How does Best Western determine if it has a controlling financial interest in an entity for consolidation purposes?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
The consolidated financial statements include the accounts of the Company, our wholly owned subsidiaries and entities in which the Company has a controlling financial interest, including variable interest entities where the Company is the primary beneficiary.
The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other ownership interests. If the entity is considered to be a variable interest entity, the Company determines whether the Company is the primary beneficiary, and then consolidates those variable interest entities for which the Company has determined that the Company is the primary beneficiary.
All significant intercompany transactions and balances are eliminated in consolidation.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, the company determines controlling financial interest based on the governing agreements of the respective entities, including an evaluation of rights held by other ownership interests. This determination is crucial for the preparation of consolidated financial statements, which include the accounts of Best Western, its wholly-owned subsidiaries, and entities in which it has a controlling financial interest. This also includes variable interest entities where Best Western is the primary beneficiary.
If an entity is considered a variable interest entity, Best Western determines whether it is the primary beneficiary. If so, Best Western consolidates those variable interest entities for which it has determined that the Company is the primary beneficiary. All significant intercompany transactions and balances are eliminated during the consolidation process to provide a clear financial picture.
For a prospective Best Western franchisee, this means that the financial statements presented in the FDD reflect a comprehensive view of Best Western's financial position, including all entities under its control. Understanding these consolidation principles can help franchisees assess the overall financial health and stability of the Best Western organization. It's important to note that the determination of controlling financial interest involves judgment and evaluation of various factors, as outlined in the governing agreements of the entities involved.