What qualitative factors does Checkers consider when evaluating potential impairment indicators for indefinite-lived intangible assets?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company assesses the impairment of indefinite-lived intangible assets, which consist of brand name intangibles, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The annual impairment assessment is performed on the first day of the Company's fourth fiscal quarter. When evaluating potential impairment indicators, we consider the following:
- Significant under-performance relative to expected and/or historical results (negative same store sales growth or operating cash flows)
- Significant industry or economic trends that could have a negative impact on our business
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, when evaluating potential impairment indicators for indefinite-lived intangible assets, Checkers considers qualitative factors such as significant industry or economic trends that could negatively affect the company's business. Additionally, Checkers considers significant under-performance relative to expected and/or historical results, such as negative same store sales growth or operating cash flows.
These qualitative assessments are crucial for Checkers in determining whether a more detailed quantitative test is necessary. If the initial qualitative assessment suggests that impairment is unlikely, Checkers avoids the more complex and costly quantitative analysis. However, if the qualitative factors indicate potential impairment, a quantitative test is performed to compare the fair value of the company with its carrying amount.
For a prospective Checkers franchisee, understanding these factors is important because they reflect the overall financial health and stability of the brand. Negative trends in these areas could signal potential risks to the franchisee's investment. Therefore, it would be prudent for a potential franchisee to monitor industry and economic trends, as well as Checkers's same-store sales growth and operating cash flows, to assess the long-term viability of the franchise.