For Carls, where can I find further information regarding impairment charges?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
From time to time, we identify restaurants that have carrying values in excess of their fair values and, as a result, we may record impairment charges. We may also close or refranchise these or other restaurants and lease or sublease the restaurant property to a franchisee or to a business other than one of our restaurant concepts. The financial statement impact resulting from these and similar actions are recorded in our accompanying Combined Consolidated Statements oflncome as facility action charges, net and include:
- (i) impairment of restaurant-level long-lived assets for restaurants to be disposed of or held and used;
- (ii) store closure costs, including subleasing of closed facilities at amounts below our primary lease obligations; and
- (iii) gain or loss on the sale of restaurants, including refranchising transactions.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, information regarding impairment charges can be found in Item 21, which discusses the company's financial statements. Specifically, the document details how Carls evaluates restaurant-level long-lived assets for impairment when events or circumstances suggest that the carrying value of these assets may be impaired. The assets are grouped at the individual restaurant level for impairment testing.
The FDD explains that Carls considers indicators such as sequential annual cash flow losses or adverse changes in the condition or expected use of the asset group. If these indicators exist, Carls determines whether the assets are recoverable by comparing the undiscounted future cash flows expected from their use and disposal to their carrying value. Assets not deemed recoverable are written down to their estimated fair value, which is determined by assessing the highest and best use of the assets in an orderly transaction between market participants.
The impairment analyses rely on estimates, assumptions, and measurements, including future cash flows, same-store sales, and operating expenses. Note 13 provides further details on these inputs. The document also mentions that if future cash flows or same-store sales do not meet forecasted levels, or if restaurant operating cost increases exceed forecasts, additional impairment charges may be incurred in the future. Furthermore, facility action charges, net, as recorded in the Combined Consolidated Statements of Income, include impairment of restaurant-level long-lived assets for restaurants to be disposed of or held and used.