eemed to be more likely than not, a quantitative test is required that compares the fair value of the Company with its carrying amount. If the carrying amount exceeds fair value, that amount represents the impairment loss to be recognized.

Leases

The Company leases real estate for the operation of its restaurants as well as acts as a sublessor for the operation of certain franchised restaurants. As lessee, the Company is obligated under certain noncancelable leases, primarily ground leases that in certain instances it also subleases to franchisees. The Company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases.

The Company classifies its lease arrangements at inception as either operating leases or finance leases. A lease is classified as a finance lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for finance lease classification is met. We determine if an arrangement is a lease at inception of the contract. Our right-ofuse ("ROU") assets represents our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company's lease arrangements consist of real estate operating and finance leases for restaurant locations and corporate office space.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company uses judgment to determine the lease term, which in turn, impacts the applicable incremental borrowing rate ("IBR") used to calculate the initial lease liability. Management determined the present value of the lease liabilities by using the risk-free rate private company practical expedient which allows the Company to use the US Treasury rate most applicable to the lease term. As of December 30, 2024 (Successor) and January 1, 2024 (Successor), the Company does not have any operating or financing leases for which it is obligated that have not yet commenced.

As of December 30, 2024 (Successor) and January 1, 2024 (Successor), the favorable and unfavorable leasehold interests for lease agreements where the Company was the lessor, are included in favorable leasehold interests and unfavorable leasehold interests in the accompanying consolidated balance sheets.

Per the guidance in ASC 842, favorable and unfavorable leasehold interests for lease agreements where the Company is the lessee are classified in the Operating lease ROU assets, net in the accompanying consolidated balance sheets. The amortization of the ROU assets is recorded in the restaurant occupancy costs line item for Company-operated restaurant locations, in the franchise fees and other income line item for locations subleased to franchisees and in the general and administrative expenses line item for Company headquarters. These line items are presented in the accompanying consolidated statements of operations.

Prepaid Expenses

The Company prepays certain expenses such as rent, insurance, maintenance, equipment, software and service agreements for future periods. These amounts are capitalized when paid and amortized over the period in which the services are provided, not exceeding one year.

Deferred Financing Costs

Deferred financing costs attributable to funded debt are recorded as a deduction from the related debt balance when incurred and amortized into interest expense using the effective-interest method over the life of the related debt.

For the fiscal period from January 3, 2023 through June 16, 2023 (Predecessor), the Company recognized amortization expense of $0.9 million of financing costs associated with the modified first lien credit agreement (the "First Lien Credit Agreement") and second lien credit agreement (the "Second Lien Credit Agreement").

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)