Why are the Successor and Predecessor financial statements for Checkersrallys not necessarily comparable?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
As a result of the Out-of-Court Restructuring as further discussed below and in Note 4. Business Combination, periods prior to June 16, 2023 reflect the financial statements of CDI prior to the Out-of-Court Restructuring, (referred to herein as "Predecessor"). The period subsequent to June 16, 2023 reflects the financial statements of CDI after the Out-of-Court Restructuring (referred to herein as "Successor"). As the Out-of-Court Restructuring resulted in a change in control of CDI's parent, the Company elected to apply pushdown accounting, thus assets and liabilities were recorded at their fair values at the date of the Out-of-Court Restructuring. Due to the changes in the accounting basis of assets and liabilities, the Successor and Predecessor financial statements are not necessarily comparable. Where applicable, a black line separates the Successor and Predecessor periods to highlight the lack of comparability.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the Successor and Predecessor financial statements are not necessarily comparable due to an Out-of-Court Restructuring that resulted in a change in control of CDI's parent company. This restructuring occurred on June 16, 2023, leading to the application of pushdown accounting. Consequently, assets and liabilities were recorded at their fair values as of the restructuring date.
For prospective Checkersrallys franchisees, this means that comparing financial performance before and after June 16, 2023, may not provide an accurate picture of the company's ongoing operations. The change in accounting basis affects how assets and liabilities are valued, which can distort comparisons of financial metrics such as revenue, expenses, and profitability. The FDD uses a black line to separate the Successor and Predecessor periods to highlight this lack of comparability.
This situation is important for franchisees to understand because it impacts their ability to analyze historical financial data and project future performance. When evaluating the financial statements, franchisees should focus on the Successor periods to get a more relevant understanding of the current financial health of Checkersrallys. They should also be aware that the Predecessor periods may not accurately reflect the company's financial condition due to the changes in accounting practices following the Out-of-Court Restructuring. Franchisees should consider these factors when making investment decisions and consult with financial advisors to fully understand the implications of the restructuring on the financial statements.