What method does Auntie Annes use to compute depreciation on its long-lived assets?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
-term nature of the related receivables. As of December 31, 2023 and December 25, 2022, no individual franchisee or licensee accounted for more than 10% of total accounts and notes receivable. No individual franchisee or licensee accounted for more than 10% of total revenues for the fiscal years ended December 31, 2023 and December 25, 2022.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are reflected in the consolidated financial statements at cost, net of allowance.
The Company determines the allowance for credit losses based upon the aging of customer receivables, write-off history, the financial condition of its subsidiaries' franchisees, licensees, and vendors, and other factors including those related to current economic conditions and reasonable and supportable forecasts of future conditions. Accounts receivable are written off against the allowance for credit losses when it is probable the receivable will not be recovered. While the Company uses the best information available in making its determination, the ultimate recovery of recorded receivables is also dependent upon future economic events and other conditions that may be beyond the Company's control.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
**Property, Equipment, Leasehold Improvements and Land ("Long-lived asse
Source: Item 23 — RECEIPTS (FDD pages 106–366)
What This Means (2024 FDD)
According to Auntie Annes's 2024 Franchise Disclosure Document, the company computes depreciation on a straight-line basis for its long-lived assets. These assets include buildings, building improvements, furniture, fixtures, equipment, computer software and hardware, and leasehold improvements. The estimated useful lives vary depending on the asset type. Buildings are depreciated over 20-22 years, while furniture, fixtures, and equipment are depreciated over 2-15 years. Computer software and hardware have a shorter useful life of 3-5 years. For building and leasehold improvements, the depreciation period is the lesser of the asset's useful life or up to 20 years, or the lease term, respectively.
This straight-line depreciation method means that the cost of the asset is evenly spread out over its useful life. For a prospective Auntie Annes franchisee, understanding these depreciation schedules is important for financial planning and forecasting. It allows franchisees to estimate the annual depreciation expense they can deduct for tax purposes, impacting their overall profitability.
Additionally, Auntie Annes addresses impairment losses on long-lived assets. If events or circumstances suggest that an asset's value has declined and its estimated cash flows are less than its carrying amount, the asset is written down to its estimated fair value. This fair value is determined using a discounted cash flow model, which includes estimates of salvage values. For example, in the fiscal years ending December 31, 2023, and December 25, 2022, Auntie Annes recognized impairment losses of $3,274 and $423, respectively, primarily related to undeployed software and robotic food kiosks in 2023.
Furthermore, the FDD states that assets held for lease, largely comprised of satellite SBRs that Auntie Annes leases to franchisees under month-to-month operating lease agreements, are also depreciated using the straight-line method over estimated useful lives of between 2-7 years. This is relevant for franchisees who may lease such assets from Auntie Annes, as it affects the depreciation expense recognized on those specific assets.