According to Checkers' FDD, what accounting standards are used for leases?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company leases real estate for the operation of its restaurants as well as acts as a sublessor for the operation of certain franchised restaurants. As lessee, the Company is obligated under several noncancelable leases, primarily ground leases that in certain instances it also subleases to franchisees.
The Company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases. For details on the Company's adoption of ASC 842, Leases and the related policy elections refer to Note 2. Results for reporting periods beginning on or after January 4, 2022 are presented under ASC 842, Leases. Prior period amounts were not revised and continue to be reported in accordance with ASC 840, Leases, the accounting standard then in effect.
The Company leases land and buildings generally under agreements with terms of, or renewable to, 10 to 30 years. The Company determines the lease term by assuming exercise of renewal options that are reasonably certain to be exercised. The leases are evaluated for classification as operating or finance leases.
The Company has elected the practical expedient to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The leases generally obligate the Company to pay for costs associated with property taxes, insurance and maintenance and are evaluated by the Company as fixed or variable in nature. If it is concluded that they are fixed, they are included in the calculation of the lease liability. Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term and are included in the "restaurant occupancy expense", "franchise support and services expenses," "general and administrative expenses" and "restaurant retirement costs" within the accompanying consolidated statement of operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases. For reporting periods beginning on or after January 4, 2022, Checkers presents its financial information under ASC 842, Leases. Prior to this date, the company reported in accordance with ASC 840, Leases.
Checkers leases real estate for its restaurant operations and also acts as a sublessor for certain franchised restaurants. As a lessee, Checkers is obligated under several noncancelable leases, primarily ground leases, some of which it subleases to franchisees. The company determines the lease term by assuming the exercise of renewal options that are reasonably certain to be exercised and evaluates the leases for classification as operating or finance leases.
Checkers has elected a practical expedient to account for lease and non-lease components as a single lease component for all underlying asset classes. The leases generally obligate Checkers to cover costs associated with property taxes, insurance, and maintenance, which are evaluated as fixed or variable. Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term and are included in various expense categories within the consolidated statement of operations, such as restaurant occupancy costs, franchise support and services expenses, general and administrative expenses, and restaurant retirement costs.
During the adoption of ASC 842, Checkers applied the provisions to the beginning of the adoption period, using certain practical expedients. These include accounting for existing capital and operating leases as finance and operating leases, respectively, without reassessing whether the contracts contain leases under the new standard or whether the classification of leases would differ. Checkers also uses hindsight in determining the lease term and assessing impairment of right-of-use assets. Furthermore, Checkers elected not to separate lease and non-lease components and uses the risk-free rate policy election, utilizing the rate implicit in the lease or the yield on United States treasury bonds to discount lease payments.