What constitutes the 'more-likely-than-not' threshold for Noodles & Company's qualitative impairment assessment?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill is evaluated at the level of the Company's single operating segment, which also represents the Company's only reporting unit. In 2024, 2023 and 2022, the Company performed a qualitative impairment assessment. Under this approach, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If after performing the qualitative assessment, the Company determines there is less than a 50 percent chance that the fair value of its reporting unit is less than its carrying amount, then performing the two-step test is unnecessary. Based on the qualitative assessment performed, management did not believe that it is more likely than not that the Company's goodwill has been impaired.
Based on the Company's analysis, no impairment charges were recognized on goodwill in 2024, 2023 or 2022.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, the company assesses qualitative factors to determine if the fair value of its reporting unit is less than its carrying amount. This assessment serves as the basis for deciding whether to perform a two-step goodwill impairment test. The 'more-likely-than-not' threshold is specifically defined as having a likelihood of more than 50 percent.
In practical terms, this means that if Noodles & Company determines there is a greater than 50% chance that the fair value of its reporting unit is less than its carrying amount, then the two-step goodwill impairment test is required. This test involves further analysis to determine if an impairment exists and, if so, the amount of the impairment. Conversely, if the qualitative assessment indicates there is less than a 50% chance of impairment, the more rigorous two-step test is deemed unnecessary.
For a prospective Noodles & Company franchisee, understanding this threshold is important because it reflects the company's approach to assessing the value of its goodwill and the potential for recognizing impairment charges. While the FDD states that management did not believe that it is more likely than not that the Company's goodwill has been impaired based on their qualitative assessment, it is important to note that this assessment is subject to change based on future performance and market conditions. Goodwill was not impaired in 2022, 2023, or 2024.