Does the text specify any related party transactions disclosed in the Checkersrallys financial statements?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
he Company considered several factors provided by U.S. GAAP, including the Company's performance. By evaluating these factors, the Company determined that these assets are not more likely than not impaired in the Successor periods.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has entered into transactions 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company discloses several related party transactions. These transactions involve companies or individuals with common stockholders, officers, or directors. Specifically, Checkersrallys and its franchisees make payments to the Checkers/Rally's National Production Fund, Inc. (NPF) for advertising purposes. During the periods ended December 30, 2024, January 1, 2024, and June 16, 2023, only one member, representing 25% of the NPF's Board of Directors, was an employee of Checkersrallys. The contributions to the Fund represent 0.5% of net restaurant sales, while contributions to advertising co-ops range from 0.5% to 4.25% of net restaurant sales. The NPF itself is not included in the consolidated financial statements, but Checkersrallys's contributions are listed under advertising expense.
Additionally, Checkersrallys and its franchisees pay charges to Checkers and Rally's Distribution and Services, Inc. (CDSI) based on product volumes purchased from suppliers. CDSI provides procurement services and quality assurance. During the period from June 17, 2023 through January 1, 2024 and the period from January 3, 2023 through June 16, 2023 and for the year ended January 2, 2023, only one member, representing 25% of the CDSI Board of Directors is an employee of the Company. CDSI is also not included in the consolidated financial statements, but Checkersrallys's payments to CDSI are included within restaurant food and paper costs.
Furthermore, Checkersrallys had a related party credit facility. On April 25, 2017, Holdings entered into a first lien credit agreement of $192.5 million and second lien credit agreement of $87.5 million with Jefferies Finance LLC. The company entered into an intercompany allocation agreement with Holdings on October 12, 2018, and the company jointly and severally unconditionally guarantees payment and performance of obligations under the 2017 Senior Credit Facility. Principal payments paid by the Company for the related party note were recorded in "principal payments on related party note" in the accompanying consolidated statements of cash flows, and draws and repayments under the related party revolver were recorded in "borrowings under related party revolver" and "payments on related party revolver", respectively. Holdings Restated Credit Agreement converted $19.9 million in aggregate principal amount of Revolver into Restatement Date Term Loans maturing April 25, 2022 leaving $5.1 million of Revolver. Within fiscal 2021, the maturity date of the RDTL and Revolver was extended to April 25, 2023.
These related party transactions are disclosed in the notes to the consolidated financial statements. Understanding these relationships is crucial for prospective franchisees as they can impact the financial performance and obligations of both Checkersrallys and its franchisees. Franchisees should carefully review these transactions and seek clarification from Checkersrallys regarding their implications.