How is fair value defined for Embassy Suites By Hilton's financial statements?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (i.e., an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the data market participants would use in pricing the asset or liability developed based on the best information available to us in the specific circumstances. The three-tier hierarchy of inputs is summarized below:
- Level 1 Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets, 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date, essentially an exit price. Embassy Suites By Hilton uses a three-level valuation hierarchy for classifying fair value measurements, based on the transparency of inputs used in valuing an asset or liability as of the measurement date.
The valuation hierarchy consists of three levels: Level 1, which is based on quoted prices (unadjusted) 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 significant to the fair value measurement. These inputs can be observable, reflecting market-based assumptions, or unobservable, reflecting Embassy Suites By Hilton's own assumptions based on the best available information.
The classification of assets and liabilities within this hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety, and this classification is reviewed each reporting period. The FDD notes that the use of different market assumptions or estimation methods could materially affect the estimated fair value amounts. Embassy Suites By Hilton determines estimates of fair values using available market information and appropriate valuation methods, requiring considerable judgment to interpret market data and develop these estimates, though it has not elected the fair value measurement option for any of its financial assets or liabilities.