What was the result of Checkers changing its methodology regarding the reversal of deferred tax liabilities as of December 30, 2024, in terms of the valuation allowance?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
ferred tax assets will not be realized in a future period. As of December 30, 2024 (Successor) and January 1, 2024 (Successor), the valuation allowance has been adjusted to the amount of deferred tax assets, net of reversing deferred tax liabilities, that management believes will not be realized.
The Company changed its methodology related to reversal of deferred tax liabilities as of December 30, 2024 (Successor) based an evaluation of the facts and generally accepted accounting practice. The Company previously concluded the life of the brand intangible was indeterminable, and therefore did not use it as a source of realization. The Company changed its methodology as it determined it was appropriate to use the indefinite-life brand intangible as a source of realizatio
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company changed its methodology related to the reversal of deferred tax liabilities as of December 30, 2024. Previously, Checkers did not consider its brand intangible as a source of realization because it concluded the life of the brand intangible was indeterminable. However, Checkers changed its methodology after determining it was appropriate to use the indefinite-life brand intangible as a source of realization for its indefinite life deferred tax assets, including interest limitation carryforwards and deferred tax assets that would become indefinite-life net operating losses in future periods.
This change in methodology resulted in a reduction of the valuation allowance by $28.8 million as of December 30, 2024. In simpler terms, Checkers reassessed how it accounts for its brand value in relation to its tax liabilities. By recognizing the brand as a permanent asset that can offset these liabilities, Checkers was able to decrease the amount it sets aside as a 'valuation allowance' for potential tax obligations.
For a prospective franchisee, this accounting adjustment reflects positively on Checkers' financial management and its ability to leverage its brand strength for tax benefits. It suggests a more optimistic outlook on the company's future profitability and its capacity to manage its deferred tax assets effectively. However, it is essential for franchisees to consult with financial advisors to understand the full implications of these tax strategies and how they might affect the overall financial health of the franchise system.