What costs generally result in restaurant retirement costs for Checkers?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
------|----|------------------------------|----|---------------|----|-----------------|-----|----------|---|--------------------------| | For the year ended January 2, 2023 | S | 4.290 | $ | - | S | - | S | (4.290) | S | - | | For the year ended January 3, 2022 | S | 4.834 | S | 375 | S | (1.842) | S | 923 | S | 4.290 |
The Company adopted ASC 842, Leases, in fiscal year 2022 and at the time of transition the $4.3 million in reserves for restaurant retirement and refranchising costs were included as a reduction to "operating right-of-use assets, net." Subsequent to its adoption of ASC 842, the Company assesses leases for impairment and no longer recognizes reserves for restaurant retirement and refranchising costs. Accordingly, there was no activity related to restaurant retirement or refranchising for the year ended January 1, 2024 in either the Predecessor or Successor periods. (See Note 16. Leases).
(Tabular Dollars in Thousands, Except Share and per Share Data)
The ending reserve balance in prior years represents estimates for the ongoing costs of certain restaurants that have been closed, were never developed or were sold to a franchisee that are subject to an estimated or actual sublease with rents that are less than the rents the Company is obligated to pay under the original lease and are not otherwise reflected within the favorable or unfavorable leasehold interests balances, or that contain other provisions that require the recognition of the reserve. These costs primarily include the non-cancelable rent payments due over the remainder of the contractual rent period at the cease-use date, net of estimated or actual sublease rental income, and estimates of the related contractual property taxes. The cash outlays for these costs have been estimated for various terms ranging from two years to ten years and are discounted at a credit-adjusted riskfree rate in the case of closed or undeveloped restaurants and are undiscounted in the case of sales of restaurants to franchisees. In certain instances, the properties are subleased or have the potential to be subleased for an amount less than the obligation relating to the contractual rent payments. In these cases, the amount of the initial reserve has been reduced by the actual sub
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, restaurant retirement costs are associated with closed or undeveloped restaurants, or those sold to a franchisee with sublease rents lower than the original lease payments. These costs primarily include non-cancelable rent payments due over the remaining contractual rent period at the cease-use date, net of estimated or actual sublease rental income, and estimates of related contractual property taxes.
The costs are estimated for terms ranging from two to ten years and are discounted at a credit-adjusted risk-free rate for closed or undeveloped restaurants. However, they are undiscounted in the case of restaurants sold to franchisees. The initial reserve amount is reduced by actual sublease income or estimates based on local market conditions and Checkers' experience with previous sites. The expenses recognized represent the total costs estimated to be incurred, with disposal and sale activities completed in the periods the expense was recognized.
In 2022, Checkers adopted ASC 842, Leases, and the $4.3 million in reserves for restaurant retirement and refranchising costs were included as a reduction to "operating right-of-use assets, net." After adopting ASC 842, Checkers assesses leases for impairment and no longer recognizes reserves for restaurant retirement and refranchising costs. Consequently, there was no activity related to restaurant retirement or refranchising for the year ended January 1, 2024, in either the Predecessor or Successor periods.