How does Big O Tires recognize revenue for tire service revenues for the wholesale business?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. For product sales, transfer of control occurs at a point in time, either upon transfer to the third-party carrier or upon delivery to the customer. For automotive and tire services, the transfer of control and satisfaction of the performance obligation occurs at the time the customers take possession of their vehicles. Performance obligations for extended service agreements sold to retail customers, such as road hazard, are satisfied over time, and the related revenue is recognized based on a pattern of when the associated costs are expected to be incurred in performing such services. Revenues for franchise and royalty fees are recognized over time as the Company satisfies its performance obligations to its franchisees, as described below. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company records reductions to revenue for customer programs and incentive offerings, including special pricing agreements, certain promotions, and other volume-based incentives.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to Big O Tires' 2025 Franchise Disclosure Document, the company recognizes revenue upon the transfer of control of promised products or services to customers. For product sales, this transfer of control occurs at a specific point in time, either when the product is transferred to a third-party carrier or upon delivery to the customer. In the case of automotive and tire services, the transfer of control and the satisfaction of the performance obligation take place when customers take possession of their vehicles.
For extended service agreements sold to retail customers, such as road hazard agreements, Big O Tires recognizes revenue differently. These performance obligations are satisfied over time, with the related revenue being recognized based on the pattern of when the associated costs are expected to be incurred in performing such services. This approach reflects the ongoing nature of the service provided under these agreements.
Furthermore, the FDD specifies that Big O Tires reports revenue net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The company also records reductions to revenue for customer programs and incentive offerings, including special pricing agreements, certain promotions, and other volume-based incentives. This ensures that the reported revenue accurately reflects the net amount the company expects to receive in exchange for its products and services.