What was the amortization expense related to Carls' intangible assets for fiscal year 2023?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
| Net working capital | $ 55 |
|---|---|
| Property and equipment | 12,281 |
| Operating lease assets | 5,048 |
| Reacquired franchise rights | 1,810 |
| Operating leases | (5,048) |
| Finance leases | (10,708) |
| Net assets acquired and liabilities assumed | $ 3,438 |
The resulting acquisitions result in no goodwill. Legal, travel and other expenses related to theses acquisitions totaled $1,075 during the fiscal year ended January 31, 2024.
Refranchising Transaction
During fiscal 2024, we sold one Hardee's restaurant and certain related inventory and fixed assets with a net book value of $1,267 and disposed of its allocated goodwill of $662. In connection with the sale of this restaurant, we received aggregate consideration of $2,082, and recognized a net gain of $153, which is included in facility action charges, net, in our
accompanying Consolidated Statements of Operations. In connection with the refranchising transaction, the franchisee acquired real property and equipment related to the restaurant location.
NOTE 6 — GOODWILL AND INTANGIBLE ASSETS, NET
During the fourth quarter of fiscal 2024 and 2023, we performed our annual impairment tests for goodwill and indefinite-lived intangible assets using a qualitative approach and determined that it is more likely than not that the fair value is greater than the carrying value. Accordingly, no impairment losses were recorded in fiscal 2024 or 2023.
The table below presents our intangible assets as of January 31, 2024 and 2023:
| | Weighted Average Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls' 2024 Franchise Disclosure Document, the amortization expense related to intangible assets for the fiscal year 2023 was $17,132. This figure reflects the expense recognized from the use of intangible assets like franchise agreements and favorable lease agreements over that period.
For a prospective Carls franchisee, understanding amortization expense is crucial because it impacts the overall profitability and financial health of the franchise. Intangible assets, such as franchise rights, are typically amortized over their useful life, meaning their cost is gradually expensed over time. This expense reduces the reported profit but reflects the consumption of the asset's value.
Carls amortizes its definite-lived intangible assets, which include franchise agreements and favorable lease agreements, using the straight-line method over their estimated useful lives. This method evenly distributes the expense over the asset's life. The FDD also notes that these assets are tested for impairment when events or circumstances suggest that their carrying value may not be recoverable, which could lead to additional charges if an asset's value is deemed to have declined significantly.
It's important for potential franchisees to understand how Carls accounts for and amortizes its intangible assets, as this can affect the financial statements and the perceived profitability of the business. Reviewing the notes on intangible assets and amortization policies in the FDD can provide valuable insights into these accounting practices.