For Hardees, what factors are considered indicators of impairment when evaluating restaurant-level long-lived assets?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Whenever events or circumstances indicate that the carrying value of assets may be impaired, we evaluate our restaurant-level long-lived assets for impairment. For purposes of impairment testing, assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, which is generally the individual restaurant level for fixed assets, finance lease assets and operating lease assets. For each asset group, we evaluate whether there are indicators of impairment such as sequential annual cash flow losses or adverse changes in the physical condition or expected use of the asset group. When indicators of impairment exist, we evaluate whether the assets are recoverable by comparing the undiscounted future cash flows that we expect to generate from their use and disposal to their carrying value. 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.
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. We generally estimate the useful life of restaurants on owned property to be 20 to 40 years and estimate 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. If our future cash flows or same-store sales do not meet or exceed our forecasted levels, or if restaurant operating cost increases exceed our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our restaurants may prove to be unrecoverable, and we may incur additional impairment charges in the future.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the company evaluates restaurant-level long-lived assets for impairment whenever events or circumstances suggest that the carrying value of these assets may be impaired. For impairment testing, assets are grouped at the individual restaurant level, including fixed assets, finance lease assets, and operating lease assets.
Hardees considers factors such as sequential annual cash flow losses or adverse changes in the physical condition or expected use of the asset group as indicators of impairment. If these indicators exist, Hardees assesses whether the assets are recoverable by comparing the undiscounted future cash flows expected from their use and disposal to their carrying value. Assets not deemed 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.
These impairment analyses rely on estimates, assumptions, and measurements, 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. The useful life of restaurants on owned property is generally estimated to be 20 to 40 years, while the useful life of restaurants subject to leases ranges from the end of the lease term then in effect to the end of such lease term including option periods. If future cash flows or same-store sales do not meet or exceed forecasted levels, or if restaurant operating cost increases exceed the forecast and Hardees is unable to recover such costs through price increases, additional impairment charges may be incurred in the future.