How does Hardees account for breakage revenue from unredeemed gift cards in franchised restaurants?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Our company-operated restaurants and franchised restaurants sell gift cards within the restaurants and through independent retailers that are redeemable for products in our Carl's Jr. and Hardee's restaurants. The Company manages the gift card program and collects all funds from the activation of gift cards. We recognize revenue when cards are redeemed in our company-operated restaurants and reimburse franchisees for the redemption of gift cards in their restaurants. A liability for unredeemed gift cards is included in other current liabilities in our accompanying Consolidated Balance Sheets (see Note 7).
There are no expiration dates on our gift cards, and we do not charge any service fees. While our company-operated restaurants and franchisees continue to honor all gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain cards due to long periods of inactivity. In these circumstances, we may recognize income from unredeemed gift cards ("breakage revenue") if they are not subject to unclaimed property laws. Breakage revenue on all Carl's Jr. and Hardee's gift cards is estimated and recognized over time in proportion to actual gift card redemptions, based on historical redemption rates. We account for breakage revenue in franchised restaurants and other revenue in our accompanying Consolidated Statement of Operations (see Note 15).
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the company manages the gift card program and collects all funds from the activation of gift cards. When gift cards are redeemed at company-operated restaurants, Hardees recognizes the revenue. Franchisees are reimbursed when gift cards are redeemed at their restaurants. The company carries a liability for unredeemed gift cards on its consolidated balance sheets.
Hardees gift cards do not have expiration dates or service fees. The company may recognize income from unredeemed gift cards, termed "breakage revenue," if the likelihood of redemption is considered remote due to extended inactivity and if these cards are not subject to unclaimed property laws.
Breakage revenue from both Carl's Jr. and Hardees gift cards is estimated and recognized over time, in proportion to actual gift card redemptions, based on historical redemption rates. The FDD states that Hardees accounts for breakage revenue in franchised restaurants and other revenue in its accompanying Consolidated Statement of Operations.