How does 1 800 Packouts account for fluctuations in the value of its 'Intangible assets, net'?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill represents the excess purchase price over fair value of net assets acquired that is not allocable to separately identifiable intangible assets. Other identifiable intangible assets primarily consist of trade names and franchise agreements in place. These assets are amortized using the straight-line method over the estimated useful life of the asset acquired.
Each of these transactions have been accounted for as a business combination using the acquisition method and the operations of the acquired entities have been consolidated with the operations of the Company as of the respective dates of the transactions. The Company has made certain measurement period adjustments to the valuation of purchase consideration for the 2021 acquisitions of Gotcha Covered and Bio One resulting in an approximately $1,500,000 increase and a $25,000 decrease to goodwill, respectively. These measurement period adjustments have been made in 2022.
The assets acquired and liabilities assumed were recorded based on their estimated fair values as of the date of acquisition as determined by management. The excess of the purchase price over the fair values of assets acquired and liabilities assumed was recorded as goodwill. The value of goodwill recognized in connection with the transactions can be attributed to a number of business factors including, but not limited to, the ability of the Company to grow given the additional capital and strategic expertise brought to the Company by the new ownership group.
Trade names were valued using a relief from royalty discounted cash flows method. Franchise agreements were valued using an excess of earnings discounted cash flows method. The estimated useful lives of trade names is 15 years, franchise agreements is 13 to 15 years, and goodwill is 10 years.
During 2024,theCompany entered into a settlementagreementfor claimsmade underthe indemnity clause ofthe purchase agreement for the 2022 acquisition agreement of 1-800 Packouts, LLC (Packouts). The Company claimed they incurred losses due to alleged breaches of franchise-related representations and warranties by the former owner of Packouts and member of the Company. In March 2024, both parties entered into a settlement agreement to resolve these claims. Under the terms of the agreement, the Company received a total settlement of $10,000,000. The settlement stipulated that the Company would repurchase the former owner's membership interest in the Company in exchange for a reduction of the legal settlement receivable at an agreed value of $4,230,000. The remaining settlement amount would be received as periodic cash payments. During the year ended December 31, 2024, the Company received cash payments totaling $4,950,000 and the remaining receivable amount of $820,000 is due in September 2025.
The Company determined that since this settlement was related to the acquisition of Packouts, the settlement of amount would be treated as a reduction in the related purchase price and the acquired assets.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, identifiable intangible assets primarily consist of trade names and franchise agreements. 1 800 Packouts amortizes these assets using the straight-line method over the estimated useful life of the asset acquired. The estimated useful lives of trade names is 15 years, and franchise agreements are valued between 13 to 15 years.
When 1 800 Packouts acquires another company, the assets acquired and liabilities assumed are recorded based on their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the fair values of assets acquired and liabilities assumed is recorded as goodwill.
Fluctuations in the value of intangible assets can also arise from legal settlements. For example, in 2024, 1 800 Packouts entered into a settlement agreement related to the 2022 acquisition of 1-800 Packouts, LLC. The company claimed losses due to alleged breaches of franchise-related representations and warranties by the former owner. The settlement amount was treated as a reduction in the related purchase price and the acquired assets. This means that the value of the intangible assets could be adjusted downwards based on the outcome of such legal settlements.