Why are the Securitization Entities not consolidated in the Precision Door Service financial statements?
Precision_Door_Service Franchise · 2025 FDDAnswer from 2025 FDD Document
FASB ASC Topic 810-10, Consolidation*,* applies to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Such an entity is referred to as a variable interest entity ("VIE"). FASB ASC Topic 810-10 requires the consolidation of a VIE by its primary beneficiary. The primary beneficiary is the entity, if any, that has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE, which is the Company and its subsidiaries.
The Company has determined that the Securitization Entities qualify as VIE's and that Neighborly Company, the Manager, is the primary beneficiary, having both power and benefits, of the Securitization Entities. Accordingly, consolidation of the Company and its subsidiaries (including the SPV Franchisors and the Non-franchisor SPVs) is precluded, and as a result, combined financial statements are presented. All intercompany transactions have been eliminated.
Source: Item 21 — Financial Statements (FDD page 91)
What This Means (2025 FDD)
According to Precision Door Service's 2025 Franchise Disclosure Document, the Securitization Entities are not consolidated in the company's financial statements because they qualify as Variable Interest Entities (VIEs). The document references FASB ASC Topic 810-10, Consolidation, which applies to entities where equity investors lack a controlling financial interest or sufficient equity at risk to finance activities without additional subordinated support.
Precision Door Service has determined that Neighborly Company, referred to as the Manager, is the primary beneficiary of these Securitization Entities. This determination is based on Neighborly Company possessing both the power to direct the activities of the Securitization Entities and the right to receive benefits from them. As the primary beneficiary, Neighborly Company, not Precision Door Service, would typically consolidate the VIEs.
Therefore, because Neighborly Company is deemed the primary beneficiary with control and benefits related to the Securitization Entities, Precision Door Service's financial statements are presented as combined statements, excluding the Securitization Entities. All intercompany transactions between Precision Door Service and Neighborly Company have been eliminated to provide a clear financial picture of the company's operations.