How does Checkersrallys estimate the fair value of its long-lived assets when evaluating them for impairment?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
ate based on local market conditions and the Company's experience with previous sites. The disposal and sale activities were completed in each of the periods in which expense was recognized in the table above and the amounts recognized as expense represent the total costs estimated to be incurred.
8. Fair Value Measurements
From time to time, we measure certain nonfinancial assets at fair value on a non-recurring basis in connection with evaluating long-lived assets for impairment. We estimate the fair value of our long-lived assets using significant inputs such as market conditions, comparable properties and Company experience with similar sites, which may be supplemented by appraisals or independent broker opinions of value when necessary, which would generally be categorized within Level 3 of the fair value hierarchy.
As of January 1, 2024 (Successor) and January 2, 2023 (Predecessor), there were no material assets or liabilities measured at fair value on a recurring basis.
Intangible assets not subject to amortization consist of the brands (tradenames) intangible assets. A quantitative impairment test performed on these intangible assets consists of a comparison of their fair value with their carrying value. The Company evaluates the recoverability of intangible assets with an indefinite life in accordance with ASC 350, Intangibles-Goodwill and Other. These assets are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The authoritative guidance allows a company to perform a qualitative or a quantitative assessment of impairment. A company may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test or it could also bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.
If the carrying value of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using the relief from royalty valuation methodology.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company measures certain nonfinancial assets at fair value on a non-recurring basis when evaluating long-lived assets for impairment. Checkersrallys estimates the fair value of its long-lived assets using inputs such as market conditions, comparable properties, and the company's experience with similar sites. These inputs may be supplemented by appraisals or independent broker opinions of value when necessary. These measurements generally fall within Level 3 of the fair value hierarchy.
For intangible assets not subject to amortization, which consist of brand tradenames, Checkersrallys performs a quantitative impairment test by comparing the asset's fair value with its carrying value. The company evaluates the recoverability of these intangible assets in accordance with ASC 350, testing them annually or when circumstances suggest the carrying amount may not be recoverable. Checkersrallys can perform either a qualitative or quantitative assessment of impairment, or bypass the qualitative assessment and proceed directly to the quantitative test.
If the carrying value of an intangible asset exceeds its fair value, Checkersrallys recognizes an impairment loss equal to the excess. The fair value of these intangible assets is estimated using the relief from royalty valuation methodology, which involves significant assumptions about future revenues, discount rates, and royalty rates. Discount rate assumptions are based on an assessment of the risk inherent in the intangible assets, while royalty rate assumptions are based on projected profitability, actual franchisee agreements, and comparable market rates. This approach is typical in the franchise industry for valuing brand-related intangible assets.