How does Beef O Bradys determine if an arrangement is or contains a lease?
Beef_O_Bradys Franchise · 2025 FDDAnswer from 2025 FDD Document
r asset group) is in excess of its estimated fair value. Indefinite-lived intangibles are assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.
Management did not identify conditions that would suggest an impairment of goodwill or intangible assets exists during 2024 and 2023.
Leases
The Company leases certain retail locations, office space, and equipment under non-cancelable operating lease agreements with lease terms from 2 to 10 years plus five-to-ten-year options on a majority of their leases. Management determines whether an arrangement is, or contains, a lease at inception. Specifically, a contract is or contains a lease when 1) the contract contains an explicitly or implicitly identified asset and 2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The ROU assets pertaining to operating leases are included in right-of-use assets and the related operating lease liabilities are classified as current or long-term, on the accompanying consolidated balance sheets. Management does not typically include the options to renew in the ROU, based on an analysis of whether considered reasonably certain to occur. The Company combines lease and nonlease components, such as common area and other maintenance costs, and accounts for them as a single lease component in calculating the ROU assets and lease liabilities.
Source: Item 23 — RECEIPTS. (FDD pages 66–330)
What This Means (2025 FDD)
According to Beef O Bradys's 2025 Franchise Disclosure Document, the company determines whether an arrangement is or contains a lease at the start of the agreement. Beef O Bradys considers a contract to be or contain a lease when it meets two specific conditions. First, the contract must explicitly or implicitly identify an asset. Second, Beef O Bradys must obtain substantially all of the economic benefits from using that asset and also direct how and for what purpose the asset is used during the contract term, in exchange for consideration.
This determination is crucial for Beef O Bradys because it affects how the company accounts for the lease. The right-of-use (ROU) assets pertaining to operating leases are included in right-of-use assets, and the related operating lease liabilities are classified as either current or long-term on the consolidated balance sheets. This classification impacts the company's financial statements and how its financial health is perceived.
However, Beef O Bradys management does not typically include options to renew the lease in the ROU calculation. This decision is based on an analysis of whether the renewal is considered reasonably certain to occur. Additionally, the company combines lease and non-lease components, such as common area and other maintenance costs, and accounts for them as a single lease component when calculating the ROU assets and lease liabilities. This approach simplifies the accounting process.
For leases with a term of twelve months or less (short-term leases) that do not include an option to purchase the underlying asset, Beef O Bradys recognizes these as rent expense in the consolidated statements of operations as they are incurred. The company reported that it had no short-term leases for the years ended December 31, 2024 and 2023.