What was the amount of capital related to fair value remeasurements for Brueggers Bagels?
Brueggers_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
al option terms, which is generally five to ten years, unless it is reasonably assured that the renewal option term is going to be exercised.
Capitalization of Internal Construction Costs
The Company capitalizes direct costs associated with the construction of new coffeehouses and bagel bakeries that would not have been incurred had the site-specific lease not been obtained. The Company capitalized $0.7 million, $0.6 million, and $0.7 million of such costs during the fiscal years ended December 31, 2024, December 26, 2023, and December 27, 2022, respectively. These costs are amortized over the initial lease term of the underlying leases.
Asset Retirement Obligations
The Company has certain asset retirement obligations, primarily associated with leasehold improvements, whereby at the end of a lease, the Company is contractually obligated to remove such leasehold improvements in order to comply with the lease agreement. At the inception of a lease with such conditions, the Company records an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment, including store closing costs and discount rates, and is accreted to its projected future value over time. The capitalized asset is depreciated using the estimated useful life for depreciation of leasehold improvement assets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 61)
What This Means (2025 FDD)
According to Brueggers Bagels's 2025 Franchise Disclosure Document, the company capitalizes direct costs associated with the construction of new coffeehouses and bagel bakeries that would not have been incurred had the site-specific lease not been obtained. The company capitalized $0.7 million in 2024, $0.6 million in 2023, and $0.7 million in 2022. These costs are then amortized over the initial lease term of the underlying leases.
Additionally, the document discusses nonrecurring fair value measurements related to long-lived assets. As of December 31, 2024, long-lived assets with a carrying amount of $0.7 million were determined to have a fair value of $0.5 million, resulting in an impairment loss of $0.2 million. Similarly, as of December 26, 2023, long-lived assets with a carrying amount of $0.9 million were determined to have a fair value of $0.7 million, also resulting in an impairment loss of $0.2 million. For the year 2022, as of December 27, long-lived assets with a carrying amount of $9.0 million were determined to have a fair value of $6.1 million, resulting in a larger impairment loss of $2.9 million.
These figures reflect the adjustments made to the value of Brueggers Bagels's assets based on fair market value assessments. For a franchisee, this indicates the potential for fluctuations in asset values and the impact of impairment losses on the company's financial statements. It also highlights the importance of understanding how Brueggers Bagels accounts for and manages its assets, particularly in underperforming locations.