What was Carls' estimated liability for self-insurance as of January 31, 2022?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
nts and are amortized on a straight-line basis over their estimated useful lives. Our definite-lived intangible assets are tested for impairment when events or circumstances indicate the carrying value may be impaired. Refer to discussion of facility action charges for a discussion of impairment of restaurant-level long-lived assets.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized, utilizing the effective interest method, as a component of interest expense over the terms of the respective financing arrangements. See Note 8 for further discussion.
Book Overdraft
Book overdraft liabilities are included within accounts payable in our acco
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the company's estimated liability for self-insurance as of January 31, 2022, was $19,732. This figure represents Carls's self-insured portion of losses related to workers' compensation, general liability, and auto liability claims.
Carls establishes these liabilities with the help of actuaries, who use assumptions based on the company's average historical losses on claims, actuarial observations of historical claim loss development, and actuarial estimates of unpaid losses for each loss category. The claims are discounted using an estimated risk-free interest rate of 2.5% as of January 31, 2023.
For a prospective franchisee, this information indicates that Carls takes on a significant level of self-insurance risk. While this can potentially reduce premium costs, it also means that Carls is directly responsible for covering a substantial portion of its own losses related to these types of claims. Franchisees may want to inquire about how these self-insurance practices could indirectly affect them, particularly in terms of potential financial stability and risk management of the overall Carls organization.