What costs primarily include the non-cancelable rent payments due over the remainder of the contractual rent period at the cease-use date for Checkers?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
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 sublease income or an estimate based on local market conditions and the Company's experience with previous sites. The disposal and sale activities were completed in each of the periods in which expense was recognized in the table above and the amounts recognized as expense represent the total costs estimated to be incurred.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the costs primarily include 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. These costs are associated with restaurants that have been closed, were never developed, or were sold to a franchisee subject to a sublease with rents lower than what Checkers is obligated to pay under the original lease. These costs are not reflected within the favorable or unfavorable leasehold interests balances or contain other provisions that require the recognition of the reserve.
The cash outlays for these costs are estimated for terms ranging from two to ten years. For closed or undeveloped restaurants, these outlays are discounted at a credit-adjusted risk-free rate. However, for restaurants sold to franchisees, the outlays are undiscounted. In cases where properties are subleased or have the potential to be subleased for a lower amount than the contractual rent payments, the initial reserve is reduced by the actual sublease income or an estimate based on local market conditions and Checkers' experience with previous sites.
The disposal and sale activities were completed in each of the periods in which expense was recognized in the table above and the amounts recognized as expense represent the total costs estimated to be incurred. This accounting practice reflects Checkers' approach to managing lease obligations and estimating potential losses from closed or transferred restaurant locations.