How does Camp Margaritaville assess the recoverability of its assets when determining impairment?
Camp_Margaritaville Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company periodically assesses whether its long-lived assets owned and used are impaired whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant negative industry or economic trends, and significant changes in legal factors or in the business climate. The assessment of impairment is performed on a location-by-location basis. Recoverability is assessed by comparing the carrying value of the asset with the undiscounted cash flows expected to be generated by the asset. This assessment process requires the use of estimates and assumptions regarding future cash flows and estimated useful lives, which are subject to a significant degree of judgment. If management determines that the carrying value of the asset exceeds the fair value of the restaurant assets, an impairment charge is recorded to reduce the carrying value of the asset to its fair value.
Source: Item 23 — RECEIPTS (FDD pages 72–406)
What This Means (2025 FDD)
According to Camp Margaritaville's 2025 Franchise Disclosure Document, the company periodically assesses the recoverability of its long-lived assets whenever events or changes in circumstances suggest that the carrying amount of an asset may not be recoverable. This assessment is conducted on a location-by-location basis. Several factors are considered during this process, including significant underperformance relative to expected operating results, negative industry or economic trends, and changes in legal or business conditions.
To determine recoverability, Camp Margaritaville compares the carrying value of the asset to the undiscounted cash flows expected to be generated by the asset. This requires the use of estimates and assumptions regarding future cash flows and estimated useful lives, involving a significant degree of judgment by the management team.
If Camp Margaritaville's management determines that the carrying value of the asset exceeds its fair value, an impairment charge is recorded. This charge reduces the carrying value of the asset to its fair value, reflecting a more accurate representation of the asset's worth on the company's financial statements. This process ensures that the assets are not overstated on the balance sheet and provides a more realistic view of the company's financial health.