Does the text specify any information about the company's revenue recognition policies disclosed in the Checkersrallys financial statements?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company recognizes revenue when the following criteria are met: 1) Contract with the customer has been identified; 2) Performance obligations in the contract have been identified; 3) Transaction price has been determined; 4) Transaction price has been allocated to the performance obligations; and 5) Revenue is recognized when (or as) performance obligations are satisfied.
The Company disaggregates revenues by type: Restaurant sales, Franchise and retail royalty revenue, and Franchise fees and other income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's Restaurant sales includes revenues recognized upon delivery of food to the customer at Company operated restaurants. Restaurant sales are recognized upon sale and are presented net of coupons and discounts, sales tax and other sales-related taxes. Restaurant sales also includes revenues recognized upon delivery of food to a third-party delivery company. The revenue is recognized as a receivable from the third-party delivery service and collection is made within three to seven business days.
Franchise and retail royalty revenues includes royalties on sales by franchised restaurants and sales of licensed products in retail stores. Royalties are based on a percentage of sales of the franchised restaurant and sales of licensed products in retail stores which are recognized as earned.
Franchise fees and other income is comprised of franchise fees, transfer fees, and area development fees that are generated from the sale of rights to develop, own and operate restaurants, as well as sublease rental income and revenues from advertising cooperative funds for those respective cooperative funds that are not consolidated. As a sublessor for the operation of certain franchised restaurants, fees for sublease income are also included within franchise fees and other income line item. The Company accounts for leases using the guidance in ASC 842, Leases, as well as ASC 606, Revenue from Contracts with Customers. See the Note 14 - Leases for further information.
Franchise fees are recorded as deferred revenue when received and recognized as revenue over the contractual term of the franchise agreements once the restaurant has opened.
Area development fees are deferred when received, allocated to each agreed upon restaurant, and recognized as revenue over the contractual term of each respective franchise agreement once the restaurant has opened.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company outlines its revenue recognition policies. Checkersrallys recognizes revenue when it has identified a contract with a customer, identified performance obligations within the contract, determined the transaction price, allocated the transaction price to the performance obligations, and satisfied the performance obligations. The company disaggregates revenues by type, including restaurant sales, franchise and retail royalty revenue, and franchise fees and other income. Restaurant sales include revenues recognized upon delivery of food at company-operated restaurants, net of coupons, discounts, and sales taxes. It also includes revenues from third-party delivery companies, recognized as a receivable with collection typically within three to seven business days. Franchise and retail royalty revenues are based on a percentage of sales from franchised restaurants and licensed products in retail stores, recognized as earned. Franchise fees and other income include franchise fees, transfer fees, and area development fees, as well as sublease rental income and revenues from advertising cooperative funds. Franchise fees are recorded as deferred revenue when received and recognized over the contractual term of the franchise agreements once the restaurant has opened. Area development fees are also deferred when received, allocated to each agreed-upon restaurant, and recognized over the contractual term of each franchise agreement once the restaurant has opened.
For the fiscal period ended January 1, 2024, Checkersrallys amortized $0.1 million of financing costs associated with the New Money Loans and Second Out Loans issued under the Out-of-Court Restructuring, and also amortized $0.1 million of financing costs associated with the unfunded commitment associated with the New Money Loans. The company also recognizes an allowance for credit losses based on historical collection experience and specific identification of past due balances and the financial strength of the obligor. Credit losses are recorded in general and administrative expenses. For the fiscal year ended December 30, 2024, credit losses amounted to $0.6 million, while the periods from June 17, 2023 through January 1, 2024, and from January 3, 2023 through June 16, 2023, saw credit losses of $0.1 million each.
These policies are in line with standard accounting practices, requiring revenue to be recognized when earned and reasonably assured. Prospective franchisees should understand these revenue recognition policies, as they impact how Checkersrallys reports its financial performance. Understanding these policies can help a franchisee better interpret the financial statements provided in the FDD and assess the financial health and stability of the franchisor. It is important to note that the company makes estimates and assumptions that affect the reported amounts of assets and liabilities, and actual results could differ from those estimates.