Under what accounting standard does Checkers account for leases, both as a lessee and a lessor?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company leases real estate for the operation of its restaurants as well as acts as a sublessor for the operation of certain franchised restaurants. As lessee, the Company is obligated under several noncancelable leases, primarily ground leases that in certain instances it also subleases to franchisees.
The Company accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases. For details on the Company's adoption of ASC 842, Leases and the related policy elections refer to Note 2. Results for reporting periods beginning on or after January 4, 2022 are presented under ASC 842, Leases. Prior period amounts were not revised and continue to be reported in accordance with ASC 840, Leases, the accounting standard then in effect.
Company as Lessee
The Company leases land and buildings generally under agreements with terms of, or renewable to, 10 to 30 years. The Company determines the lease term by assuming exercise of renewal options that are reasonably certain to be exercised. The leases are evaluated for classification as operating or finance leases.
The Company has elected the practical expedient to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The leases generally obligate the Company to pay for costs associated with property taxes, insurance and maintenance and are evaluated by the Company as fixed or variable in nature. If it is concluded that they are fixed, they are included in the calculation of the lease liability. Fixed lease costs for operating lease payments are recognized on a straight-line basis over the lease term and are included in the "restaurant occupancy expense", "franchise support and services expenses," "general and administrative expenses" and "restaurant retirement costs" within the accompanying consolidated statement of operations.
Company as Lessor
The Company subleases land and buildings associated with the sale of certain Company-operated restaurants with terms of, or renewable to, 10 to 15 years with no option to purchase. The Company determines the sublease term by assuming exercise of renewal options that are reasonably certain to be exercised. The Company continues to be responsible for the rent payments to the original lessors. The subleases are evaluated for classification as operating, direct financing or sales-type leases. The Company has elected the practical expedient to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The subleases generally obligate the sublessee to pay for costs associated with property taxes, insurance and maintenance costs and are considered to be variable. Variable sublease rental income recorded for the periods ended January 1, 2024 (Successor), June 16, 2023 (Predecessor), January 3, 2023 (Predecessor) and January 2, 2022 (Predecessor), was $0.1 million, $0.3 million and $0.3 million, respectively.
The Company is the sublessor on operating leases. The revenue from these subleases is recorded in "franchise fees and other income" in the accompanying consolidated statements of operations. Sublease rental income recorded for the periods ended January 1, 2024 (Successor), June 16, 2023 (Predecessor), January 2, 2023 (Predecessor), and January 3, 2022 (Predecessor) was $1.9 million, $1.0 million, $3.7 million, and $4.8 million, respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Checkers accounts for leases as both a lessee and a lessor in accordance with ASC 842, Leases. This standard is for reporting periods beginning on or after January 4, 2022. Prior to this date, Checkers used ASC 840, Leases. Note 2 of the financial statements provides further details on the adoption of ASC 842 and related policy elections.
As a lessee, Checkers leases land and buildings, generally under agreements with terms of 10 to 30 years, including potential renewal options. Checkers determines the lease term by assuming the exercise of renewal options that are reasonably certain. These leases are then classified as either operating or finance leases. The company has elected a practical expedient to account for lease and non-lease components as a single unit for all asset classes. Generally, Checkers is obligated to cover property taxes, insurance, and maintenance costs, which are evaluated as fixed or variable. Fixed costs are included in the lease liability calculation and recognized on a straight-line basis over the lease term, impacting various expense categories in the consolidated statement of operations.
As a lessor, Checkers subleases land and buildings, often associated with the sale of company-operated restaurants, with terms of 10 to 15 years, without purchase options. Similar to its role as a lessee, Checkers determines the sublease term by assuming the exercise of reasonably certain renewal options and remains responsible for the original rent payments. These subleases are classified as operating, direct financing, or sales-type leases. Checkers has also elected the practical expedient to account for lease and non-lease components as a single unit. Sublessees are generally obligated to cover property taxes, insurance, and maintenance costs, which are considered variable. Revenue from these subleases is recorded as "franchise fees and other income" in the consolidated statements of operations. Variable sublease rental income for specific periods is also detailed in the FDD.