When does Checkers measure nonfinancial assets at fair value?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
8. Fair Value Measurements
From time to time, we measure certain nonfinancial assets at fair value on a non-recurring basis in connection with evaluating long-lived assets for impairment. We estimate the fair value of our long-lived assets using significant inputs such as market conditions, comparable properties and Company experience with similar sites, which may be supplemented by appraisals or independent broker opinions of value when necessary, which would generally be categorized within Level 3 of the fair value hierarchy.
As of January 1, 2024 (Successor) and January 2, 2023 (Predecessor), there were no material assets or liabilities measured at fair value on a recurring basis.
Intangible assets not subject to amortization consist of the brands (tradenames) intangible assets. A quantitative impairment test performed on these intangible assets consists of a comparison of their fair value with their carrying value. The Company evaluates the recoverability of intangible assets with an indefinite life in accordance with ASC 350, Intangibles-Goodwill and Other. These assets are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The authoritative guidance allows a company to perform a qualitative or a quantitative assessment of impairment. A company may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test or it could also bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.
If the carrying value of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using the relief from royalty valuation methodology. Significant assumptions are inherent to this process, including estimates of future revenues generated by the related sales, the discount rate, and the royalty rate. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. Royalty rate assumptions are based on projected profitability, actual franchisee agreements and comparable market rates.
In 2022 and 2021, the Company performed impairment tests of the brands intangible assets by completing a quantitative assessment at the enterprise level which relied upon unobservable inputs (Level 3) as of September 12, 2022, and September 6, 2021, respectively. The impairment tests did not result in any necessary impairment charges and, therefore, no impairment charges were recognized in 2022 and 2021.
As noted in Note 1 due to the Out-of-Court Restructuring the Company compared the fair value of the asset with its carrying amount and recognized an impairment in the Predecessor period of 2023 as noted within Note 11. As the brands intangible asset and goodwill were recognized at fair value as part of the Out-of-Court Restructuring, the Company subsequently performed a
(Tabular Dollars in Thousands, Except Share and per Share Data)
qualitative assessment to determine whether these assets were more likely than not impaired as of the first day of the last fiscal quarter of the fiscal year (Successor). If the Company concludes that the assets are more likely than not impaired, the Company will perform a quantitative test to determine the amount of impairment, if any, to recognize.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Checkers measures certain nonfinancial assets at fair value on a non-recurring basis when evaluating long-lived assets for impairment. The fair value of these long-lived assets is estimated using inputs like market conditions, comparable properties, and the company's experience with similar sites. These estimations may be supplemented by appraisals or independent broker opinions, which are generally categorized within Level 3 of the fair value hierarchy.
Specifically, Checkers tests intangible assets (like brand tradenames) for impairment annually or when events suggest the carrying amount may not be recoverable, in accordance with ASC 350, Intangibles-Goodwill and Other. This involves comparing the asset's fair value to its carrying value. If the carrying value exceeds the fair value, an impairment loss is recognized. The fair value of these intangible assets is determined using the relief from royalty valuation methodology, which relies on assumptions about future revenues, discount rates, and royalty rates.
In 2022 and 2021, Checkers performed impairment tests of the brands intangible assets by completing a quantitative assessment at the enterprise level which relied upon unobservable inputs (Level 3) as of September 12, 2022, and September 6, 2021, respectively. The impairment tests did not result in any necessary impairment charges and, therefore, no impairment charges were recognized in 2022 and 2021. Also, as part of an Out-of-Court Restructuring, Checkers compared the fair value of assets with their carrying amount and recognized an impairment in the Predecessor period of 2023. Subsequently, Checkers performed a qualitative assessment to determine if these assets were more likely than not impaired as of the first day of the last fiscal quarter of the fiscal year (Successor).