What is the 'Minimum Performance Requirement' for a Christian Brothers Automotive franchise after the Startup Period?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
Following the first year of operation of your CBA franchise, or in the case of a transfer of the franchise, following the first year of operation by the transferee (the "Startup Period"), the following "Minimum Performance Requirement" must be maintained: you must at all times maintain a rolling six (6) months of positive Net Ordinary Income, meaning the Net Ordinary Income must be equal to or exceed $1 for each rolling six (6) month period. If this Minimum Performance Requirement is not maintained at any time during the term of the Franchise Agreement following the Startup Periods, we may, in our sole discretion, terminate the Franchise Agreement or we may elect, in lieu of terminating the Franchise Agreement, to allow you to enter into our Store In Distress Support Program ("Store In Distress Support Program") by executing the Store In Distress Support Program Agreement attached to the Franchise Agreement as Exhibit D. "Net Ordinary Income" means Total Income minus Cost of Goods Sold minus Total Expenses. "Total Income" shall mean ordinary income from all sources. "Cost of Goods Sold" shall mean all costs including all transportation, labor, parts, discounts and fees. "Total Expenses" shall mean administrative and overhead expenses before amortization, depreciation and royalty expenses. These definitions are subject to change in our discretion, as set forth in the Confidential Operations Manual from time to time, provided that such definitions are in accordance with prevailing accounting practices in the automotive service and repair industry.
Following the Startup Period, and in addition to the Minimum Performance Requirement described above, the following additional Minimum Performance Requirement must also be maintained: you must not allow your Net Ordinary Income (as defined above) to fall 30% or more below the mean Net Ordinary Income of all mature CBA franchises for three (3) consecutive years (the "Minimum Threshold"). The mean franchise-wide Net Ordinary Income will be determined by the closed financial statements of all "Mature Franchisees" as of December 31 of each year. For purposes of this calculation, a "Mature Franchisee" is a franchisee whose Christian Brothers Automotive franchise location has been open to the public for a minimum of twelve (12) months as of December 31 of the year for which the mean Net Ordinary Income is being calculated. If this Minimum Performance Requirement is not maintained at any time during the term of the Franchise Agreement following the Startup Period, we may, in our sole discretion, terminate the Franchise Agreement. We may modify the Minimum Threshold from time to time in our sole and absolute discretion. Any modification of the Minimum Threshold will be set forth in the Confidential Operations Manual. For purposes of determining three (3) consecutive years, in the event of a renewal, the years preceding the applicable Renewal Term will count toward the three (3) consecutive years for the Minimum Threshold determination.
Under the Store In Distress Support Program your Principal Operator, Service Manager, and additional persons as we may require, must attend continuing education and training programs specified by us, at your cost and expense. Additionally under the Store In Distress Support Program, you must achieve the following performance requirements or the Franchise Agreement and the Store In Distress Support Program Agreement will be terminated: by the end of the first three-month period following the signing of the Store In Distress Support Program Agreement, you must reduce the Deficiency Gap (defined below) by a total of at least 15%; by the end of the
second three-month period following the signing of the Store In Distress Support Program Agreement, you must reduce the Deficiency Gap by a total of at least 40%; by the end of the third three-month period following the signing of the Store In Distress Support Program Agreement, you must reduce the Deficiency Gap by a total of at least 65%; and by the end of the term of the Store In Distress Support Program Agreement, you must achieve an NOI of at least $10,000. "Deficiency Gap" means the difference between the CBA franchisee's current NOI and $10,000. As indicated above, "Net Ordinary Income" or "NOI" means Total Income minus Cost of Goods Sold minus Total Expenses. "Total Income" means ordinary income from all sources. "Cost of Goods Sold" means all costs including all transportation, labor, parts, discounts and fees. "Total Expenses" means administrative and overhead expenses before amortization, depreciation and royalty expenses. These definitions are subject to change in our discretion, as set forth in the Confidential Operations Manual from time to time, provided that such definitions are in accordance with prevailing accounting practices in the automotive service and repair industry.
Source: Item 12 — TERRITORY (FDD pages 52–54)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, after the Startup Period, franchisees must meet certain minimum performance requirements to avoid potential termination of their Franchise Agreement. The Startup Period is defined as the first year of operation for the initial franchisee or, in the case of a transfer, the first year of operation by the new franchisee. Following this period, a Christian Brothers Automotive franchisee must maintain a rolling six-month positive Net Ordinary Income, which means the Net Ordinary Income must be equal to or exceed $1 for each rolling six-month period. Net Ordinary Income is defined as Total Income minus Cost of Goods Sold minus Total Expenses, with further definitions provided for each of these components. These definitions are subject to change at Christian Brothers Automotive's discretion, as detailed in the Confidential Operations Manual, provided they align with prevailing accounting practices in the automotive service and repair industry.
In addition to the rolling six-month Net Ordinary Income requirement, Christian Brothers Automotive franchisees must also ensure their Net Ordinary Income does not fall 30% or more below the mean Net Ordinary Income of all mature Christian Brothers Automotive franchises for three consecutive years. A Mature Franchisee is defined as a franchisee whose location has been open to the public for at least twelve months as of December 31 of the year for which the mean Net Ordinary Income is calculated. Failure to meet this Minimum Threshold may result in the termination of the Franchise Agreement at Christian Brothers Automotive's discretion. Christian Brothers Automotive retains the right to modify the Minimum Threshold, with any changes documented in the Confidential Operations Manual.
If a Christian Brothers Automotive franchisee fails to meet the minimum performance requirements, Christian Brothers Automotive may offer the franchisee the option to enter the Store In Distress Support Program instead of terminating the Franchise Agreement. This program requires the franchisee to execute a Store In Distress Support Program Agreement. Under this program, the Principal Operator, Service Manager, and other required personnel must attend continuing education and training programs at the franchisee's expense. The franchisee must also meet specific performance targets, including reducing the Deficiency Gap (the difference between the franchisee's current NOI and $10,000) by at least 15% by the end of the first three-month period, 40% by the end of the second three-month period, and 65% by the end of the third three-month period. Ultimately, the franchisee must achieve an NOI of at least $10,000 by the end of the Store In Distress Support Program Agreement term. Failure to meet these requirements will result in the termination of both the Franchise Agreement and the Store In Distress Support Program Agreement.