What factors does Camp Margaritaville consider when assessing whether its long-lived assets are impaired?
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 its long-lived assets to determine if their value has been impaired. This assessment is triggered when events or changes in circumstances suggest that the carrying amount of an asset may not be recoverable. The evaluation is conducted on a location-by-location basis.
Several factors are considered during this assessment. These include significant underperformance relative to expected historical or projected future operating results, which indicates that the asset is not generating the income initially anticipated. Significant negative industry or economic trends, which could impact the overall profitability and viability of the Camp Margaritaville location, are also taken into account. Additionally, significant changes in legal factors or in the business climate are considered, as these could affect the asset's value and future performance.
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 involves estimating future cash flows and the asset's useful life, which requires considerable judgment. If the management concludes that the carrying value exceeds the asset's fair value, an impairment charge is recorded to reduce the carrying value to its fair value. This process relies on various estimates and assumptions, making it a complex and potentially subjective evaluation.