How does Christian Brothers Automotive recognize revenue from royalties paid by franchisees?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
4.04 Application of Funds. If Franchisee is delinquent in the payment of any obligation to
Franchisor, its subsidiaries, affiliates or designees, then Franchisor (or such subsidiaries,
affiliates or designees), will have the right to apply any payment from Franchisee to any
obligation due, including the oldest obligation due, whether under this Agreement or
otherwise, notwithstanding any contrary designation by Franchisee as to such application.
4.05 Continuing Royalty. During the one-year period immediately following the Opening Date
(the "Split Profits Review Period"), Franchisor and Franchisee will review the financial
condition of the Franchisee at the end of each three-month period commencing on the
Opening Date and determine whether any royalty payment shall be made to Franchisor
from the Split Profits. No distribution or bonus from Split Profits shall be made to
Franchisee without the prior written approval of Franchisor. After the end of the Split
Profits Review Period, Franchisee must pay Franchisor a royalty fee each month calculated
as follows:
(a) From the date of this Agreement until the end of the Initial Term and each
subsequent term thereafter, an amount equal to fifty percent (50%) of the "Split
Profits" (as defined below).
(b) "Split Profits" shall mean (x) all monies, revenues and items of value from all
sources generated in connection with and/or in any way related to the Franchised
Business, minus (y) the Approved Expense Items (as defined below). "Approved
Expense Items" shall mean (i) those expense items calculated under Generally
Accepted Accounting Principles (GAAP) and approved by Franchisor as set forth
in the Confidential Operations Manual, (ii) all subsequent written budget
adjustments that are approved in writing by Franchisor, and (iii) all adjustments
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, the royalty fee is based on a percentage of "Split Profits." During the one-year period immediately following the Opening Date (the "Split Profits Review Period"), Christian Brothers Automotive and the franchisee will review the financial condition of the franchisee at the end of each three-month period commencing on the Opening Date and determine whether any royalty payment shall be made to Christian Brothers Automotive from the Split Profits. No distribution or bonus from Split Profits shall be made to franchisee without the prior written approval of Christian Brothers Automotive.
After the Split Profits Review Period, the franchisee must pay Christian Brothers Automotive a royalty fee each month calculated as fifty percent (50%) of the "Split Profits". "Split Profits" is defined as all monies, revenues, and items of value from all sources generated in connection with the franchised business, minus the Approved Expense Items. "Approved Expense Items" are those expense items calculated under Generally Accepted Accounting Principles (GAAP) and approved by Christian Brothers Automotive as set forth in the Confidential Operations Manual, all subsequent written budget adjustments that are approved in writing by Christian Brothers Automotive, and all adjustments.
If a franchisee is delinquent in the payment of any obligation to Christian Brothers Automotive, its subsidiaries, affiliates or designees, then Christian Brothers Automotive will have the right to apply any payment from franchisee to any obligation due, including the oldest obligation due, whether under this Agreement or otherwise, notwithstanding any contrary designation by franchisee as to such application.