How are tenant incentives used to fund leasehold improvements treated by Noodles & Company?

According to Noodles & Company's 2025 Franchise Disclosure Document, tenant incentives used to fund leasehold improvements are recognized when earned. These incentives reduce the right-of-use asset related to the lease. The reduced right-of-use asset is then amortized as reductions of expense over the lease term. This accounting treatment impacts how Noodles & Company reports its financial performance.

For a prospective Noodles & Company franchisee, this means that if the landlord provides any incentives to improve the leased space, those incentives will decrease the initial asset value recorded for the lease. This lower asset value will then result in lower amortization expense each year, effectively spreading the benefit of the tenant incentives over the life of the lease. This can make the restaurant's financial statements look more favorable by reducing expenses in the long term.

This approach is a fairly standard accounting practice, ensuring that the financial statements accurately reflect the economic reality of the lease agreement. It's important for franchisees to understand how these incentives are treated, as it can affect their understanding of the restaurant's profitability and financial health. Franchisees should consult with their own financial advisors to fully understand the implications of these accounting practices.