Does the text specify any information about the company's operating expenses disclosed in the Checkersrallys financial statements?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company's contributions to the Checkers/Rally's National Production Fund are included in the advertising expense within their consolidated statements of operations. The contributions to this fund represent 0.5% of net restaurant sales. Additionally, certain Checkersrallys Company-operated restaurants and franchisees participate in advertising co-ops. The contributions to the advertising co-ops range from 0.5% to 4.25% of net restaurant sales. These advertising expenses are related-party transactions because of the relationship between the company and the fund.
For a prospective Checkersrallys franchisee, this means that a portion of their sales will be allocated to both the national advertising fund and potentially local advertising co-ops. The national fund contribution is fixed at 0.5% of net sales, while the co-op contributions can vary between 0.5% and 4.25% of net sales. It's important to note that the advertising co-ops are consolidated in the financial statements only if Checkersrallys has control over them, otherwise, they are accounted for similarly to the national fund.
Understanding these advertising expenses is crucial for franchisees as they directly impact the restaurant's profitability. Franchisees should inquire about the specific requirements and guidelines for participating in local advertising co-ops, as well as the level of control they have over these co-ops. Additionally, franchisees should monitor the performance and effectiveness of the advertising campaigns funded by both the national fund and local co-ops to ensure they are receiving adequate value for their contributions.