How does Hardees define 'fair value' in the context of its financial instruments?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value based on the following fair value hierarchy:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
- Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
- Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our non-financial long-lived assets, including intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment. When impairment has occurred, such long-lived assets are written down to fair value. See Note 16 for further information regarding impairment charges.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, also known as an exit price. This price is determined in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This definition is crucial for understanding how Hardees values its assets and liabilities, which can impact its financial statements and, consequently, a franchisee's assessment of the company's financial health.
Hardees is required to maximize the use of observable inputs and minimize unobservable inputs when measuring fair value. This valuation is based on a hierarchy consisting of three levels. Level 1 includes quoted prices in active markets for identical assets or liabilities. Level 2 includes observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 includes unobservable inputs supported by little to no market activity and are significant to the fair value of the assets or liabilities.
For Hardees, non-financial long-lived assets, including intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, Hardees assesses these long-lived assets for impairment on a periodic basis or when circumstances indicate that their carrying value may not be recoverable. If impairment has occurred, the assets are written down to fair value. This process can affect the reported value of Hardees' assets and, therefore, influence a franchisee's perception of the company's financial stability and asset management practices.