Prior to January 4, 2022, how did Checkers recognize reserves for restaurant retirement costs?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Prior to the adoption of ASC 842, Leases, on January 4, 2022, the Company recognized reserves for restaurant retirement costs, which generally result from the closing or abandoning of a restaurant, in accordance with the provisions of ASC 420, Exit or Disposal Cost Obligations. Upon the closing of a restaurant or the abandoning of a site, the Company would reserve all remaining contractual rent and property tax payments, net of actual or estimated sublease rentals. The significant inputs into the valuation of reserves for restaurant retirement costs included payments remaining under the lease terms, reduced by estimated or actual sublease rentals that could reasonably be obtained, discounted at a credit-adjusted risk-free rate. The estimated sublease rentals are based on market conditions in the areas where the restaurants are located and the Company's experience with previous sites. The discount rate is the risk-free rate adjusted for perceived risk in the projected cash flows, which is deemed low in the case of future rent payments.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, prior to January 4, 2022, Checkers recognized reserves for restaurant retirement costs in accordance with ASC 420, Exit or Disposal Cost Obligations. These costs generally resulted from closing or abandoning a restaurant. Upon closing or abandoning a site, Checkers would reserve all remaining contractual rent and property tax payments, net of actual or estimated sublease rentals.
The valuation of these reserves for restaurant retirement costs included payments remaining under the lease terms, reduced by estimated or actual sublease rentals that could reasonably be obtained, and discounted at a credit-adjusted risk-free rate. Checkers based the estimated sublease rentals on market conditions in the areas where the restaurants were located and the company's experience with previous sites.
The discount rate used was the risk-free rate adjusted for perceived risk in the projected cash flows, which Checkers deemed low in the case of future rent payments. This accounting method was in place until the adoption of ASC 842, Leases, on January 4, 2022, which changed how Checkers accounted for these costs.