When estimating the fair value of Hardees restaurant-level assets that are not deemed recoverable, how is this fair value determined?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Restaurant-level assets that are not deemed to be recoverable are written down to their estimated fair value, which is determined by assessing the highest and best use of the assets and the amounts that would be received for such assets in an orderly transaction between market participants.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the fair value of restaurant-level assets that are not deemed recoverable is determined by assessing the highest and best use of the assets. This also includes determining the amounts that would be received for such assets in an orderly transaction between market participants.
Hardees evaluates restaurant-level long-lived assets for impairment whenever events or circumstances indicate that the carrying value of assets may be impaired. For impairment testing, assets are grouped at the individual restaurant level for fixed assets, finance lease assets, and operating lease assets. Indicators of impairment include sequential annual cash flow losses or adverse changes in the physical condition or expected use of the asset group.
When impairment indicators exist, Hardees evaluates whether the assets are recoverable by comparing the undiscounted future cash flows expected to be generated from their use and disposal to their carrying value. The impairment analyses rely on estimates, assumptions, and measurements with Level 2 and Level 3 unobservable inputs, including estimates of future cash flows, assumptions of future same-store sales, and projected operating expenses for each restaurant over their estimated remaining useful lives to evaluate recoverability and estimate fair value.
Future cash flows are estimated based on experience gained, intentions about refranchising or closing restaurants, recent and expected sales trends, internal plans, the period since the restaurant was opened or remodeled, the maturity of the related market, and other relevant information. Hardees generally estimates the useful life of restaurants on owned property to be 20 to 40 years and estimates the useful life of restaurants subject to leases to range from the end of the lease term then in effect to the end of such lease term including option periods.