Does the text mention any required actions related to the financial statements of Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
ransactions with certain companies or individuals, which are related parties by virtue of being holders of the Company's common stock, 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 fiscal year ended December 30, 2024 (Successor) and the periods ended January 1, 2024 (Successor) and June 16, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 fiscal year ended December 30, 2024 (Successor) and the period from June 17, 2023 through January 1, 2024 (Successor) and the period from January 3, 2023 through June 16, 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 Company pays invoices on behalf of NPF and CDSI and then bills each for the balance of these invoices each period. As of December 30, 2024 (Successor), there was approximately $2.0 million and $1.0 million of accounts receivable due from the NPF and CDSI, respectively. As of January 1, 2024 (Successor), the accounts receivable due from the NPF and CDSI was approximately $2.6 million and $0.7 million, respectively. Accounts receivable for the NPF and CDSI are included in the accounts and notes receivable, net in the accompanying consolidated balance sheets.
The Fund purchases print advertising on behalf of the Company and franchisees to be used in restaurants. The Company recorded $1.3 million, $0.4 million, and $0.2 million for the fiscal year ended December 30, 2024 (Successor), and for the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), respectively, related to this print advertising in advertising expense in the accompanying consolidated statements of operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, both the company and its franchisees are required to make payments related to sales. Specifically, they each pay a percentage of sales to the Checkers/Rally's National Production Fund, Inc. (NPF), which is used for creating and producing advertising for both company-operated and franchised restaurants.
The contributions to this fund represent 0.5% of net restaurant sales. Additionally, Checkersrallys and its franchisees may participate in advertising co-ops, with contributions to these co-ops ranging from 0.5% to 4.25% of net restaurant sales. The FDD also notes that Checkersrallys and its franchisees pay charges based on the volume of products purchased from suppliers to Checkers and Rally's Distribution and Services, Inc. (CDSI), which provides procurement services and quality assurance support.
These payments to the NPF and CDSI are not included in the consolidated financial statements of Checkersrallys, although the company's contributions to the NPF are included in advertising expense, and contributions to CDSI are included within restaurant food and paper costs in the consolidated statements of operations. This means that while franchisees are required to contribute to these funds, the financial statements only reflect Checkersrallys's direct contributions, not the aggregated contributions from the entire franchise system. This distinction is important for prospective franchisees to understand, as it clarifies how advertising and procurement costs are accounted for in the company's financials.