Where are favorable and unfavorable leasehold interests classified in Checkers' consolidated balance sheets when Checkers is the lessee?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Per the guidance in ASC 842, favorable and unfavorable leasehold interests for lease agreements where the Company is the lessee are classified in the Operating lease ROU assets, net in the accompanying consolidated balance sheets. The amortization of the ROU assets is recorded in the restaurant occupancy costs line item for Company-operated restaurant locations, in the franchise fees and other income line item for locations subleased to franchisees and in the general and administrative expenses line item for Company headquarters. These line items are presented in the accompanying consolidated statements of operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the classification of favorable and unfavorable leasehold interests, when Checkers is the lessee, depends on whether ASC 842, Leases, has been adopted. Before January 4, 2022, such interests were listed as "favorable leasehold interests" and "unfavorable leasehold interests" on the consolidated balance sheet.
However, with the adoption of ASC 842 on January 4, 2022, Checkers reclassified these leasehold interests. Now, favorable and unfavorable leasehold interests for lease agreements where Checkers is the lessee are classified under "Operating lease ROU assets, net" in the consolidated balance sheets.
The amortization of these right-of-use (ROU) assets is recorded in different line items within the consolidated statements of operations, depending on the type of location. For company-operated restaurants, it's recorded as "restaurant occupancy costs". For locations subleased to franchisees, it's recorded as "franchise fees and other income". For the company headquarters, it's recorded as "general and administrative expenses".