Does the text describe any edge cases related to the financial statements of Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
As a result of the Recapitalization Agreement, the Company is presenting a successor period for the fiscal year ended December 30, 2024 and the period of June 17, 2023, through January 1, 2024 ("Successor Periods") and predecessor periods of January 3, 2023 through June 16, 2023 and fiscal years ended January 2, 2023 and January 3, 2022 (each individually referred to as a "Predecessor Period" and collectively as the "Predecessor Periods"), within the audited financial statements. See footnote 1 within the audited financial statements for further information relating to the transaction.
The Company has entered into transactions with certain companies or individuals, which are related parties by virtue of having stockholders in common, 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 periods ended January 1, 2024 (Successor), June 16, 2023 (Predecessor) and January 2, 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. 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.
The Company and its franchisees each pay charges based on volumes of products purchased from suppliers to Checkers and Rally's Distribution and Services, Inc. ("CDSI"), established for the purpose of providing procurement services and quality assurance support for the benefit of both Company-operated and franchised restaurants. During the period from June 17, 2023 through January 1, 2024 (Successor) and the period from January 3, 2023 through June 16, 2023 (Predecessor) and for the year ended January 2, 2023 (Predecessor), only one member, representing 25% of the CDSI Board of Directors is an employee of the Company. CDSI is not included in the accompanying consolidated financial statements, although the company's contributions to CDSI are included within "restaurant food and paper costs" in the accompanying consolidated statements of operations.
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company's fiscal reporting periods consist of 52 or 53 weeks ending on the Monday closest to December 31. References included herein to "year" or "years" ended represent fiscal years. The fiscal year ended December 30, 2024 consisted of 52 weeks. The periods January 3, 2023 to June 16, 2023 and June 17, 2023 to January 1, 2024 consisted of 24 and 28 weeks, respectively.
The Company has restricted cash balances related to certain letters of credit and debt arrangements and are presented within cash and cash equivalents on the consolidated balance sheets. Restricted cash balances as of December 30, 2024 (Successor) and January 1, 2024 (Successor) were $2.5 million and $2.6 million, respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the financial statements have a few specific considerations. Due to a Recapitalization Agreement, the company presents financial information for both "Successor Periods" and "Predecessor Periods." This means that the audited financial statements include data from different periods, specifically the fiscal year ended December 30, 2024, the period from June 17, 2023, through January 1, 2024 (Successor Periods), and the periods from January 3, 2023, through June 16, 2023, and fiscal years ended January 2, 2023, and January 3, 2022 (Predecessor Periods). Footnote 1 of the audited financial statements provides further details on this transaction.
Additionally, Checkersrallys engages in transactions with related parties, such as the Checkers/Rally's National Production Fund, Inc. (NPF), where both the company and its franchisees contribute a percentage of sales for advertising purposes. While the NPF itself isn't included in the consolidated financial statements, the company's contributions to it are recorded as advertising expenses. The contribution to the fund is 0.5% of net restaurant sales, while contributions to advertising co-ops range from 0.5% to 4.25% of net restaurant sales. Similarly, Checkersrallys and its franchisees pay charges to Checkers and Rally's Distribution and Services, Inc. (CDSI) based on product volumes purchased, with CDSI providing procurement services and quality assurance. CDSI is also not included in the consolidated financial statements, but the company's contributions are included within "restaurant food and paper costs."
Furthermore, the preparation of Checkersrallys's financial statements requires management to make estimates and assumptions that could affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results may differ from these estimates. The company's fiscal reporting periods consist of either 52 or 53 weeks, ending on the Monday closest to December 31. The fiscal year ended December 30, 2024, comprised 52 weeks, while the periods from January 3, 2023, to June 16, 2023, and June 17, 2023, to January 1, 2024, consisted of 24 and 28 weeks, respectively. The company also maintains cash and cash equivalent balances with financial institutions exceeding federal insured limits and has restricted cash balances related to certain letters of credit and debt arrangements, which amounted to $2.5 million and $2.6 million as of December 30, 2024, and January 1, 2024, respectively.