How does Embassy Suites classify assets and liabilities within the fair value valuation hierarchy?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
arkets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
- Level 3 Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
Estimates of the fair values of our financial instruments and nonfinancial assets are determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values and the classification within the valuation hierarchy. We have not elected the fair value measurement option for any of our financial assets or liabilities.
Acquisitions
We make certain judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments include the assessment of the inputs, processes and outputs associated with an acquired set of activities and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets. We account for a transaction as a business combination when the assets acquired include inputs and one or more substantive processes that, together, significantly contribute to the ability to create outputs and substantially all of the total fair value of the assets acquired is not concentrated to a single identifiable asset or group of similar assets. Otherwise, we account for the transaction as an asset acquisition.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed based on their relative fair values. We do not recognize any goodwill in an asset acquisition.
Note 3: Acquisition
In May 2024, we completed the acquisition of Graduate franchise contracts, as part of the larger Hilton acquisition of the Graduate brand, and accounted for the transaction as an asset acquisition. As a result, we recorded franchise contract intangible assets at their cost of approximately $85 million.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites' 2025 Franchise Disclosure Document, the classification of assets and liabilities within the fair value valuation hierarchy relies on the lowest level of input that is significant to the fair value measurement in its entirety. This classification is reviewed each reporting period. The FDD specifies that different market assumptions or estimation methods could materially impact the estimated fair value amounts.
The document states that Embassy Suites estimates the fair values of its financial instruments and nonfinancial assets using available market information and appropriate valuation methods. The brand exercises considerable judgment when interpreting market data, developing estimated fair values, and classifying them within the valuation hierarchy. It is explicitly stated that Embassy Suites has not elected the fair value measurement option for any of its financial assets or liabilities.
The valuation hierarchy used by Embassy Suites consists of three levels: Level 1, which is based on unadjusted quoted prices for identical assets or liabilities in active markets; Level 2, which uses quoted prices for similar assets and liabilities in active markets or other observable inputs; and Level 3, which relies on unobservable inputs that are significant to the fair value measurement. This hierarchy prioritizes the transparency of inputs used to value an asset or liability as of the measurement date, with observable inputs based on market data from independent sources and unobservable inputs reflecting Embassy Suites' own assumptions.