What is the range of terms for which cash outlays have been estimated for Checkers' closed or undeveloped restaurants?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The ending reserve balance in prior years represents estimates for the ongoing costs of certain restaurants that have been closed, were never developed or were sold to a franchisee that are subject to an estimated or actual sublease with rents that are less than the rents the Company is obligated to pay under the original lease and are not otherwise reflected within the favorable or unfavorable leasehold interests balances, or that contain other provisions that require the recognition of the reserve. These costs primarily include the non-cancelable rent payments due over the remainder of the contractual rent period at the cease-use date, net of estimated or actual sublease rental income, and estimates of the related contractual property taxes. The cash outlays for these costs have been estimated for various terms ranging from two years to ten years and are discounted at a credit-adjusted riskfree rate in the case of closed or undeveloped restaurants and are undiscounted in the case of sales of restaurants to franchisees.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company has estimated cash outlays for costs associated with closed or undeveloped restaurants for terms ranging from two to ten years. These costs primarily include non-cancelable rent payments due over the remaining contractual rent period at the cease-use date, net of estimated or actual sublease rental income, and estimates of related contractual property taxes. For closed or undeveloped restaurants, these cash outlays are discounted at a credit-adjusted risk-free rate. However, in cases where restaurants are sold to franchisees, the cash outlays are undiscounted.
This means that Checkers considers the financial obligations for closed or undeveloped locations, factoring in potential sublease income to offset rental expenses. The discounting of these cash outlays for closed or undeveloped restaurants suggests that Checkers accounts for the time value of money when estimating these liabilities. This is a standard accounting practice, as money paid out in the future is worth less than money paid out today due to inflation and potential investment opportunities.
For a prospective franchisee, this information provides insight into how Checkers manages its real estate liabilities and estimates the costs associated with underperforming or closed locations. Understanding these practices can help franchisees assess the financial stability and risk management strategies of the franchisor. It's also important to note that the estimates are based on contractual rent periods and market conditions, which can vary and impact the actual cash outlays.