How does Checkersrallys account for advertising co-ops that it controls versus those it does not control?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
ransactions with certain companies or individuals, which are related parties by virtue of being holders of the Company's common stock, by being officers/directors of the Company or because they are controlled by significant stockholders or officers/directors of the Company.
The Company and its franchisees each pay a percentage of sales to the Checkers/Rally's National Production Fund, Inc. (the "Fund" or "NPF"), established for the purpose of creating and producing advertising for the benefit of both Company-operated and franchised restaurants. During the fiscal year ended December 30, 2024 (Successor) and the periods ended January 1, 2024 (Successor) and June 16, 2023 (Predecessor), only one member, representing 25% of the Board of Directors of the Fund, is an employee of the Company. The Fund is not included in the accompanying consolidated financial statements, although the Company's contributions to the Fund are included in advertising expense in the accompanying consolidated statements of operations. Additionally, certain Company-operated restaurants and franchisees participate in advertising co-ops. The Company consolidates advertising co-ops for which it is determined to control on the basis of voting interests, and does not consolidate advertising co-ops it does not control. Co-ops not controlled by the Company are accounted for similarly to the fund.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company handles advertising co-ops differently based on whether or not it controls them. Checkersrallys consolidates advertising co-ops for which it determines it has control based on voting interests. This means that the financial results of these co-ops are included within Checkersrallys's own consolidated financial statements.
For advertising co-ops that Checkersrallys does not control, the accounting treatment is different. These co-ops are accounted for similarly to the Checkers/Rally's National Production Fund (NPF). The NPF is not included in Checkersrallys's consolidated financial statements, but the company's contributions to the fund are listed as "advertising expense" in the consolidated statements of operations.
In practical terms, this means that if a prospective Checkersrallys franchisee participates in a co-op controlled by the company, the co-op's financial activities will be reflected in Checkersrallys's overall financial performance. If the co-op is not controlled by the company, its financials are kept separate, and the franchisee's contributions are simply recorded as an advertising expense for Checkersrallys. The contributions to the Fund represent 0.5% of net restaurant sales, while contributions to the advertising co-ops range from 0.5% to 4.25% of net restaurant sales.