How does 1 800 Packouts calculate its goodwill, net amount?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company amortizes goodwill over a period of ten years. The Company evaluates the recoverability of the carrying amount of goodwill at the entity level whenever events or circumstances indicate the carrying amount may not be recoverable. Management has determined there was no impairment as of December 31, 2023 and 2022.
| (1) | 2024 | 2023 | |
|---|---|---|---|
| Goodwill, net | 52,556,496 | 66,184,756 |
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, goodwill is an intangible asset that arises when one company acquires another. It represents the value of the acquired company's brand name, customer relationships, intellectual property, and any other factors that allow it to generate more revenue than its tangible assets would suggest. The 2025 FDD states that 1 800 Packouts amortizes goodwill over a period of ten years. This means that the value of goodwill is gradually expensed over that period.
The FDD also indicates that 1 800 Packouts evaluates the recoverability of the carrying amount of goodwill at the entity level whenever events or circumstances indicate the carrying amount may not be recoverable. Essentially, 1 800 Packouts assesses whether the recorded value of goodwill on its balance sheet is still accurate. Factors that could trigger an impairment review include a significant decline in the company's stock price, adverse changes in the business climate, or a loss of key customers.
Based on the provided financial statements, the net goodwill for 1 800 Packouts was $52,556,496 as of December 31, 2024, and $66,184,756 as of December 31, 2023. The decrease in goodwill from 2023 to 2024 could be due to amortization, impairment, or adjustments related to previous acquisitions, such as the settlement agreement related to the 2022 acquisition of 1-800 Packouts, LLC, where a settlement amount was treated as a reduction in the purchase price and acquired assets.
For a prospective franchisee, understanding how 1 800 Packouts manages and reports goodwill is important for assessing the financial health and stability of the company. It's also important to note that the value of goodwill can fluctuate, and an impairment charge could negatively impact the company's profitability. Therefore, it is important to monitor the company's financial performance and any events that could affect the value of its goodwill.