Under what accounting standards does Checkers account for leases, particularly concerning subleases for franchise restaurants?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is the sublessor on certain lease agreements which are generally for franchise restaurants. As of January 4, 2022, the Company accounts for leases using the guidance in ASC 842, Leases, and the guidance in ASC 606, Revenue from Contracts with Customers. Previously the Company accounted for leases using the guidance in ASC 840, Leases, and therefore, the sublease rental income was not in the scope of the guidance in ASC 606, Revenue from Contracts with Customers.
See Note 16 - Leases for a discussion on the sublease rental income.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company accounts for leases, including subleases for franchise restaurants, using the guidance in ASC 842, Leases, and ASC 606, Revenue from Contracts with Customers. This applies to periods beginning on or after January 4, 2022. Prior to this date, Checkers used ASC 840, Leases.
Checkers acts as a sublessor for certain franchised restaurants, often involving ground leases that Checkers holds and then subleases to franchisees. When Checkers subleases land and buildings associated with the sale of company-operated restaurants, the subleases typically have terms of 10 to 15 years, with no option to purchase. Checkers continues to be responsible for the original rent payments.
The subleases are evaluated to determine if they should be classified as operating, direct financing, or sales-type leases. Checkers has elected to account for lease and non-lease components as a single lease component. Generally, the sublessee is obligated to cover costs related to property taxes, insurance, and maintenance, which are considered variable costs. Sublease rental income is recorded in "franchise fees and other income" on the consolidated statements of operations. For example, sublease rental income recorded for the fiscal year ended December 30, 2024 (Successor) was $2.0 million.