For Checkers, over what period are leasehold improvements depreciated?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of their estimated useful lives (generally 10 years) or the remaining lease term.
Leasehold interests have definite lives and are amortized on a straight-line basis over the remaining lease term including any optional renewal periods that are likely to be exercised. The average amortization period for leasehold interests as of January 1, 2024 (Successor) was 11.1 years. The Company recognized amortization expense, net of revenue, of $0.2 million, $0.1 million, $0.2 million, and ($0.9) million for the periods ended January 1, 2024 (Successor), June 16, 2023 (Predecessor), January 2, 2023 (Predecessor), and January 3, 2022 (Predecessor), respectively.
Depreciation expense associated with property and equipment, including property and equipment held under capital leases prior to the adoption of ASC 842, was $2.9 million, $7.9 million, $13.5 million, and $15.4 million for the periods from June 17, 2023 through January 1, 2024 (Successor), from January 3, 2023 through June 16, 2023 (Predecessor), and for the years ended January 2, 2023 (Predecessor), and January 3, 2022 (Predecessor), respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, leasehold improvements are depreciated using the straight-line method. The depreciation period is determined by the lesser of two factors: the estimated useful life of the improvements, generally considered to be 10 years, or the remaining term of the lease.
For a prospective Checkers franchisee, this means that the cost of any improvements made to the leased property will be spread out as an expense over a period that could be as long as 10 years, but will be shorter if the lease expires before that. This depreciation method allows the franchisee to deduct a portion of the cost each year, which can help reduce their taxable income.
The FDD also mentions that the company recognized amortization expense, net of revenue, of $0.2 million, $0.1 million, $0.2 million, and ($0.9) million for specific periods, and depreciation expense associated with property and equipment was $2.9 million, $7.9 million, $13.5 million, and $15.4 million for different periods. These figures provide context on how Checkers accounts for depreciation and amortization in their financial statements.
It is important for a potential Checkers franchisee to understand these depreciation practices, as they impact the financial reporting and tax obligations of the franchise. Franchisees should consult with a financial advisor to fully understand the implications of leasehold improvement depreciation and how it affects their specific business situation.