How does Carls determine which loss contingencies to accrue?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
We routinely assess loss contingencies to develop estimates oflikelihood ofloss and range of possible settlement. We accrue those loss contingencies that are deemed to be probable, and for which the amount of expected loss is reasonably estimable. We do not record liabilities for losses we believe are only reasonably possible to result in an adverse outcome. See Note 14 for further discussion.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, Carls accrues loss contingencies that are deemed probable and for which the amount of the expected loss can be reasonably estimated. This involves Carls routinely assessing these contingencies to estimate the likelihood of loss and the potential range of settlement amounts.
Carls does not record liabilities for losses that it believes are only reasonably possible but not probable. The document highlights that litigation is inherently unpredictable, making the assessment of contingencies subjective and dependent on judgments about future events. Factors influencing these judgments include the procedural status of the matter, availability of appeals, insurance coverage, complex legal theories, and the ongoing discovery of relevant information.
The FDD also notes that damage amounts claimed in litigation may be unsupported or exaggerated and, therefore, not reliable indicators of potential liability. Carls regularly reviews these contingencies to ensure the adequacy of its accruals and related disclosures, acknowledging that the ultimate amount of loss may differ from initial estimates. This approach is typical in the franchise industry, where franchisors face various legal and financial risks that require careful evaluation and management.