined that there was no
goodwill impairment. Refer to note 7 for additional information related to goodwill and intangible assets.
(i) Other AssetsOther assets consist primarily of deferred compensation plan assets, investments in unconsolidated affiliates and
deposits. For further discussion of the deferred compensation plan, see note 15.
(j) Impairment or Disposal of Long-lived AssetsIn accordance with ASC 360, Property, Plant and Equipment, long-lived assets related to each restaurant to be held
and used in the business, such as property and equipment, right-of-use assets and intangible assets subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of a restaurant may not be recoverable. When we evaluate restaurants, cash flows are the primary indicator of
impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the
restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant. Under our policies,
trailing 12-month cash flow results under a predetermined amount at the individual restaurant level signals potential
impairment. In our evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted
cash flows from operating the restaurant over its estimated useful life, which can be for a period of over 20 years. In the
estimation of future cash flows, we consider the period of time the restaurant has been open, the trend of operations over
such period and future periods and expectations of future sales growth. Assumptions about important factors such as the
trend of future operations and sales growth are limited to those that are supportable based upon the plans for the
restaurant and actual results at comparable restaurants. If the carrying amount of the restaurant exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount
exceeds the estimated fair value of the assets. We generally measure fair value by independent third party appraisal or
discounting estimated future cash flows. When fair value is measured by discounting estimated future cash flows, the