How were the remaining assets and liabilities recorded by The Standardx?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
Our condensed consolidated balance sheets at both March 31, 2025 and December 31, 2024 reflect preliminary estimates of the fair value of the assets acquired and liabilities assumed based on available information
as of the acquisition date. The fair values of intangible assets acquired were estimated using either discounted future cash flow models or the relief from royalty method, both of which include revenue projections based on the expected contract terms and long-term growth rates, which are primarily Level Three assumptions. The fair values of performance guarantee liabilities assumed were estimated using Monte Carlo simulations to model the probability of possible outcomes (see Note 12). The valuation methodology includes assumptions and judgments regarding discount rates, volatility, and hotel operating results, which are primarily Level Three assumptions. The remaining assets and liabilities were recorded at their carrying values, which approximate their fair values.
During the three months ended March 31, 2025, the fair values of certain assets acquired and liabilities assumed were revised. The measurement period adjustments primarily resulted from the refinement of certain assumptions, including contract terms, renewal periods, and useful lives, which affected the underlying cash flows in the valuation, and were based on facts and circumstances that existed at the acquisition date. Measurement period adjustments recorded on our condensed consolidated balance sheet at March 31, 2025 include a $41 million decrease in intangibles, net with a corresponding increase in goodwill. During the three months ended March 31, 2025, we recognized an insignificant reduction of amortization expense on our condensed consolidated statements of income for the amount that would have not been recognized during the year ended December 31, 2024, if the measurement period adjustments would have been made as of the acquisition date.
We will continue to evaluate the contracts acquired and the underlying inputs and assumptions used in our valuation of assets acquired and liabilities assumed. Accordingly, these estimates, along with any related tax impacts, are subject to change during the measurement period, which is up to one year from the date of acquisition.
Source: Item 1 — Financial Statements. (FDD pages 156–187)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the remaining assets and liabilities were recorded at their carrying values, which approximate their fair values. This statement is made within the context of discussing the acquisition of Standard International. The document notes that the condensed consolidated balance sheets at March 31, 2025, and December 31, 2024, reflect preliminary estimates of the fair value of assets acquired and liabilities assumed based on available information as of the acquisition date.
Specifically, the fair values of intangible assets acquired were estimated using discounted future cash flow models or the relief from royalty method. The fair values of performance guarantee liabilities assumed were estimated using Monte Carlo simulations. These valuations involve assumptions and judgments regarding discount rates, volatility, and hotel operating results, categorized as Level Three assumptions.
The FDD also indicates that during the three months ended March 31, 2025, revisions were made to the fair values of certain assets and liabilities due to the refinement of assumptions such as contract terms, renewal periods, and useful lives. These adjustments led to a $41 million decrease in intangibles, net, with a corresponding increase in goodwill. The document emphasizes that The Standardx will continue to evaluate the contracts acquired and the underlying inputs and assumptions used in the valuation of assets and liabilities, and these estimates are subject to change during the measurement period, which extends up to one year from the acquisition date.
For a prospective franchisee, this information highlights the complexities involved in valuing assets and liabilities during acquisitions and the potential for adjustments to these values over time. It also underscores the importance of understanding the assumptions and judgments used in these valuations, as they can significantly impact the financial statements of The Standardx.