How often does Annex Brands review its equipment, leasehold improvements, and intangibles with finite lives for recoverability?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company reviews its equipment and leasehold improvements and intangibles with finite lives at least annually and assesses the recoverability of these assets by determining whether the balance of the respective assets can be recovered through undiscounted projected cash flows. Intangible assets with indefinite lives are not amortized, but are tested for impairment at least annually or more frequently if circumstances indicate potential impairment. The Company has adopted the use of a qualitative approach in testing other intangible assets for impairment by determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is determined that this is the case, then the Company will perform the prescribed two-step impairment test, by comparing the respective fair values of the intangible assets, calculated as the present value of expected future cash flows, to their carrying amounts.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, the company reviews its equipment, leasehold improvements, and intangibles with finite lives at least annually. This review assesses whether the balance of these assets can be recovered through undiscounted projected cash flows. This means Annex Brands evaluates if the expected future cash flows from these assets are sufficient to cover their book value.
For intangible assets with indefinite lives, Annex Brands does not amortize them. Instead, these assets are tested for impairment at least annually or more frequently if circumstances suggest a potential decline in value. The company uses a qualitative approach to test these other intangible assets for impairment. This involves determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
If Annex Brands determines that the fair value of an intangible asset is less than its carrying value, a two-step impairment test is performed. This test compares the fair values of the intangible assets, calculated as the present value of expected future cash flows, to their carrying amounts. This process ensures that the value of these assets on the company's balance sheet accurately reflects their recoverable value, which is a standard accounting practice to prevent overstatement of assets.
For a prospective franchisee, this indicates that Annex Brands follows standard accounting practices to ensure the value of its assets is accurately reported. This can provide some assurance that the company's financial statements are reliable and that the company is proactively managing its asset values. It is important for franchisees to understand these accounting practices as they reflect the overall financial health and stability of Annex Brands.