Which optional expedients did Checkers utilize pursuant to the modification of contractual terms of instruments?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference a rate that is expected to be discontinued. The amendment applies only to contracts, hedging relationships, and other transactions that utilize a reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform - Scope, which clarified the scope and application of the original guidance. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 to December 31, 2024. These ASUs were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2024 as the transition of reference rates is completed.
On June 16, 2023, the Company modified the reference rate. These modifications replaced the previous LIBOR-based reference rate to SOFR-based rates. Pursuant to the modification of the contractual terms of these instruments, the Company utilized the optional expedients set forth in ASC 848. The modified debt is described in Note 10.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company modified its reference rate on June 16, 2023, replacing the previous LIBOR-based rate with SOFR-based rates. In doing so, Checkers utilized the optional expedients set forth in ASC 848 regarding the modification of the contractual terms of these instruments. The modified debt is further described in Note 10 of the FDD.
This adoption of Accounting Standards Updates (ASUs) from the Financial Accounting Standards Board (FASB) allowed Checkers to simplify its accounting practices related to reference rate reform. Specifically, the company took advantage of optional expedients and exceptions provided in ASU No. 2020-04, which addresses the impact of reference rate reform on financial reporting. These expedients are designed to ease the transition from rates like LIBOR to alternative rates such as SOFR.
For a prospective Checkers franchisee, this information primarily affects their understanding of the financial statements of the company. While the franchisee is not directly involved in these specific accounting modifications, understanding that Checkers is proactively managing its debt and financial reporting in accordance with current accounting standards can provide some reassurance about the financial management practices of the franchisor. It demonstrates that Checkers is adapting to changes in the financial landscape and utilizing available tools to streamline its accounting processes.