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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2012
Fair Value Disclosures [Abstract] |
Fair value measurements | Fair Value Measurements Fair Value Measurements on a Recurring Basis The Company invested $23.3 million and $37.7 million of its excess cash in money market funds classified as Cash and cash equivalents or restricted cash in its Consolidated Balance Sheets at June 30, 2012 and December 31, 2011, respectively, at a net value of 1:1 for each dollar invested. The fair value of the investment in the money market funds is determined by using quoted prices for identical assets in an active market. At December 31, 2011, the Company was highly leveraged and exposed to interest rate risk to the extent of its variable-rate debt. The Company used an interest rate cap with a notional amount of $775.7 million as a method to limit the volatility of PRP’s variable-rate commercial mortgage-backed securities loan. During the first quarter of 2012, this interest rate cap was terminated. In connection with the refinancing of the commercial mortgage-backed securities loan that was effective in March 2012, a new Rate Cap with a notional amount of $48.7 million was entered into for similar purposes (see Note 9). The interest rate caps did not have any fair market value at June 30, 2012 or December 31, 2011 and, therefore, were excluded from the applicable tables within this footnote. The following tables present the Company’s money market funds measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|  | JUNE 30, 2012
|  |  |  | FAIR VALUE
|  | CARRYING VALUE |  | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3
Assets: |  |  |  |  |  |  |  |
Money market funds - cash equivalents |  | $ | 208 |  |  | $ | 208 |  |  | $ | — |  |  | $ | — |
Money market funds - restricted cash |  | 23,084 |  |  | 23,084 |  |  | — |  |  | — |
Total recurring fair value measurements |  | $ | 23,292 |  |  | $ | 23,292 |  |  | $ | — |  |  | $ | — |
|  | DECEMBER 31, 2011
|  |  |  | FAIR VALUE
|  | CARRYING VALUE |  | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3
Assets: |  |  |  |  |  |  |  |
Money market funds - cash equivalents |  | $ | 30,208 |  |  | $ | 30,208 |  |  | $ | — |  |  | $ | — |
Money market funds - restricted cash |  | 7,499 |  |  | 7,499 |  |  | — |  |  | — |
Total recurring fair value measurements |  | $ | 37,707 |  |  | $ | 37,707 |  |  | $ | — |  |  | $ | — |
Fair Value Measurements on a Nonrecurring Basis The Company periodically evaluates long-lived assets held for use whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. The Company analyzes historical and expected future cash flows of operating locations as well as lease terms, condition of the assets and related need for repairs and maintenance. Impairment loss is recognized to the extent that the fair value of the assets is less than the carrying value. The following tables present losses related to the Company’s assets and liabilities that were measured at fair value on a nonrecurring basis during the three and six months ended June 30, 2012 aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|  | JUNE 30, 2012 |  |
|  |  |  | REMAINING FAIR VALUE |  | THREE MONTHS ENDED JUNE 30, 2012
|  | CARRYING VALUE |  | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3 |  | TOTAL LOSSES
Long-lived assets held and used |  | $ | 2,075 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,075 |  |  | $ | 4,654 |
|  | JUNE 30, 2012 |  |
|  |  |  | REMAINING FAIR VALUE |  | SIX MONTHS ENDED JUNE 30, 2012
|  | CARRYING VALUE |  | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3 |  | TOTAL LOSSES
Long-lived assets held and used |  | $ | 2,933 |  |  | $ | — |  |  | $ | 650 |  |  | $ | 2,283 |  |  | $ | 9,088 |
The Company recorded $4.7 million and $9.1 million of impairment charges during the three and six months ended June 30, 2012, respectively, as a result of fair value measurement on a nonrecurring basis primarily related to certain specifically identified restaurant locations with individual store under-performance or having been designated for relocation or renovation. At the time of the impairment recognized in the second quarter of 2012, the impaired long-lived assets had $2.1 million of remaining fair value. As of June 30, 2012, there was $2.9 million remaining fair value associated with long-lived assets for which asset impairment losses were recognized during the six months ended June 30, 2012. Impairment losses for long-lived assets held and used were recognized in the line item “Provision for impaired assets and restaurant closings” in the Consolidated Statements of Operations and Comprehensive Income. The Company used a third-party market appraisal for the fair value of the assets included in Level 2 in the tables above and primarily used discounted cash flow models to estimate the fair value of the long-lived assets included in Level 3 in the tables above. Projected future cash flows, including discount rate and growth rate assumptions, are derived from current economic conditions, expectations of management and projected trends of current operating results. As a result, the Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs that fall within Level 3 of the fair value hierarchy. The following table presents quantitative information related to the unobservable inputs used in the Company’s Level 3 fair value measurements for the impairment loss incurred in the six months ended June 30, 2012:
UNOBSERVABLE INPUT |  | RANGE
Weighted-average costs of capital (1) |  | 10.4% - 11.2%
Long-term growth rate |  | 3.0%
Annual revenue growth rates (2) |  | (8.7)% - 4.3%
________________
(1) | Weighted average of the costs of capital unobservable input range for the six months ended June 30, 2012 was 10.9%.
(2) | Weighted average of the annual revenue growth rate unobservable input range for the six months ended June 30, 2012 was 2.6%.
The Company performed its annual goodwill and other indefinite-lived intangible assets impairment test during the second quarters of 2012 and 2011 and did not have any impairment charges. The Company did not have any other material impairment charges as a result of fair value measurements on a nonrecurring basis during the three and six months ended June 30, 2011. Interim Disclosures about Fair Value of Financial Instruments The Company’s non-derivative financial instruments at June 30, 2012 and December 31, 2011 consist of cash equivalents, restricted cash, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying amounts reported in the Consolidated Balance Sheets due to their short duration. The fair value of OSI’s senior secured credit facilities and senior notes is determined based on quoted market prices in inactive markets. The fair value of PRP’s and New PRP’s commercial mortgage-backed securities is based on assumptions derived from current conditions in the real estate and credit environments, changes in the underlying collateral and expectations of management. Fair value estimates for other notes payable and guaranteed debt are derived using a discounted cash flow approach. Discounted cash flow inputs primarily include cost of debt rates which are used to derive the present value factors for the determination of fair value. Guaranteed debt fair value also includes assumptions of the probability and timing of performance under the guarantee. These inputs represent assumptions impacted by economic conditions and management expectations and may change in the future based on period-specific facts and circumstances. The following table includes the carrying value and fair value of the Company’s financial instruments (excluding cash equivalents and restricted cash shown in the table above) at June 30, 2012 aggregated by the level in the fair value hierarchy in which those measurements fall (in thousands):
|  | JUNE 30, 2012
|  |  |  | FAIR VALUE
|  | CARRYING VALUE |  | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3
Senior secured term loan facility (1) |  | $ | 1,007,850 |  |  | $ | — |  |  | $ | 990,213 |  |  | $ | — |
Mortgage loan (2) |  | 323,530 |  |  | — |  |  | — |  |  | 323,530 |
First mezzanine loan (2) |  | 87,465 |  |  | — |  |  | — |  |  | 87,465 |
Second mezzanine loan (2) |  | 87,520 |  |  | — |  |  | — |  |  | 87,520 |
Senior notes (1) |  | 248,075 |  |  | — |  |  | 254,897 |  |  | — |
Other notes payable (1) |  | 9,213 |  |  | — |  |  | — |  |  | 8,585 |
Guaranteed debt (1) |  | 24,500 |  |  | — |  |  | — |  |  | 22,790 |
_______________
(1) | Represents obligations of OSI.
(2) | Represents obligations of New PRP.
The carrying amounts of PRP’s commercial mortgage-backed securities loan and OSI’s Other notes payable and Guaranteed debt approximated fair value at December 31, 2011. The following table includes the carrying value and fair value of OSI’s senior secured credit facilities and senior notes at December 31, 2011 (in thousands):
| DECEMBER 31, 2011
| CARRYING VALUE |  | FAIR VALUE
Senior secured term loan facility | $ | 1,014,400 |  |  | $ | 953,536 |
Senior secured pre-funded revolving credit facility | 33,000 |  |  | 31,020 |
Senior notes | 248,075 |  |  | 254,277 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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