Under what circumstances are franchise fees forfeited and recognized as revenue for Hardees?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise development and commitment fees are deferred when received, allocated to each agreed upon restaurant, and recognized as revenue over the contractual term of each respective franchise agreement, once the restaurant has opened. Initial franchise fees, training fees, renewal fees and transfer fees are recognized as revenue over the contractual term of the franchise agreements, once the restaurant has opened. Upfront franchise fees are typically billed and paid when a new franchise agreement becomes effective or when an existing agreement is transferred to another franchisee. These franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. Further, franchise fees are forfeited and recognized as revenue upon the termination of the related commitments to open new franchised restaurants, the franchised restaurants closing prior to the end of the contractual agreement or the franchised restaurants being acquired by the Company.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, franchise fees are typically recognized as revenue over the contractual term of the franchise agreement, but only after the restaurant has opened. These fees, which include initial franchise fees, training fees, renewal fees, and transfer fees, are initially deferred. Upfront franchise fees are usually billed and paid when a new franchise agreement becomes effective or when an existing agreement is transferred to a new franchisee. Hardees considers these fees closely tied to the franchise rights granted.
However, Hardees recognizes franchise fees as revenue immediately if certain events occur that lead to forfeiture. Specifically, this happens upon the termination of commitments to open new franchised restaurants. This could occur if a franchisee decides not to proceed with opening a location after signing the agreement.
Additionally, Hardees will recognize the franchise fees as revenue if a franchised restaurant closes before the end of its contractual agreement. This might happen due to poor performance or other unforeseen circumstances. Lastly, if Hardees acquires a franchised restaurant, the remaining franchise fees associated with that location are immediately recognized as revenue. These conditions ensure that revenue recognition aligns with the actual delivery of franchise rights and services.
For a prospective Hardees franchisee, this means that the initial franchise fee paid may not be fully amortized as revenue by Hardees if the restaurant ceases operation early or if the agreement is terminated. This policy aligns with standard accounting practices, where revenue recognition is tied to the delivery of services or rights, and forfeiture triggers immediate recognition.