How often does Auntie Annes evaluate its 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 its tradenames for impairment annually at year-end. However, Auntie Annes may perform these evaluations more frequently if circumstances suggest a potential impairment.
The evaluation involves either a qualitative assessment or a quantitative one-step assessment. If a qualitative assessment shows that the fair value of the tradename more likely than not exceeds its carrying value, no further evaluation is needed. Alternatively, if a quantitative assessment is performed and the fair value of the tradename exceeds its carrying value, the tradename is not considered impaired.
However, if the carrying value of the tradename exceeds its fair value, Auntie Annes will record an impairment charge for the difference. This process ensures that the company's financial statements accurately reflect the value of its intangible assets, such as tradenames, and that any potential losses are recognized in a timely manner. This is a standard accounting practice to ensure the company's assets are not overstated on its balance sheet.