What is the process Auntie Annes uses to evaluate the likelihood of deferred tax assets being realized?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
come tax, net of federal tax effect | 3.2 | 2.6 | | Foreign tax credits | (3.1) | (2.5) | | Permanent differences | (1.6) | (0.9) | | Other differences, net | (1.4) | (0.2) | | Effective tax rate | 21.4 | 23.7 | | | % | % |
Significant components of the Company's deferred tax (liabilities) assets are as follows:
| December 31, | December 25, | ||
|---|---|---|---|
| 2023 | 2022 | ||
| Deferred tax liabilities: | |||
| Intangible assets | $ | (129,175) | $ (128,199) |
| Operating lease assets | (16,995) | (18,535) | |
| Prepaid costs and expenses | (2,182) | (2,250) | |
| Depreciable assets and research and development costs | (1,970) | - | |
| Other | (125) | (253) | |
| Total deferred tax liabilities | (150,447) | (149,237) | |
| Deferred tax assets: | |||
| Net operating loss and tax credi |
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 the likelihood of deferred tax assets being realized to determine if a valuation allowance is needed. A valuation allowance is recorded if it is deemed more likely than not that the assets will not be realized. This assessment is crucial for accurately representing the company's financial position, as it directly impacts the reported value of its assets. Deferred tax assets arise from temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. These differences are evaluated by applying enacted statutory tax rates applicable to future years. This process is consistent with standard accounting practices, ensuring that Auntie Annes' financial statements provide a fair and reliable view of its financial health.
As of December 31, 2023, Auntie Annes had $61,566 of federal net operating loss carryforwards and $126,565 of state net operating loss carryforwards. These net operating loss carryforwards expire beginning in 2028. The realization of these deferred tax assets depends on Auntie Annes generating sufficient taxable income in future periods, net of reversing deferred tax liabilities. The company believes it is more likely than not that the deferred tax assets will be realized. This forward-looking assessment is based on the company's projections and assumptions about future profitability.
For a prospective franchisee, understanding this evaluation process is important because it reflects Auntie Annes' approach to financial management and risk assessment. The presence of net operating loss carryforwards and the company's belief in their realization can indicate potential tax benefits in the future. However, it also highlights the dependence on future taxable income, which is subject to various economic and business factors. Therefore, franchisees should consider these factors when evaluating the financial stability and prospects of Auntie Annes.