How often does Auntie Annes evaluate goodwill and tradenames for impairment?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
Intangible assets consist primarily of goodwill, tradenames, reacquired franchise rights, and franchise agreements. The Company does not amortize goodwill or tradenames. Goodwill and tradenames are evaluated for impairment using a qualitative assessment or quantitative one-step assessment annually at year-end, or more frequently when circumstances arise indicating potential impairment.
Goodwill and tradenames for each of the subsidiaries which are franchisors and operators of the Company SBRs (the "reporting units") are evaluated. If a qualitative assessment is performed and the fair value of a reporting unit's net assets or tradename more likely than not exceeds the carrying value of the reporting unit's net assets or tradename, respectively, no further evaluation is necessary. If a one-step quantitative assessment is performed and the fair value of a reporting unit or tradename exceeds the carrying value of the reporting unit's net assets or tradename, respectively, the goodwill or tradename is not impaired. If the carrying value of the reporting unit's net assets or tradename exceeds the fair value of the reporting unit or tradename, respectively, an impairment charge is recorded for the difference.
Source: Item 23 — RECEIPTS (FDD pages 106–366)
What This Means (2024 FDD)
According to Auntie Annes's 2024 Franchise Disclosure Document, the company evaluates goodwill and tradenames for impairment at least annually. Specifically, Auntie Annes conducts either a qualitative or a quantitative one-step assessment at year-end. This annual evaluation is performed for each subsidiary that operates as a franchisor and operator of the company's SBRs (small business restaurants), referred to as "reporting units."
In addition to the annual review, Auntie Annes may perform these evaluations more frequently if circumstances indicate a potential impairment. This means that if there are significant events or changes that could negatively impact the value of the goodwill or tradenames, the company will assess the situation promptly rather than waiting for the year-end review. This ensures that the financial statements accurately reflect the value of these intangible assets.
The evaluation process involves determining whether the fair value of the reporting unit's net assets or tradename exceeds its carrying value. If the fair value is higher, no further evaluation is needed. However, if the carrying value exceeds the fair value, an impairment charge is recorded to reflect the difference, thereby reducing the asset's book value to its estimated fair value. This process is crucial for maintaining accurate financial reporting and ensuring that the company's assets are not overstated.