Under what conditions might Hardees incur additional impairment charges in the future related to restaurant-level assets?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
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' 2025 Franchise Disclosure Document, Hardees evaluates its restaurant-level long-lived assets for impairment whenever events or circumstances suggest that the carrying value of these assets may be impaired. These assets are assessed at the individual restaurant level, considering 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.
Hardees' impairment analyses rely on 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 estimation of future cash flows is based on experience, intentions regarding refranchising or closures, recent and expected sales trends, internal plans, the time since the restaurant was opened or remodeled, the maturity of the market, and other relevant information. The useful life of restaurants on owned property is generally estimated to be 20 to 40 years, while for leased restaurants, it ranges from the end of the current lease term to the end of the lease term including option periods.
Hardees may incur additional impairment charges in the future if future cash flows or same-store sales do not meet or exceed forecasted levels. Additionally, if restaurant operating cost increases exceed Hardees' forecast and the company is unable to recover such costs through price increases, the carrying value of certain restaurants may become unrecoverable, leading to further impairment charges. This means that a prospective Hardees franchisee should carefully consider the potential for fluctuations in sales, operating costs, and market conditions, as these factors could impact the financial performance of their restaurant and, consequently, the overall financial health of Hardees.