How does Checkersrallys record stock-compensation expense for service-based units?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company records the resulting stock-compensation expense for service-based units ratably over the five-year period and the performance-based units, as well as any expense for unvested service-based Class B Units, upon the occurrence of a Liquidity Event. The stock-based compensation expense recorded is based upon the fair value of the Class B Units which was calculated using the Black-Scholes Model as of the grant date of these awards.
The Company has elected to use the practical expedient under ASU 2021-07 which allows a nonpublic entity to determine the current price input of a share option using the "reasonable application of a reasonable valuation method," which is determined as of the award's measurement date, taking into consideration certain factors as required by the guidance.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company records stock-compensation expenses related to service-based units ratably over a five-year period. These service-based units represent 50% of the Class B Units awarded. The fair value of these Class B Units is determined using the Black-Scholes Model as of the grant date.
Checkersrallys has elected to use a practical expedient under ASU 2021-07, which allows them, as a nonpublic entity, to determine the current price input of a share option using a "reasonable application of a reasonable valuation method." This valuation is determined as of the award's measurement date, considering certain factors as required by the relevant guidance.
In simpler terms, Checkersrallys spreads out the cost of stock options granted to employees (service-based units) evenly over five years. The value of these stock options is calculated using a financial model (Black-Scholes) at the time they are granted. This approach provides a consistent and predictable way to account for these expenses over the vesting period. If a 'Liquidity Event' occurs, all unvested service-based units will become fully vested.