What Accounting Standards Codification (ASC) section did Checkers utilize when modifying the contractual terms of its debt instruments?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference a rate that is expected to be discontinued. The amendment applies only to contracts, hedging relationships, and other transactions that utilize a reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform - Scope, which clarified the scope and application of the original guidance. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 to December 31, 2024. These ASUs were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2024 as the transition of reference rates is completed.
On June 16, 2023, the Company modified the reference rate. These modifications replaced the previous LIBOR-based reference rate to SOFR-based rates. Pursuant to the modification of the contractual terms of these instruments, the Company utilized the optional expedients set forth in ASC 848. The modified debt is described in Note 10.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, when Checkers modified its reference rate on June 16, 2023, it utilized the optional expedients set forth in ASC 848. These modifications involved replacing the previous LIBOR-based reference rate with SOFR-based rates. The modified debt is further described in Note 10 of the financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference a rate that is expected to be discontinued. The amendment applies only to contracts, hedging relationships, and other transactions that utilize a reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform - Scope, which clarified the scope and application of the original guidance. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 to December 31, 2024.
For a prospective franchisee, this information is relevant in understanding how Checkers manages its debt and financial reporting. The adoption of ASC 848 indicates that Checkers is proactively addressing reference rate reforms and utilizing available accounting guidance to ensure accurate and transparent financial reporting. While this doesn't directly impact the franchisee's day-to-day operations, it provides insight into the financial management practices of the franchisor, which can be a factor in assessing the overall stability and reliability of the franchise system.