What are the potential risks associated with the 'Amortization of contract liabilities' for Sonesta Simply Suites?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
899 | $ 255 | $ 87,652 | $ (9,676) | $ 78,231 |
RED LION HOTELS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| Tolking from printing activities: Net income (loss) ( 20, 10) $ 1, 107 $ ( 3, 10) Adjustments to reconcile net loss to cash provided by (used in) operating activities: $ 1, 100 $ 3, 30 Propreciation and amoritation 1,514 3, 60 3, 70 Amoritation of key money and contract costs 1,514 3, 60 7 Amoritation of contract liabilities 1,912 1,912 1,912 Peberferd income taxes 1,912 1,912 1,912 Other for (expense), net 1,912 1,912 1,912 Designion sale of hotel 1,913 4,912 1,912 Account general trabilities 1,913 4,912 1,912 Accounting term assets and liabilities 1,914 4,912 1,912 Accounting term assets and propriate passes and other current assets 1,914 4,912 4,912 Accounting term assets and liabilities 3,134 4,912 4,912 Account propriate principal tradities 1,243 4,52 4,52 Account propriate principal tradities 3,134 4,52 | Decembe | ember 31, | r 31, | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) $ (2,913) $ 1,477 $ (3,186) Adjustments to reconcile net loss to cash provided by (used in) operating activities: 489 1,691 3,506 Depreciation and amortization 489 1,691 3,506 Amortization of key money and contract costs 1,514 396 7 Amortization of contract liabilities 192 1,497 713 Deferred income taxes 1,112 (1,819) 654 Other income (expense), net 2 1 9 486 Other income (expense), net 3,111 (942) (50 Change in current assets and liabilities (3,111) (942) (50 Prepaid expenses and other current assets (706) (414) (541) Other long term assets (19,498) (9,440) (1,007) Accounts receivable, net (3,111) (942) (50 Prepaid expenses and other current assets (706) (414) (541) Other long term assets (19,498) (9,440) (1,007) Accounts payable (2,132) | 2024 | 2023 | (Restated) | 2022 | |||||
| Adjustments to reconcile net loss to eash provided by (used in) operating activities: 489 1,691 3,506 Depreciation and amorization 1,514 396 7 Amortization of Centract liabilities 192 1,497 713 Deferred income taxes - 1 1 Other i |
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, the amortization of contract liabilities can impact the cash flow from operating activities. The document states that amortization of contract liabilities was $192 in 2024, $1,497 in 2023, and $713 in 2022.
For a Sonesta Simply Suites franchisee, this means that the initial costs associated with acquiring franchise contracts are not immediately expensed. Instead, these costs are capitalized and then amortized (expensed) over the life of the contract. This accounting treatment can affect the franchisee's reported profits in the early years of the franchise agreement. Specifically, it reduces franchise fees and system, reservation, and marketing fees.
The risk for a franchisee is that the amortization expense can reduce the net income reported on the income statement, potentially impacting the franchisee's ability to secure financing or attract investors. Furthermore, if the franchise agreement is terminated early, any remaining unamortized contract liabilities may need to be written off, resulting in a one-time expense that could negatively impact the franchisee's financial position. Careful management and forecasting of these contract liabilities are essential for maintaining a clear picture of the franchise's financial health.
Prospective franchisees should carefully review the notes to the financial statements in Item 21 of the FDD and consult with a financial advisor to fully understand the implications of amortizing contract liabilities. Understanding the amortization schedule and its impact on profitability is crucial for making informed business decisions and managing the financial performance of the Sonesta Simply Suites franchise.