What accounting methods does Jack In The Box use for revenue recognition and advertising?
Jack_In_The_Box Franchise · 2025 FDDAnswer from 2025 FDD Document
We have applied the optional exemption, as provided for under ASC Topic 606, Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.
3. BUSINESS COMBINATION
On March 8, 2022 (the "Closing Date"), the Company acquired 100% of the outstanding equity interest of Del Taco for cash according to the terms and conditions of the Agreement and Plan of Merger, dated as of December 5, 2021 (the "Merger Agreement"). The acquisition of Del Taco has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company treated as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. Jack in the Box acquired Del Taco as a part of the Company's goal to gain greater scale and accelerate growth.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 93–94)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, Jack In The Box derives revenue from several sources, including retail sales at company-operated restaurants, rental income, royalties, advertising fees, and franchise fees from franchise-operated restaurants. Franchise agreements typically involve an initial franchise fee for a 20-year term. Franchisees are also required to pay ongoing royalty and marketing fees, which are calculated as a percentage of their gross sales. Additionally, franchisees must pay technology and sourcing fees under Jack in the Box franchise agreements.
Jack In The Box has applied an optional exemption under ASC Topic 606, Revenue from Contracts with Customers, which means they do not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty. This implies that the revenue from royalties, which are a percentage of sales, is recognized as those sales occur. This is a common practice in franchising, where royalty revenue is directly tied to franchisee sales performance.
The FDD does not provide specific details on the accounting methods used for advertising revenue. A prospective franchisee should seek clarification from Jack In The Box regarding the specific accounting methods used for advertising revenue and how these methods might affect their financial reporting and obligations. Understanding these accounting practices is crucial for franchisees to accurately manage their finances and ensure compliance with the franchise agreement.