Presentation Transcript

1. ReformulationHyatt Hotels Corporation“HHC” (NYSE: H)Meghan Shevlin January 22, 2014
2. EnterpriseOperations vs. Financing Activities Enterprise operations consist of a company’s business and production activities. These are essential to the company’s business purpose Hyatt: global hospitality company engaged in management, franchising, ownership and development of Hyatt-branded hotels, resorts, residences Own 500 properties (135,144 rooms) Financing operations consist of managing banking, investments, credit etc.
3. Overview Reformulation In order to separate enterprise operations from financing activities we reformulate the financial statements Distinguishes which assets/liability and income are attributed to each activity 1. Identify Enterprise Assets and Liabilities 2. Identify Net Financing Liabilities 3. Calculate Enterprise Profit After Tax 4. Calculate Financing Expense After Tax
4. Identifying Enterprise Assets and Liabilities To find Net Enterprise Assets we must go through the balance sheet and separate the assets and liabilities related to enterprise operations Split
5. Net Enterprise Assets Measure of the resources of a company
6. Assumptions related to NEA Cash related to operations was assumed to be 2% of Sales (.02*3,949M=$79M) Excess cash over amount necessary to fund operations is assumed to have been available for investment or distributed to debt or equity holders Deferred Tax Assets are assumed to be part of enterprise operations right now although they may be a combination of enterprise and financing activity
7. Net Financing Liabilities Net financing activities on Balance Sheet
8. Assumptions related to NFL Restricted Cash was held to be invested or distributed in the future Non-controlling interest: holders are another form of ownership of Hyatt. These are treated similarly to debt owed Preferred shares were $0 and therefore not listed as a financial liability of Hyatt
9. Check NEA-NFL=CSE
10. Enterprise Profitability After Tax Income statement and comprehensive income analysis of items related to enterprise operations
11. EPAT
12. Allocation of Income Taxes on Continuing Operations Tax reported on the income statement represents the tax associated with both enterprise and financing activities. This is the income tax expense if there were no Interest expense or Interest income (since interest expense/income are financing) Assumed a 37% marginal tax rate
13. Assumptions Equity earnings (loss) from unconsolidated hospitality ventures was treated as enterprise Hospitality ventures relates to Hyatt’s entities in which they own less than 100% equity interest. They are continuously buying in highly desirable markets Gain on sale of real estate was treated as an enterprise operation Sold real estate to a new joint venture that a subsidiary formed Hyatt entered into long term franchising agreements with these properties sold which is typical to their operations
14. Financing expense after tax The remaining line items relate to Hyatt’s financing activities * *Derivative activity assumed to have been associated with a financing activity
15. Check Correct reformulation of the income statement and statement of comprehensive income to allocate items to enterprise operations or financing activities will not have changed the amount of comprehensive income
16. Conclusion As measures of profitability and resources of a company, EPAT and NEA separate the income statement and balance sheet items into enterprise operations and financing activities
17. Sources Hyatt Hotel Corporation Annual Report 2012 Hyatt Hotel Corporation Investor Fact Book 2012 Valuation for Financial and Accounting Professionals: A Guide to Valuation and Financial Statement Analysis, Easton, Sommers