What happens if the carrying value of an intangible asset exceeds its fair value at Checkers?

According to Checkers' 2025 Franchise Disclosure Document, if the carrying value of an intangible asset exceeds its fair value, Checkers will recognize an impairment loss. The loss is equal to the amount by which the carrying value exceeds the fair value. This process is part of how Checkers manages and reports the value of its assets, particularly intangible assets like brand names. These assets are tested for impairment annually or when circumstances suggest their carrying amount may not be recoverable.

The fair value of these intangible assets is estimated using the relief from royalty valuation methodology, which relies on several key assumptions. These include estimates of future revenues from related sales, the discount rate, and the royalty rate. The discount rate reflects the risk inherent in the intangible assets, while royalty rates are based on projected profitability, actual franchisee agreements, and comparable market rates. These assumptions are critical in determining whether an impairment loss needs to be recognized.

For a prospective Checkers franchisee, this means that the financial health and brand strength of the company are regularly assessed. If the brand's value decreases, leading to an impairment loss, it could reflect underlying business challenges. While this accounting practice itself doesn't directly impact day-to-day operations, it provides transparency into the company's financial position and the value of its intangible assets, which are closely tied to the brand's performance and market perception. Franchisees should monitor these assessments as indicators of the overall stability and brand equity of Checkers.