What criteria does Hardees use to determine when to accrue loss contingencies?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
We accrue those loss contingencies that are deemed to be probable, and for which the amount of expected loss is reasonably estimable. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes, and as such may not be meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of loss may differ from these estimates.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, Hardees accrues loss contingencies when two conditions are met. First, the loss contingency must be deemed probable. Second, the amount of the expected loss must be reasonably estimable. This means that Hardees sets aside funds to cover potential losses from events like lawsuits or other claims only when it's likely they will lose the case and they can reasonably estimate the financial impact.
However, the FDD also notes that assessing litigation contingencies is highly subjective and requires judgment about future events. Several factors can make it difficult to provide a meaningful estimate, including the procedural status of the matter, the availability of appeals, insurance coverage, complex legal theories, and the ongoing discovery of information. The damage amounts claimed in litigation may also be unsupported or exaggerated, making them unreliable indicators of potential liability.
Hardees regularly reviews these contingencies to ensure that their accruals and related disclosures are adequate. However, the FDD acknowledges that the ultimate amount of loss may differ from their initial estimates. This indicates that while Hardees follows standard accounting practices for loss contingencies, the actual financial impact of legal disputes and other claims can be uncertain and may require adjustments over time.