When assessing the recoverability of long-lived assets, including intangible assets, finance lease assets, and operating lease assets, what does Hardees use to estimate future cash flows?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Our impairment analyses rely upon a number of estimates, assumptions and measurements with significant Level 2 and Level 3 unobservable inputs (see Note 13), including estimates of future cash flows, assumptions of future same-store sales and projected operating expenses for each of our restaurants over their estimated remaining useful lives in order to evaluate recoverability and estimate fair value. Future cash flows are estimated based upon experience gained, current intentions about refranchising or closing restaurants, recent and expected sales trends, internal plans, the period of time since the restaurant was opened or remodeled, the maturity of the related market and other relevant information.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the company uses several factors to estimate future cash flows when assessing the recoverability of long-lived assets. These assets include intangible assets, finance lease assets, and operating lease assets. Hardees's estimates are based on a combination of experience, intentions regarding refranchising or closing restaurants, sales trends, internal plans, the restaurant's age since opening or remodeling, market maturity, and other relevant information.
Specifically, Hardees considers experience gained from past operations to inform their projections. They also take into account any current plans to refranchise or close existing restaurants, which would significantly impact future cash flows. Recent and expected sales trends play a crucial role, as these indicate the potential revenue generation of each location. Internal plans, such as marketing initiatives or operational changes, are factored in as well. The period of time since a restaurant was opened or remodeled is also relevant, as newer or recently renovated locations may perform differently than older ones. Finally, the maturity of the market in which the restaurant operates is considered, along with any other pertinent information that could affect future cash flows.
For a prospective franchisee, this means that Hardees's assessment of a restaurant's potential profitability and asset value is based on a comprehensive analysis that includes both historical data and forward-looking projections. However, the FDD also cautions that these analyses rely on estimates, assumptions, and measurements with Level 2 and Level 3 unobservable inputs, which means that actual results could vary significantly from Hardees's estimates. Therefore, it is important for franchisees to understand the assumptions underlying these estimates and to conduct their own due diligence to assess the potential risks and rewards of investing in a Hardees franchise.