What are the most significant areas of estimation used by Hardees' management in preparing their financial statements?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 21: Financial Statements]
Estimations
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, goodwill, finance lease assets and operating lease assets;
- estimation, using actuarially determined methods, of our self-insured claim losses under our workers' compensation, general liability and auto liability insurance programs;
- 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;
- estimation of the appropriate allowances associated with franchise and other receivables;
- determination of the appropriate assumptions to estimate gift card breakage;
- determination of the appropriate assumptions to estimate the fair value of share-based compensation; and
- estimation of our deferred income tax asset valuation allowance, liabilities related to uncertain tax positions and effective tax rate.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities. These estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these initial estimates.
Hardees' most significant areas of estimation include assessing the recoverability of long-lived assets by estimating future cash flows. These assets include intangible assets, goodwill, finance lease assets, and operating lease assets. Management also determines appropriate estimated liabilities for loss contingencies and assumptions for evaluating leases, establishing depreciable lives for leasehold improvements, and setting straight-line rent expense periods.
Additionally, Hardees estimates appropriate allowances for franchise and other receivables. They also estimate self-insured claim losses under their workers' compensation, general liability, and auto liability insurance programs using actuarially determined methods. Further estimations include gift card breakage, the fair value of share-based compensation, and deferred income tax asset valuation allowance, liabilities related to uncertain tax positions, and effective tax rate.