How are the revenues and expenses of the Ad Funds and Company-Managed Local Funds reflected in Carvel's consolidated statements of operations?

According to Carvel's 2025 Franchise Disclosure Document, the revenues and expenses from both the Ad Funds and Company-Managed Local Funds are specifically accounted for in the company's consolidated statements of operations. These financial activities are recorded as "Advertising funds revenues" and "Advertising funds expenses," respectively, providing a clear and direct reflection of these funds' impact on Carvel's overall financial performance. This approach ensures that all income and expenditures related to advertising efforts are transparently integrated into the company's financial reporting.

Furthermore, the FDD states that when the cumulative revenues of the advertising funds exceed the related cumulative advertising expenses, the excess advertising costs are accrued up to the amount of the cumulative surplus. This indicates that Carvel accounts for advertising costs in anticipation of future expenses, ensuring that funds are available when needed. This accounting practice provides a financial buffer, allowing Carvel to manage advertising budgets effectively and strategically.

In contrast, the billing, collection, and distribution of Franchisee-Managed Local Funds are treated as pass-through transactions. These transactions are recorded within "Advertising funds assets" and "Advertising funds liabilities," meaning they do not directly impact Carvel's revenue or expense statements. This distinction highlights that Carvel only includes advertising funds it directly manages in its revenue and expense reporting, while franchisee-managed funds are treated as separate, independent financial activities.