Where on Chem Dry's consolidated statement of operations is the goodwill impairment loss included?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
useful lives. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. Costs of maintenance and repairs are charged to expense when incurred.
Goodwill
The recorded amounts of goodwill from prior business combinations are based on management's best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is not amortized but rather is assessed at least on an annual basis for impairment.
During 2023, management determined that the carrying amount of the Company exceeded fair value, which was estimated based on the present value of expected future cash inflows. Accordingly, a goodwill impairment loss of $45,537 was recognized in 2023, which is included within operating expenses on the consolidated statement of operations. The impairment loss is attributable in part to deteriorating economic conditions impacting the Company, including rising interest rates and the overall cost of accessible debt necessary to fuel investment; furthermore, strategic shifts undertaken by management to improve the overall health of the business, including ongoing efforts to reduce the overall size of its franchise network in order to resolve a host of franchisee-related matters of noncompliance, adversely impacted expected future cash inflows as well.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the goodwill impairment loss is included within operating expenses on the consolidated statement of operations. In 2023, Chem Dry recognized a goodwill impairment loss of $45,537, and in 2022, a loss of $1,266 was recognized. No impairment charge was recognized during the year ended December 31, 2021.
The 2023 impairment loss is attributed to deteriorating economic conditions, such as rising interest rates and the cost of debt, as well as strategic shifts to reduce the franchise network size to address franchisee noncompliance. The 2022 loss was specifically related to Delta ceasing operations. Goodwill is assessed for impairment at least annually, and the fair value is estimated based on the present value of expected future cash inflows.
For a prospective Chem Dry franchisee, understanding how goodwill impairment is accounted for can provide insight into the financial health and strategic decisions of the company. Significant impairment losses may indicate challenges within the business, such as economic pressures or operational issues. It is important to note that these losses do not necessarily reflect on the performance of individual franchises, but rather on the overall value of the Chem Dry brand and its related assets.