How does Browns Chicken recognize revenue based on the transaction price?

In accordance with Topic 606, revenue is recognized when performance obligations under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products or providing services. Certain customers may receive cash and/or non-cash incentives, which are accounted for as variable consideration. To achieve this core principle, the Organization applies the following five steps:

1. Identify the contract with a customer

A contract with a customer exists when (i) the Organization enters into an agreement with a customer that defines each party's rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Organization determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. The Organization applies judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including historical payment information.

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - Continued

2. Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Organization, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

2. Identify the performance obligations in the contract - Continued

To the extent a contract includes multiple promised products or services, the Organization must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. The Organization has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard.

3. Determine the transaction price

The transaction price is determined based on the consideration to which the Organization will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, determining the transaction price may require significant judgment. revenue is recognized at an amount equal to the consideration to which the Organization expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated primarily using the expected value method.

The Organization does not offer extended payment terms to customers or other financing arrangements related to accounts receivable.

4. Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation. The Organization determines standalone selling price based on the price at which the performance obligation is sold separately.

1. Recognize revenue when or as the Organization satisfies a performance obligation The Organization generally satisfies performance obligations at a point in time. Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer. The impact to revenue related to prior period performance obligations in the twelve months ended December 31, 2024 is immaterial.

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - Continued

COSTS TO OBTAIN OR FULFILL A CONTRACT

The Organization does not incur costs to obtain a contract since contracts are established at the point of sale. Incidental items that are immaterial in the context of the contract are recognized as expense as incurred. The Organization has elected to recognize any costs incurred for transportation of products to customers as a component of cost of goods sold.

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)