What entities are included in the consolidated financial statements for Browns Chicken?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
The consolidated financial statements include the accounts of Brown's Chicken, LLC and Brown's Chicken, LLC – Series A (Advertising Fund). All material intercompany transactions have been eliminated in consolidation.
In January 2003, the Financial Accounting Standards Board (FASB) issued guidance on consolidating variable interest entities, including the identification of and financial reporting for entities for which control is achieved through means other than voting rights. Such entities are referred to as variable interest entities (VIEs). The members of Brown's Chicken, LLC – Series A are also the members of Brown's Chicken, LLC. ASC 810 requires that a company that holds variable interests in an entity consolidate the entity if the company's interest in the VIE is such that the company will absorb a majority of the VIE's expected losses and/or receive a majority of the VIE's expected residual returns, if they occur. In such cases, the company is the primary beneficiary of the VIE. The issuance of this accounting pronouncement, which interpreted an existing generally accepted accounting principle, caused Brown's Chicken, LLC to consider whether it should continue to issue separate financial statements or whether instead it should include the consolidated financial results of Brown's Chicken, LLC – Series A in its financial statements. Because of the common control and the fact that the Company will absorb a majority of the expected losses and/or receive a majority of the expected residual returns of Brown's Chicken, LLC – Series A, it was concluded that consolidation better presents the financial information.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, the consolidated financial statements include the accounts of Brown's Chicken, LLC and Brown's Chicken, LLC – Series A (Advertising Fund). This means that the financial performance and position of both the main franchising entity and its advertising fund are combined into a single set of financial statements.
For a prospective franchisee, this consolidation provides a more complete picture of the overall financial health of the Browns Chicken organization. By including the advertising fund, the consolidated statements reflect not only the revenue and expenses of the franchising operations but also the financial activity related to marketing and promotion efforts. This can be important because the advertising fund directly impacts brand awareness and customer traffic, which are crucial for the success of individual franchise locations.
The FDD also notes that all material intercompany transactions have been eliminated during consolidation. This is a standard accounting practice to prevent the artificial inflation of revenues or assets that could occur if transactions between the parent company and its subsidiaries were simply added together without adjustment. The elimination of these transactions ensures that the consolidated financial statements present a true and fair view of the organization's financial performance.
Furthermore, the document explains that the decision to consolidate Brown's Chicken, LLC and Brown's Chicken, LLC – Series A was based on accounting guidance related to variable interest entities (VIEs). Because the members of both entities are the same and Browns Chicken, LLC absorbs a majority of the expected losses or receives a majority of the expected residual returns of the advertising fund, consolidating the entities provides a more accurate representation of the company's financial situation.