When does Checkers reduce deferred tax assets by a valuation allowance?

According to Checkers' 2025 Franchise Disclosure Document, Checkers reduces deferred tax assets by a valuation allowance when it becomes more likely than not that they will not be realized. This determination is based on the guidelines of ASC 740, Income Taxes. The realization of these deferred tax assets hinges on Checkers generating sufficient taxable income during the periods when the assets are available for use.

Checkers reviews its deferred tax assets periodically to assess their recoverability and adjusts the valuation allowances as needed. This review includes considering all relevant factors, such as cumulative losses over the past three years. If, after this review, management concludes that it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the valuation allowance is adjusted accordingly.

For prospective Checkers franchisees, this means that the company's financial statements, particularly those related to income taxes, are subject to ongoing adjustments based on the company's performance and expected future profitability. The valuation allowance reflects management's assessment of the risk that some deferred tax assets may not provide a future benefit, which can impact the net value of these assets on the balance sheet. Franchisees should be aware of these accounting practices and their potential impact on the company's reported financial position.