How does Cinnabon generally recognize revenue associated with franchise and development fees of open SBRs?

According to Cinnabon's 2025 Franchise Disclosure Document, the company generally recognizes revenue associated with franchise and development fees of open SBRs (Small Business Restaurants) over time. This means that instead of recognizing the full amount of these fees as revenue immediately upon receipt, Cinnabon spreads the recognition of revenue over a specific period. This accounting practice aligns with the principle of recognizing revenue as the related services are performed or the obligations are satisfied.

Specifically, development fees are initially recorded as deferred franchise revenue when they are received. Cinnabon then recognizes these fees as revenue on a straight-line basis over the term of each underlying franchise agreement, but only after the SBR is opened and the development obligation is being satisfied. Similarly, franchise fees are also recorded as deferred revenue upon receipt and are recognized as revenue on a straight-line basis over the term of the respective franchise agreement, starting once the SBR is opened.

For a prospective Cinnabon franchisee, this revenue recognition method has implications for understanding Cinnabon's financial statements. The deferred revenue balance represents fees that Cinnabon has already received but has not yet recognized as revenue, reflecting their ongoing obligation to provide franchise services. This approach provides a more accurate picture of Cinnabon's financial performance by matching revenue with the delivery of services over the life of the franchise agreement, which is typically 10-20 years. Franchisees should be aware that a significant portion of Cinnabon's reported revenue in any given year may be derived from the amortization of these initial fees.