What estimates and assumptions does Checkers' management make regarding new lease and sublease agreements as required by ASC 842, *Leases*?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
assets acquired and liabilities assumed at fair value on the closing date using the acquisition method of accounting. The amounts included within the accompanying consolidated financial statements reflect the application of the fair value basis of accounting required by the provisions of ASC 805, Business Combinations.
As required by ASC 842, Leases, Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, property lives, discount rates and term, all of which can impact the classification and accounting for a lease or sublease as operating or finance for leases where the Company is a lessee and operating, sale-type and direct financing for leases where the company is lessor. The amount of depreciation and amortization, interest and rent expense and income reported would vary if different estimates and assumptions were used.
Fiscal Year
The Company's fiscal reporting periods consist of 52 or 53 weeks ending on the Monday closest to December 31. References included herein to "year" or "years" ended represent fiscal years. The first, second and third quarters of a fiscal year consist of three 4-week periods and the fourth quarter consists of either a 4-week or 5-week period. The periods January 3, 2023 to June 16, 2023 and June 17, 2023 to January 1, 2024 consisted of 24 and 28 weeks, respectively. The year ended January 2, 2023 consisted of 52 weeks while the year ended January 3, 2022, consisted of 53 weeks.
Due to the presentation of the Successor and Predecessor periods, the period ended January 1, 2024 refers to the period from June 17, 2023 to January 1, 2024 (Successor). The period ended June 16, 2023 refers to the period from January 3, 2023 to June 16, 2023 (Predecessor).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company's management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal, and amendment, as required by ASC 842, Leases. These estimates and assumptions include property values, property lives, discount rates, and the term of the lease. These factors can significantly impact how Checkers classifies and accounts for a lease or sublease.
Specifically, the classification of leases affects whether they are treated as operating or finance leases when Checkers is the lessee. When Checkers acts as the lessor, the classification impacts whether the leases are categorized as operating, sale-type, or direct financing leases. The estimates and assumptions made by Checkers' management directly influence the amounts of depreciation, amortization, interest, rent expense, and income reported in the company's financial statements.
For a prospective Checkers franchisee, this means that the financial performance of a restaurant location can be significantly affected by these lease-related estimates. Different assumptions could lead to variations in reported expenses and income, which in turn could impact the franchisee's profitability. It is important for franchisees to understand how these estimates are made and how they could potentially affect their financial results.
Checkers 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 costs, franchise support and services expenses, general and administrative expenses and restaurant retirement costs line items within the accompanying consolidated statement of operations.