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v2.4.0.6
Note 9. Goodwill and Other Intangibles
3 Months Ended
Dec. 19, 2012
Goodwill and Intangible Assets Disclosure [Abstract]  
Note 9. Goodwill and Other Intangibles

 

Note 9. Goodwill and Other Intangibles

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions. There was no change to the carrying value of goodwill from September 26, 2012.

 

We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The analysis of potential impairment of goodwill requires a two-step approach. The first step is the estimation of fair value of each reporting unit. If step one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

 

During the quarter which ended September 26, 2012, we performed our annual assessment of the recoverability of our goodwill related to four reporting units for Steak n Shake. During the second quarter of fiscal year 2012, we performed our annual assessment of our recoverability of goodwill related to two reporting units for Western. The valuation methodology and underlying financial information included in our determination of fair value require significant management judgments. We use both market and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

 

No assurance that the Company’s estimates and assumptions regarding future operating results made for purposes of the goodwill impairment testing can be accurate predictors. Further declines in Western’s operating performance may require the Company to record goodwill impairment losses. Currently, it is not possible to determine whether any such future impairment losses would result or whether such losses would be material. As of December 19, 2012 Western had $18.1 million of goodwill and intangible assets.

  

 

Other Intangibles

Other intangibles are composed of the following:

 

    December 19, 2012   September 26, 2012
                 
    Gross carrying amount   Accumulated amortization   Total   Gross carrying amount     Accumulated amortization     Total
Right to operate   $   1,480   $                      (1,262)   $            218   $       1,480     $          (1,235 )   $       245
Franchise agreement        5,310              (1,461)      3,849     5,310       (1,328 )     3,982
Other           810                 (542)         268   810     (533 )   277
Total        7,600              (3,265)      4,335   7,600     (3,096 )   4,504
Intangible assets with indefinite lives        1,744                     —      1,744   1,744         1,744
Total intangible assets   $   9,344   $                      (3,265)   $            6,079   $       9,344     $          (3,096 )   $    6,248
                                   

 

Intangible assets subject to amortization consist of franchise agreements acquired in connection with the acquisition of Western, a right to operate and favorable leases acquired in connection with prior acquisitions and are being amortized over their estimated weighted average useful lives ranging from eight to twelve years.

 

Amortization expense for the twelve weeks ended December 19, 2012 and December 21, 2011 was $169, and$176, respectively. Total annual amortization expense for each of the next five years will approximate $615.

 

Intangible assets with indefinite lives consist of a trade name acquired in connection with the acquisition of Western and reacquired franchise rights acquired in connection with previous acquisitions.