What happens to the related goodwill when Hardees sells restaurants to franchisees?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
When we sell restaurants to franchisees, we remove the related goodwill, which is based on the relative fair value of the restaurants sold and the reporting unit as a whole, from our company-operated restaurants reporting unit. A portion of the goodwill, representing the cash flows disposed, is included in the carrying amount of the restaurants in determining the gain or loss on refranchising. The portion of the goodwill disposed is generally based on the price paid to the Company to acquire the restaurants in relation to the fair value of the reporting unit as a whole. The fair value of the reporting unit is based upon the price a willing buyer would pay for the reporting unit. The remaining goodwill related to the divested restaurants, which is attributable to retained cash flows, is transferred from our company-operated restaurants reporting unit to our domestic franchised restaurants reporting unit.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, when Hardees sells restaurants to franchisees, the related goodwill is removed from the company-operated restaurants reporting unit. This goodwill removal is based on the relative fair value of the restaurants sold compared to the reporting unit as a whole. A portion of the goodwill, representing the cash flows disposed of, is included in the carrying amount of the restaurants when determining the gain or loss on refranchising. This portion is generally based on the price paid to Hardees to acquire the restaurants in relation to the fair value of the reporting unit as a whole. The fair value of the reporting unit is based on what a willing buyer would pay.
The remaining goodwill related to the divested restaurants, which is attributable to retained cash flows, is then transferred from Hardees's company-operated restaurants reporting unit to their domestic franchised restaurants reporting unit. This means that while some goodwill is accounted for in the sale, the remaining portion is shifted to the franchise side of the business.
For a prospective franchisee, this accounting practice may not have a direct impact on day-to-day operations. However, it's important to understand how Hardees manages its assets and financial reporting, as it can reflect on the overall financial health and strategy of the company. Franchisees should be aware that the goodwill associated with their restaurant may be transferred to the domestic franchised restaurants reporting unit, which could affect future valuations or financial assessments related to the franchise system.