How often does Chem Dry assess goodwill for impairment?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
ed at the lower of cost or net realizable value, with cost determined on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost. The straight-line method is used for computing depreciation. Assets are depreciated over their estimated 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. The remaining goodwill was determined not to be impaired, as the carrying
December 31, 2023, 2022, and 2021 (000s omitted)
**Note 2 - Signifi
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, goodwill is assessed for impairment at least on an annual basis. Goodwill represents the intangible assets acquired in a business combination, reflecting the value of a company’s brand reputation, customer relationships, and other factors that allow it to generate revenue beyond its tangible assets. Chem Dry does not amortize goodwill, but instead reviews it for impairment.
The FDD states that in 2023, Chem Dry recognized a goodwill impairment loss of $45,537 due to the carrying amount of the company exceeding its fair value. This loss was attributed to deteriorating economic conditions, including rising interest rates and the cost of debt, as well as strategic shifts to reduce the franchise network size to address franchisee noncompliance. In 2022, a goodwill impairment loss of $1,266 was recognized when Delta ceased operations. No impairment charge was recognized in 2021.
For a prospective Chem Dry franchisee, this indicates that the franchisor's financial performance and strategic decisions can directly impact the valuation of its intangible assets. The fact that Chem Dry recognized impairment losses in 2022 and 2023 suggests that the company has faced financial challenges. It is important for potential franchisees to consider the franchisor's financial health and strategic direction when evaluating the franchise opportunity, as these factors can affect the overall value and stability of the Chem Dry brand.