According to ASC Topic 606, how does Cicis account for revenue?

According to Cicis's 2025 Franchise Disclosure Document, the company adheres to ASC Topic 606, "Revenue from Contracts with Customers." This accounting standard provides a five-step model for recognizing revenue from contracts. These steps include identifying the contract with a customer, identifying the performance obligations within the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue as these obligations are satisfied. This is a standard approach to revenue recognition, ensuring that revenue is recognized when (or as) Cicis transfers goods or services to customers in the amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

For Cicis, this means that revenue recognition is tied to the fulfillment of specific obligations outlined in their contracts with customers. For example, marketing fund contributions are included as revenue on the combined statements of income, while the corresponding marketing fund expenses are categorized under marketing general and administrative costs. Additionally, Cicis has agreements with major beverage vendors where consideration is provided to the company for the benefit of the Marketing Fund, based on the dollar volume of purchases for both company-operated and franchised restaurants. These vendor rebates are recognized as earned throughout the year and are classified within revenue, with an offset included in marketing general and administrative costs representing contributions to the marketing fund.

In 2018, the former franchisor, CiCi Enterprises, LP, received $9,450,000 in incentive payments from two vendors in exchange for a commitment to purchase a set volume of their product. Cicis recognizes this income as earned, based on the volume of product purchased by the system. As of December 31, 2024, the current portion of deferred revenue was approximately $435,000, and the long-term portion was approximately $619,000. In the years ended December 31, 2024 and 2023, Cicis recognized approximately $680,000 and $759,000 of revenue, respectively, which is recorded as incentive income from vendors on the combined statements of income. This deferred revenue recognition approach ensures that Cicis recognizes revenue when the underlying goods or services are actually transferred to the customer, aligning with the core principles of ASC Topic 606.

For a prospective franchisee, understanding these revenue recognition policies is crucial. It provides insight into how Cicis accounts for various income streams, including franchise fees, marketing contributions, and vendor rebates. This knowledge can help franchisees better understand the financial performance of Cicis and how their contributions impact the company's overall revenue. Additionally, it's important for franchisees to be aware of how marketing funds are accounted for, as these contributions directly impact the marketing efforts that support the Cicis brand and drive customer traffic to their restaurants.