How does Checkers recognize an allowance for credit losses?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
-------------------------|-------|----|-----------|----|-------| | | | Gross | | Allowance | | Net | | Gross | | Allowance | | Net | | Total accounts | $ | 8,372 | $ | (655) | $ | 7,717 | $ | 7,913 | $ | (514) | $ | 7,399 | | receivables | | | | | | | | | | | | |
Accounts receivable is primarily comprised of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. The Company recognizes an allowance for credit losses based on historical collection experience and on a specific identification basis based upon past due balances and the financial strength of the obligor. The Company monitors that franchisees remain in compliance with all terms of the franchise agreement and sublease, when applicable, and when a franchisee is not in compliance, they are placed in default status. When a franchisee is placed in default status, the Company closely monitors royalties accruing on franchisee sales in order to determine if collectability is reasonably assured. If we determine that certain amounts are not probable of collection, we do not recognize the related royalty revenue. The Company writes off the related accounts receivable when it is determined that they are uncollectible.
Credit losses are recorded in general and administrative expenses in the accompanying consolidated statements of operations. The Company had credit losses of $0.6 million, $0.1 million, and $0.1 million for the fiscal year ended December 30, 2024 (Successor), and for the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - FAIR VALUE MEASUREMENTS
From time to time, we measure certain non-financial assets at fair value on a non-recurring basis in connection with evaluating long-lived assets for impairment. We estimate the fair value of our long-lived assets using significant inputs such as market conditions, comparable properties and Company experience with similar sites, which may be supplemented by appraisals or independent broker opinions of value when necessary, which would generally be categorized within Level 3 of the fair value hierarchy.
Intangible assets not subject to amortization consist of the brands (tradenames) intangible assets. A quantitative impairment test performed on these intangible assets consists of a comparison of their fair value with their carrying value. The Company evaluates the recoverability of intangible assets with an indefinite life in accordance with ASC 350, Intangibles-Goodwill and Other. These assets are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company recognizes an allowance for credit losses based on two primary factors: historical collection experience and specific identification of accounts. This specific identification is based on past due balances and the financial strength of the franchisee (obligor). Checkers actively monitors franchisees to ensure they comply with the terms of their franchise agreement and sublease, if applicable.
When a Checkers franchisee is not in compliance, they are placed in default status. Once a franchisee is in default, Checkers closely monitors the royalties accruing from their sales to determine if collection is reasonably assured. If Checkers determines that certain amounts are not likely to be collected, the related royalty revenue is not recognized. The accounts receivable associated with these uncollectible amounts are written off when they are deemed uncollectible.
For the fiscal year ended December 30, 2024 (Successor), Checkers had credit losses of $0.6 million. For the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), credit losses were $0.1 million in each period, respectively. These credit losses are recorded as part of general and administrative expenses in the company's consolidated statements of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses that sets forth a current expected credit loss impairment model for financial assets, which replaced the current incurred loss ("CECL") model, and in 2018 and 2019 issued amendments and updates to the new standard. The amended guidance requires the application of a CECL model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This guidance is effective for annual periods beginning after December 15, 2022, and interim periods within those annual periods using a modified retrospective transition method. The Company adopted this pronouncement effective January 3, 2023 and determined that it had no material impact on the consolidated financial statements and related disclosures.