How does Carls recognize revenue related to contributions to the Carl's Jr. national advertising fund?

According to Carls's 2024 Franchise Disclosure Document, revenue from franchisee contributions to the Carl's Jr. national advertising fund is recognized as it is earned. These contributions are calculated as a percentage of sales from franchised restaurants. This means that as franchisees make sales, a portion of those sales is allocated to the advertising fund, and Carls recognizes this portion as revenue.

This revenue recognition method implies that Carls accounts for advertising fund contributions in the same period that the related sales occur at the franchised restaurants. For a franchisee, this means that the advertising fees they pay, which are based on their sales, are immediately recognized as revenue by Carls. This is a common practice, as it aligns the recognition of revenue with the activity that generates it.

It's important to note that the advertising funds are used for various advertising and marketing programs. Carls administers the Carl's Jr. Fund advertising and marketing programs internally. This arrangement ensures that the advertising revenue collected from franchisees is directly tied to the ongoing marketing efforts that support the Carls brand. Franchisees should be aware of the specific percentage of sales that are contributed to the advertising fund, as this will directly impact their operating costs and the funds available for advertising initiatives.