How does Checkers account for stock-based compensation to employees and directors?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for stock-based compensation to employees and directors in accordance with ASC 718, Compensation - Stock Compensation, which requires the recognition of compensation expense for employee stock options and other share-based payments. Under ASC 718, Compensation - Stock Compensation, expense related to employee stock options and other share-based payments is recognized over the relevant service period based on the grant-date fair value of equity-based awards issued to employees and directors. Compensation expense for equity-based awards is generally recognized on a straight-line basis over the requisite service period. Awards that are forfeited prior to vesting do not result in the cumulative recognition of compensation expense. The Company accounts for the impact of forfeitures on stock-based compensation expense as they occur. Refer to Note 13 - Stockholders' Equity for further information.
Stock-compensation expense recorded under the Management Incentive Plan for the fiscal year ended December 30, 2024 (Successor) and the period June 17, 2023 through January 1, 2024 (Successor) was $0.5 million and $0.1 million, respectively.
As of December 30, 2024 (Successor), the total stock-based compensation cost related to unvested awards not yet recognized is $3.8 million. Of this total, $2.5 million relates to performance-based units for which the timing of vesting is uncertain due to the occurrence of a Liquidity Event not being certain as of this date. The remaining $1.3 million relates to service-based units which are expected to be recognized over a remaining period of five years. The total expected stock compensation cost for the next five years related to unvested service based units not yet recognized is as follows:
The Company records the resulting stock-compensation expense for service-based units ratably over the five-year period and the performance-based units, as well as any expense for unvested service-based Class B Units, upon the occurrence of a Liquidity Event. The stock-based compensation expense recorded is based upon the fair value of the Class B Units which was calculated using the Black-Scholes Model as of the grant date of these awards.
The Company has elected to use the practical expedient under ASU 2021-07 which allows a nonpublic entity to determine the current price input of a share option using the "reasonable application of a reasonable valuation method," which is determined as of the award's measurement date, taking into consideration certain factors as required by the guidance.
During the fiscal year ended December 30, 2024 (Successor), 435,555 awards for Class B Units were granted and 477,000 Class B Units were forfeited. During the period ended January 1, 2024 (Successor), 861,111 awards for Class B Units were granted and no Class B Units were forfeited. The fair value of the awards for Class B Units granted during the periods ended December 30, 2024 (Successor) and January 1, 2024 (Successor) was determined using the following assumptions:
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company accounts for stock-based compensation to employees and directors in accordance with ASC 718, Compensation - Stock Compensation. This accounting standard requires the recognition of compensation expense for employee stock options and other share-based payments. The expense related to these payments is recognized over the relevant service period based on the grant-date fair value of equity-based awards issued to employees and directors. Generally, this compensation expense is recognized on a straight-line basis over the required service period. Awards that are forfeited before vesting do not result in the cumulative recognition of compensation expense, and Checkers accounts for the impact of these forfeitures as they occur. Refer to Note 13 - Stockholders' Equity for further information.
For the fiscal year ended December 30, 2024, stock-compensation expense recorded under the Management Incentive Plan was $0.5 million, and for the period from June 17, 2023, through January 1, 2024, it was $0.1 million. As of December 30, 2024, the total stock-based compensation cost related to unvested awards not yet recognized is $3.8 million. Of this total, $2.5 million is related to performance-based units, where the timing of vesting is uncertain due to the potential occurrence of a Liquidity Event. The remaining $1.3 million is related to service-based units, which are expected to be recognized over a remaining period of five years.
Checkers records the stock-compensation expense for service-based units ratably over the five-year period. The expense for performance-based units, as well as any expense for unvested service-based Class B Units, is recorded upon the occurrence of a Liquidity Event. The recorded stock-based compensation expense is based on the fair value of the Class B Units, calculated using the Black-Scholes Model as of the grant date of these awards. During the fiscal year ended December 30, 2024, 435,555 awards for Class B Units were granted, and 477,000 Class B Units were forfeited. During the period ended January 1, 2024, 861,111 awards for Class B Units were granted, and no Class B Units were forfeited.
Checkers has elected to use the practical expedient under ASU 2021-07, which allows a nonpublic entity to determine the current price input of a share option using the "reasonable application of a reasonable valuation method," determined as of the award's measurement date, considering factors required by the guidance. This accounting treatment affects how Checkers reports its financial performance, and while it does not directly impact franchisees, it is relevant for understanding the overall financial health and management practices of the franchisor.