What happens to the goodwill when Carls sells restaurants to franchisees?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
When we sell restaurants to franchisees, we remove the related goodwill, which is based on the relative fair value of the restaurants sold and the reporting unit as a whole, from our company-operated restaurants reporting unit. A portion of the goodwill, representing the cash flows disposed, is included in the carrying amount of the restaurants in determining the gain or loss on refranchising. The portion of the goodwill disposed is generally based on the price paid to the Company to acquire the restaurants in relation to the fair value of the reporting unit as a whole. The fair value of the reporting unit is based upon the price a willing buyer would pay for the reporting unit. The remaining goodwill related to the divested restaurants, which is attributable to retained cash flows, is transferred from our company-operated restaurants reporting unit to our domestic franchised restaurants reporting unit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, when Carls sells restaurants to franchisees, the related goodwill is removed from the company-operated restaurants reporting unit. This removal is based on the relative fair value of the restaurants sold compared to the reporting unit as a whole. A portion of the goodwill, representing the cash flows disposed of, is included in the carrying amount of the restaurants to determine the gain or loss on refranchising.
The portion of goodwill that is disposed of is generally based on the price paid to Carls to acquire the restaurants in relation to the fair value of the reporting unit as a whole. The fair value of the reporting unit is determined by the price a willing buyer would pay for it.
The remaining goodwill related to the divested restaurants, which is attributable to retained cash flows, is then transferred from Carls's company-operated restaurants reporting unit to their domestic franchised restaurants reporting unit. This accounting practice affects how Carls manages its financial reporting when transitioning company-owned stores to franchise ownership.