How does Hardees determine the appropriate allowances associated with franchise and other receivables?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Our most significant areas of estimation are:
- estimation of future cash flows used to assess the recoverability of long-lived assets, including intangible assets, finance lease assets and operating lease assets;
- determination of appropriate estimated liabilities for loss contingencies;
- determination of appropriate assumptions to use in evaluating leases for finance versus operating lease treatment, establishing depreciable lives for leasehold improvements and establishing straight-line rent expense periods; and
- estimation of the appropriate allowances associated with franchise and other receivables.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the company's management must make estimations for several factors when preparing financial statements, including the appropriate allowances associated with franchise and other receivables. Hardees records provisions for estimated losses on receivables when they believe that franchisees are unable to make their required payments. Hardees ceases accruing royalties and rent revenue from franchisees during the fiscal quarter in which they determine that collectibility of such amounts is not reasonably assured.
To resolve or mitigate franchise collection issues, Hardees and/or its franchisees may take different actions. These actions may include a reduction or deferral of future royalties, a reduction or deferral of future rent for which Hardees is the landlord or the primary obligor to the landlord, invoking personal guarantees, or if necessary, acquiring the restaurants or terminating the franchise agreement.
For a prospective Hardees franchisee, this means that the financial health of existing franchisees is regularly assessed, and Hardees actively manages its risk related to collecting payments. Franchisees experiencing financial difficulties may be offered assistance such as royalty or rent deferrals. However, Hardees also has options to protect its interests, including taking over the restaurant or terminating the franchise agreement if necessary. This indicates that Hardees actively monitors and manages its financial relationships with franchisees.