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Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair value measurements
Fair Value Measurements

Fair Value Measurements on a Recurring Basis

In connection with the 2012 CMBS Loan, the Company entered into an interest rate cap with a notional amount of $48.7 million as a method to limit the volatility of the floating rate component of the first mortgage loan. This interest rate cap had a nominal fair market value at March 31, 2013 and December 31, 2012.

Fair Value Measurements on a Nonrecurring Basis

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 months ended March 31, 2013 and 2012 aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

 
 
MARCH 31, 2013
 
 
 
 
 
 
REMAINING FAIR VALUE
 
THREE MONTHS ENDED
MARCH 31, 2013
 
 
CARRYING VALUE
 
LEVEL 1
 
LEVEL 2
 
LEVEL 3
 
TOTAL
LOSSES
Long-lived assets held and used
 
$
4,434

 
$
—

 
$
3,383

 
$
1,051

 
$
1,082



 
 
MARCH 31, 2012
 
 
 
 
 
 
REMAINING FAIR VALUE
 
THREE MONTHS ENDED
MARCH 31, 2012
 
 
CARRYING VALUE
 
LEVEL 1
 
LEVEL 2
 
LEVEL 3
 
TOTAL
LOSSES
Long-lived assets held and used
 
$
864

 
$
—

 
$
650

 
$
214

 
$
3,884



The Company recorded $1.1 million and $3.9 million of impairment charges as a result of the fair value measurement on a nonrecurring basis of its long-lived assets held and used during the three months ended March 31, 2013 and 2012, respectively, primarily related to certain specifically identified restaurant locations that have, or are scheduled to be, relocated or closed or are under-performing. The impaired long-lived assets had $4.4 million and $0.9 million of remaining fair value at March 31, 2013 and 2012, respectively. Restaurant closure and related expenses of $0.8 million and $0.5 million were recognized for the three months ended March 31, 2013 and 2012, respectively.  Impairment losses for long-lived assets held and used and restaurant closure and related expenses were recognized in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income.

The Company primarily used third-party market appraisals (Level 2) and discounted cash flow models (Level 3) to estimate the fair value of the long-lived assets included 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.  

The following table presents quantitative information related to the range of unobservable inputs used in the Company’s Level 3 fair value measurements for the impairment losses incurred in the three months ended March 31, 2013 and 2012:
 
 
THREE MONTHS ENDED MARCH 31,
UNOBSERVABLE INPUT
 
2013
 
2012
Weighted-average cost of capital
 
9.5%
 
11.2%
Long-term growth rates
 
2.0%
 
3.0%
Annual revenue growth rates (1)
 
2.4% - 3.0%
 
(8.7)% - 3.0%
________________
(1)
Weighted averages of the annual revenue growth rates unobservable input range for the three months ended March 31, 2013 and 2012 were 2.6% and 2.4%, respectively.

The Company performed its annual goodwill and other indefinite-lived intangible assets impairment test during the second quarter of 2012 and did not have any impairment charges.  

Interim Disclosures about Fair Value of Financial Instruments

The Company’s non-derivative financial instruments at March 31, 2013 and December 31, 2012 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 term loan B facility is determined based on quoted market prices in inactive markets. The fair value of New PRP’s commercial mortgage-backed securities is based on assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management.  Fair value estimates for other notes payable 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. 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 tables include the carrying value and fair value of the Company’s financial instruments at March 31, 2013 and December 31, 2012 aggregated by the level in the fair value hierarchy in which those measurements fall (in thousands):

 
 
MARCH 31, 2013
 
 
 
 
FAIR VALUE
 
 
CARRYING VALUE
 
LEVEL 1
 
LEVEL 2
 
LEVEL 3
Senior secured term loan B facility (1)
 
$
975,000

 
$
—

 
$
985,969

 
$
—

Mortgage loan (2)
 
317,621

 
—

 
—

 
334,927

First mezzanine loan (2)
 
86,800

 
—

 
—

 
90,133

Second mezzanine loan (2)
 
87,103

 
—

 
—

 
91,284

Other notes payable (1)
 
7,213

 
—

 
—

 
6,738



 
 
DECEMBER 31, 2012
 
 
 
 
FAIR VALUE
 
 
CARRYING VALUE
 
LEVEL 1
 
LEVEL 2
 
LEVEL 3
Senior secured term loan B facility (1)
 
$
1,000,000

 
$
—

 
$
1,010,000

 
$
—

Mortgage loan (2)
 
319,574

 
—

 
—

 
334,678

First mezzanine loan (2)
 
87,048

 
—

 
—

 
90,371

Second mezzanine loan (2)
 
87,273

 
—

 
—

 
91,423

Other notes payable (1)
 
9,848

 
—

 
—

 
9,230

_______________
(1)
Represents obligations of OSI.
(2)
Represents obligations of New PRP.