Under what circumstances does Hardees assess its long-lived assets for impairment?
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, Hardees evaluates its restaurant-level long-lived assets for impairment whenever events or circumstances suggest that the carrying value of those assets may be impaired. This evaluation is triggered by indicators such as sequential annual cash flow losses or adverse changes in the physical condition or expected use of the asset group. For impairment testing, assets are grouped at the individual restaurant level, including fixed assets, finance lease assets, and operating lease assets, as this is the lowest level for which identifiable cash flows are largely independent.
If these indicators exist, Hardees determines whether the assets are recoverable by comparing the undiscounted future cash flows expected from their use and disposal to their carrying value. Assets that are not deemed recoverable are written down to their estimated fair value. This fair value 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.
Hardees' impairment analyses rely on estimates, assumptions, and measurements with 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. These factors are considered to evaluate recoverability and estimate fair value. The estimation of future cash flows is based on experience, intentions regarding refranchising or closures, sales trends, internal plans, the time since the restaurant was opened or remodeled, the maturity of the market, and other relevant information. Hardees generally estimates the useful life of restaurants on owned property to be 20 to 40 years and 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.
Prospective Hardees franchisees should understand that if future cash flows or same-store sales do not meet forecasted levels, or if restaurant operating cost increases exceed forecasts and cannot be recovered through price increases, the carrying value of certain restaurants may be unrecoverable. This could lead to additional impairment charges in the future, affecting the financial performance of both Hardees and its franchisees. Franchisees should inquire about the specific assumptions and methodologies used in these impairment analyses to better assess the potential risks and financial implications for their individual locations.