How does Hardees account for reductions to the operating lease asset and changes in the lease liability in the Combined Consolidated Statement of Cash Flows?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
We recognize an operating lease asset and lease liability at lease commencement, which are measured by discounting lease payments using the estimated risk free rate as the discount rate. We made an accounting policy election to use the risk-free rate as our discount rate to determine the initial and subsequent measurement of operating lease liabilities. Subsequent amortization of the operating lease asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight-line basis, over the lease term. Reductions to the operating lease asset and the change in the lease liability are included in changes in operating lease assets and liabilities, net in the Combined Consolidated Statement of Cash Flows.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the company addresses reductions to the operating lease asset and changes in the lease liability within its financial statements. Specifically, the document states that these reductions and changes are included in "changes in operating lease assets and liabilities, net" within the Combined Consolidated Statement of Cash Flows.
For a prospective Hardees franchisee, this means that any decrease in the value of the operating lease asset (such as due to depreciation or impairment) or any alteration in the lease liability (perhaps due to revised lease terms or payments) will be reflected as a net change in the overall operating lease assets and liabilities figure reported in Hardees's cash flow statement. This approach provides a consolidated view of how lease-related activities impact the company's cash flows.
This accounting treatment is fairly standard in the franchise industry, as it aligns with generally accepted accounting principles (GAAP) for lease accounting. By netting these changes, Hardees presents a simplified view of the impact of leasing activities on its overall financial position. Franchisees reviewing Hardees's financial statements should pay attention to this line item to understand how leasing affects the company's cash flow from operations.