Over what period are Checkersrallys' definite-lived intangible assets, such as franchise agreements, amortized?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Definite-lived intangible assets, principally franchise agreements are amortized on a straight-line basis over their estimated useful lives of 15 years (see Note 11. Goodwill and Intangible Assets, Net). The Company assesses definite-live intangibles for impairment on an annual basis, or upon the existence of events or conditions which indicate that the asset may not be recoverable.
Franchise agreements are amortized based on the expected future benefits to be realized. As such, the amortization period for franchise agreements is 15 years (Successor) and 27 years (Predecessor) and amortization expense is recorded on a straight-line basis over such period. We recorded amortization expense of $0.1 million for the period ending January 1, 2024 (Successor). We recorded amortization expense of $0.5 million for the period ended June 16, 2023 (Predecessor) and $1.1 million for each of the years ended January 2, 2023 (Predecessor) and January 3, 2022 (Predecessor), which is recorded in "other depreciation and amortization" in the accompanying consolidated statements of operations.
In connection with the purchase of three restaurants in 2022 from franchisees in Florida, we recorded $0.4 million for reacquired franchise rights in 2022. The reacquired franchise rights are amortized on a straight-line basis over the useful lives of each right. The Successor period did not include the amortization of reacquired franchise rights as they were not ascribed any value as part of the Out-of-Court Restructuring and therefore amortization ceased as of that date.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys' 2025 Franchise Disclosure Document, definite-lived intangible assets, primarily franchise agreements, are amortized using the straight-line method over their estimated useful lives. For franchise agreements, the amortization period is 15 years for the Successor and 27 years for the Predecessor.
Amortization is a method of spreading the cost of an intangible asset over its useful life. The straight-line method means that Checkersrallys recognizes an equal amount of amortization expense each year during the asset's life. This expense is recorded in the company's financial statements, specifically in "other depreciation and amortization" on the consolidated statements of operations.
For a prospective Checkersrallys franchisee, understanding the amortization period is crucial for assessing the long-term financial implications of the franchise agreement. The amortization expense of $0.1 million for the period ending January 1, 2024 (Successor) and $0.5 million for the period ended June 16, 2023 (Predecessor) illustrates how these costs are recognized over time. Additionally, Checkersrallys assesses definite-lived intangibles for impairment on an annual basis, or if events or conditions suggest the asset may not be recoverable, which could impact the asset's value and amortization schedule.
In 2022, Checkersrallys recorded $0.4 million for reacquired franchise rights, which are also amortized on a straight-line basis over their useful lives. However, the Successor period did not include the amortization of reacquired franchise rights as they were not ascribed any value as part of the Out-of-Court Restructuring, ceasing amortization as of that date. This demonstrates that the amortization of intangible assets can be affected by restructuring or changes in the company's financial condition.