What model does Checkers use to calculate the fair value of Class B Units?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company records the resulting stock-compensation expense for service-based units ratably over the five-year period and the performance-based units, as well as any expense for unvested service-based Class B Units, upon the occurrence of a Liquidity Event. The stock-based compensation expense recorded is based upon the fair value of the Class B Units which was calculated using the Black-Scholes Model as of the grant date of these awards.
The Company has elected to use the practical expedient under ASU 2021-07 which allows a nonpublic entity to determine the current price input of a share option using the "reasonable application of a reasonable valuation method," which is determined as of the award's measurement date, taking into consideration certain factors as required by the guidance.
During the fiscal year ended December 30, 2024 (Successor), 435,555 awards for Class B Units were granted and 477,000 Class B Units were forfeited. During the period ended January 1, 2024 (Successor), 861,111 awards for Class B Units were granted and no Class B Units were forfeited. The fair value of the awards for Class B Units granted during the periods ended December 30, 2024 (Successor) and January 1, 2024 (Successor) was determined using the following assumptions:
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company calculates the fair value of its Class B Units using the Black-Scholes Model as of the grant date of these awards. This model is a widely recognized tool for estimating the theoretical price of options, taking into account factors like the current stock price, exercise price, time to expiration, volatility, and risk-free interest rate.
Checkers has elected to use a practical expedient under ASU 2021-07, which allows them, as a nonpublic entity, to determine the current price input of a share option using a "reasonable application of a reasonable valuation method." This valuation method is determined as of the award's measurement date, considering certain factors as required by the relevant guidance. This approach provides Checkers with some flexibility in determining the fair value of these units.
For the period ended January 1, 2024, Checkers granted 861,111 awards for Class B Units, and none were forfeited, cancelled, or expired during that time. During the fiscal year ended December 30, 2024, 435,555 awards for Class B Units were granted and 477,000 Class B Units were forfeited. The fair value of these awards was determined using the aforementioned assumptions and models.