What financial instruments potentially subject Circle K to concentrations of credit risk?

According to Circle K's 2025 Franchise Disclosure Document, the financial instruments that potentially subject the company to concentrations of credit risk are royalties receivable and notes receivable from franchisees. This means that Circle K's financial health is tied to the ability of its franchisees to pay their royalty fees and repay any notes they may have with the company.

The document states that Circle K performs ongoing credit evaluations within the context of its industry. This suggests that Circle K actively monitors the creditworthiness of its franchisees and applies expected credit loss criteria upon the execution of new agreements. This is a standard practice to mitigate potential losses from uncollectible receivables. The company uses the expected credit loss criteria outlined in ASU No. 2016-13(Topic 326) "Financial Instruments - Credit Losses".

For a prospective franchisee, this indicates that Circle K assesses a franchisee's financial stability before awarding a franchise and likely has measures in place to manage the risk of non-payment. Franchisees should ensure they understand the terms of royalty and note payments and maintain a strong financial position to meet these obligations. This also highlights the importance of the franchisee's financial performance, as it directly impacts Circle K's financial statements.