HYATT HOTELS CORP, 10-Q filed on 5/1/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 26, 2013
Common Class A
Apr. 26, 2013
Common Class B
Entity Information [Line Items]
 
 
 
Entity Registrant Name
Hyatt Hotels Corp 
 
 
Entity Central Index Key
0001468174 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Mar. 31, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Trading Symbol
 
 
Entity Common Stock, Shares Outstanding
 
46,014,352 
115,434,342 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
REVENUES:
 
 
Owned and leased hotels
$ 492 
$ 473 
Management and franchise fees
75 
79 
Other revenues
20 
17 
Other revenues from managed properties
388 
389 
Total revenues
975 
958 
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
Owned and leased hotels
391 
377 
Depreciation and amortization
88 
86 
Other direct costs
Selling, general, and administrative
84 
93 
Other costs from managed properties
388 
389 
Direct and selling, general, and administrative expenses
958 
951 
Net gains and interest income from marketable securities held to fund operating programs
10 
14 
Equity losses from unconsolidated hospitality ventures
(1)
(1)
Interest expense
(17)
(18)
Asset Impairments
(8)1
Other income, net
12 
INCOME BEFORE INCOME TAXES
14 
(PROVISION) BENEFIT FOR INCOME TAXES
(4)
NET INCOME
10 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 8 
$ 10 
EARNINGS PER SHARE - Basic
 
 
Net income - Basic
$ 0.05 
$ 0.06 
Net income attributable to Hyatt Hotels Corporation - Basic
$ 0.05 
$ 0.06 
EARNINGS PER SHARE - Diluted
 
 
Net income - Diluted
$ 0.05 
$ 0.06 
Net income attributable to Hyatt Hotels Corporation - Diluted
$ 0.05 
$ 0.06 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
NET INCOME
$ 8 
$ 10 
Foreign currency translation adjustments, net of income tax of $- in 2013 and 2012
(2)
18 
Unrealized gains on available for sale securities, net of income tax of $- and $1 in 2013 and 2012, respectively
Other comprehensive income (loss)
(2)
20 
Comprehensive Income
30 
Comprehensive Loss Attributable to Noncontrolling Interests
Comprehensive Income Attributable to Hyatt Hotels Corporation
$ 6 
$ 30 
Condensed Consolidated Statements of Comprehensive Income Parentheticals (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Foreign currency translation adjustments, Tax
$ 0 
$ 0 
Unrealized gains on Available for Sale Securities, Tax
$ 0 
$ 1 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
ASSETS
 
 
Cash and cash equivalents
$ 330 
$ 413 
Restricted cash
94 
72 
Short-term investments
457 
514 
Receivables, net of allowances of $12 and $11 at March 31, 2013 and December 31, 2012, respectively
572 
531 
Inventories
77 
80 
Prepaids and other assets
76 
83 
Prepaid income taxes
26 
12 
Deferred tax assets
60 
19 
Assets held for sale
34 
Total current assets
1,696 
1,758 
Investments
332 
293 
Property and equipment, net
4,148 
4,139 
Financing receivables, net of allowances
125 
126 
Goodwill
144 
133 
Intangibles, net
499 
388 
Deferred tax assets
137 
183 
Other assets
641 
620 
TOTAL ASSETS
7,722 
7,640 
LIABILITIES AND EQUITY
 
 
Current maturities of long-term debt
14 
Accounts payable
119 
138 
Accrued expenses and other current liabilities
337 
338 
Accrued compensation and benefits
113 
137 
Liabilities held for sale
Total current liabilities
583 
618 
Long-term debt
1,228 
1,229 
Other long-term liabilities
1,097 
962 
Total liabilities
2,908 
2,809 
Commitments and contingencies (see Note 11)
   
   
EQUITY:
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of March 31, 2013 and December 31, 2012
Common stock
Additional paid-in capital
3,240 
3,263 
Retained earnings
1,613 
1,605 
Treasury stock at cost, 36,273 shares at March 31, 2013 and December 31, 2012
(1)
(1)
Accumulated other comprehensive loss
(50)
(48)
Total stockholders' equity
4,804 
4,821 
Noncontrolling interests in consolidated subsidiaries
10 
10 
Total equity
4,814 
4,831 
TOTAL LIABILITIES AND EQUITY
$ 7,722 
$ 7,640 
Condensed Consolidated Balance Sheet Parentheticals (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Allowance for Doubtful Accounts Receivable, Current
$ 12 
$ 11 
Preferred Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
Preferred Stock, Shares Authorized
10,000,000 
10,000,000 
Preferred Stock, Shares Outstanding
Common Class A
 
 
Common Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized
1,000,000,000 
1,000,000,000 
Common Stock, Shares, Outstanding
46,366,169 
46,631,778 
Common Stock, Shares, Issued
46,402,442 
46,668,051 
Treasury Stock, Shares
36,273 
36,273 
Common Class B
 
 
Common Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized
447,428,754 
448,985,647 
Common Stock, Shares, Outstanding
115,434,342 
115,434,342 
Common Stock, Shares, Issued
115,434,342 
115,434,342 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
NET INCOME
$ 8 
$ 10 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
88 
86 
Deferred income taxes
(2)
Asset Impairments
1
Equity losses from unconsolidated hospitality ventures, including distributions received
Foreign currency losses
Net unrealized gains from other marketable securities
(8)
Working capital changes and other
(84)
(36)
Net cash provided by operating activities of continuing operations
27 
61 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Purchases of marketable securities and short-term investments
(31)
(19)
Proceeds from marketable securities and short-term investments
77 
110 
Contributions to investments
(36)
(22)
Acquisitions, net of cash acquired
(85)
Capital expenditures
(43)
(95)
Proceeds from sale of assets held for sale
36 
Proceeds from sale of assets held for sale transferred to escrow as restricted cash
(23)
Increase in restricted cash - investing
(8)
(10)
Other investing activities
10 
(13)
Net cash used in investing activities of continuing operations
(103)
(49)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Proceeds from long-term debt
11 
Repurchase of common stock
(27)
Other financing activities
(2)
Net cash used in financing activities of continuing operations
(18)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
11 
(4)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(83)
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR
413 
534 
CASH AND CASH EQUIVALENTS CONTINUING OPERATIONS-END OF PERIOD
330 
542 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
Cash paid during the period for interest
30 
30 
Cash paid during the period for income taxes
18 
Non-cash investing activities are as follows:
 
 
Non-cash Contract Acquisition Costs
115 
Change in accrued capital expenditures
$ 2 
$ (34)
Organization
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries ("Hyatt Hotels Corporation") provide hospitality services on a worldwide basis through the management, franchising and ownership of hospitality related businesses. As of March 31, 2013, we operated or franchised 254 full service, Hyatt-branded hotels, consisting of 104,463 rooms throughout the world. We hold ownership interests in certain of these hotels. As of March 31, 2013, we operated or franchised 229 select service, Hyatt-branded hotels with 30,523 rooms, of which 227 hotels are located in the United States. We operate these hotels in 46 countries throughout the world. We hold ownership interests in certain of these hotels. We develop, operate, manage, license or provide services to Hyatt-branded timeshare, fractional and other forms of residential or vacation properties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, the terms "Company," "HHC," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the "2012 Form 10-K").
We have eliminated all intercompany transactions in our condensed consolidated financial statements. We consolidate entities for which we either have a controlling financial interest or are considered to be the primary beneficiary.
Management believes that the accompanying condensed consolidated financial statements reflect all adjustments, which are all of a normal recurring nature, considered necessary for a fair presentation of the interim periods.
Recently Issued Accounting Standards
Recently Issued Accounting Standards
RECENTLY ISSUED ACCOUNTING STANDARDS
Adopted Accounting Standards
In December 2011, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2011-10 ("ASU 2011-10"), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sales (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. The adoption of ASU 2011-10 did not materially impact our condensed consolidated financial statements.
In December 2011, the FASB released Accounting Standards Update No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and in January 2013 the FASB released Accounting Standards Update No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires companies to provide new disclosures about offsetting and related arrangements for financial instruments and derivatives. ASU 2013-01 clarified the scope of ASU 2011-11. The provisions of ASU 2011-11 and ASU 2013-01 are effective for annual reporting periods beginning on or after January 1, 2013, and are required to be applied retrospectively. The adoption of ASU 2011-11 and ASU 2013-01 did not materially impact our condensed consolidated financial statements.
In July 2012, the FASB released Accounting Standards Update No. 2012-02 ("ASU 2012-02"), Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 gives companies the option to perform a qualitative assessment before calculating the fair value of the indefinite-lived intangible asset. Under the guidance in ASU 2012-02, if this option is selected, a company is not required to calculate the fair value of the indefinite-lived intangible unless the entity determines it is more likely than not that its fair value is less than its carrying amount. The provisions of ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, but early adoption was permitted. The adoption of ASU 2012-02 did not materially impact our condensed consolidated financial statements.
In February 2013, the FASB released Accounting Standards Update No. 2013-02 ("ASU 2013-02"), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income (loss) by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The provisions of ASU 2013-02 are effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 resulted in additional disclosure within our equity footnote.

Future Adoption of Accounting Standards

In February 2013, the FASB released Accounting Standards Update No. 2013-04 ("ASU 2013-04"), Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The provisions of ASU 2013-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. When adopted, ASU 2013-04 is not expected to materially impact our condensed consolidated financial statements.

In March 2013, the FASB released Accounting Standards Update No. 2013-05 ("ASU 2013-05"), Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). ASU 2013-05 requires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. The provisions of ASU 2013-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. When adopted, ASU 2013-05 is not expected to materially impact our condensed consolidated financial statements.
Equity And Cost Method Investments
Equity And Cost Method Investments
    EQUITY AND COST METHOD INVESTMENTS
We have investments that are recorded under both the equity and cost methods of accounting. These investments are considered to be an integral part of our business and are strategically and operationally important to our overall results. Our equity and cost method investment balances recorded at March 31, 2013 and December 31, 2012 are as follows:
 
 
March 31, 2013
 
December 31, 2012
Equity method investments
$
261

 
$
222

Cost method investments
71

 
71

Total investments
$
332

 
$
293



During the three months ended March 31, 2013, we increased our investment in a hospitality venture by $22 million, which is classified as an equity method investment, to develop, own and operate a hotel property in the state of Hawaii.
Income from cost method investments included in our condensed consolidated statements of income for the three months ended March 31, 2013 and 2012 was insignificant.
The following table presents summarized financial information for all unconsolidated ventures in which we hold an investment that is accounted for under the equity method.
 
 
 
Three Months Ended March 31,
 
 
2013
 
2012
Total revenues
 
$
226

 
$
243

Gross operating profit
 
74

 
71

Income (loss) from continuing operations
 
3

 
(2
)
Net income (loss)
 
3

 
(2
)
Fair Value Measurement
Fair Value Measurement
FAIR VALUE MEASUREMENT
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 at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs that places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivative instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2013 and December 31, 2012, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2013
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities recorded in
cash and cash equivalents
 
 
 
 
 
 
 
Interest bearing money market funds
$
95

 
$
95

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
291

 
291

 

 

Equity securities
10

 
10

 

 

U.S. government obligations
116

 

 
116

 

U.S. government agencies
54

 

 
54

 

Corporate debt securities
500

 

 
500

 

Mortgage-backed securities
23

 

 
23

 

Asset-backed securities
12

 

 
12

 

Municipal and provincial notes and bonds
14

 

 
14

 

Derivative instruments
 
 
 
 
 
 
 
Interest rate swaps
1

 

 
1

 

Foreign currency forward contracts

 

 

 


 
December 31, 2012
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities recorded in cash and cash equivalents
 
 
 
 
 
 
 
Interest bearing money market funds
$
117

 
$
117

 
$

 
$

Marketable securities included in short-term investments, prepaids and other assets and other assets
 
 
 
 
 
 
 
Mutual funds
275

 
275

 

 

Equity securities
10

 
10

 

 

U.S. government obligations
111

 

 
111

 

U.S. government agencies
68

 

 
68

 

Corporate debt securities
540

 

 
540

 

Mortgage-backed securities
22

 

 
22

 

Asset-backed securities
10

 

 
10

 

Municipal and provincial notes and bonds
15

 

 
15

 

Derivative instruments
 
 
 
 
 
 
 
Interest rate swaps
1

 

 
1

 

Foreign currency forward contracts
(1
)
 

 
(1
)
 


During the three months ended March 31, 2013 and March 31, 2012, there were no transfers between levels of the fair value hierarchy. Our policy is to recognize transfers in and transfers out as of the end of each quarterly reporting period.

Marketable Securities
Our portfolio of marketable securities consists of various types of U.S. Treasury securities, mutual funds, common stock, and fixed income securities, including government agencies, municipal, provincial and corporate bonds. The fair value of our mutual funds and certain equity securities were classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The remaining securities were classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
We invest a portion of our cash balance into short-term interest bearing money market funds that have a maturity of less than ninety days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis.
Included in our portfolio of marketable securities are investments in debt and equity securities classified as available for sale. At March 31, 2013 and December 31, 2012 these were as follows:
 
 
March 31, 2013
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Corporate debt securities
$
400

 
$
8

 
$
(8
)
 
$
400

U.S. government agencies and municipalities
17

 

 

 
17

Equity securities
9

 
1

 

 
10

Total
$
426

 
$
9

 
$
(8
)
 
$
427

 
 
December 31, 2012
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Corporate debt securities
$
443

 
$
8

 
$
(8
)
 
$
443

U.S. government agencies and municipalities
31

 

 

 
31

Equity securities
9

 
1

 

 
10

Total
$
483

 
$
9

 
$
(8
)
 
$
484



Gross realized gains and losses on available for sale securities were insignificant for the three months ended March 31, 2013 and 2012.
The table below summarizes available for sale fixed maturity securities by contractual maturity at March 31, 2013. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life. Although a portion of our available for sale fixed maturity securities mature after one year, we have chosen to classify the entire portfolio as current. The portfolio's objectives are to preserve capital, provide liquidity to satisfy operating requirements, working capital purposes and strategic initiatives and capture a market rate of return. Therefore, since these securities represent funds available for current operations, the entire investment portfolio is classified as current assets.
 
 
March 31, 2013
Contractual Maturity
Cost or Amortized
Cost
 
Fair Value
Due in one year or less
$
272

 
$
272

Due in one to two years
145

 
145

Total
$
417

 
$
417


The impact to net income from total gains or losses included in net gains and interest income from marketable securities held to fund operating programs due to the change in unrealized gains or losses relating to assets still held at the reporting date for the three months ended March 31, 2013 and 2012 were insignificant.
Derivative Instruments
Our derivative instruments are foreign currency exchange rate instruments and interest rate swaps. The instruments are valued using an income approach with factors such as interest rates and yield curves, which represent market observable inputs and are generally classified as Level Two. Credit valuation adjustments may be made to ensure that derivatives are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality and our nonperformance risk. As of March 31, 2013 and December 31, 2012, the credit valuation adjustments were insignificant. See Note 9 for further details on our derivative instruments.
Mortgage Backed Securities
During the three months ended March 31, 2012, we sold mortgage backed securities that had been classified as Level 3 at December 31, 2011. We had no transfers between levels of the fair value hierarchy in 2013. The following table provides a reconciliation of the beginning and ending balances for the mortgage backed securities measured at fair value using significant unobservable inputs (Level 3):
 
Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3) - Mortgage Backed Securities
 
2013
 
2012
Balance at January 1,
$

 
$
2

Transfers into (out of) Level Three

 

Settlements

 
(2
)
Total gains (losses) (realized or unrealized)

 

Balance at March 31,
$

 
$



Other Financial Instruments
We estimated the fair value of financing receivables using discounted cash flow analysis based on current market assumptions for similar types of arrangements. Based upon the availability of market data, we have classified our financing receivables as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates. Fluctuations in these assumptions will result in different estimates of fair value. For further information on financing receivables, see Note 5.
We estimated the fair value of debt, excluding capital leases, which consists primarily of our $250 million of 5.750% senior notes due 2015 (the "2015 Notes"), $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), $250 million of 6.875% senior notes due 2019 (the "2019 Notes"), and $250 million of 5.375% senior notes due 2021 (the "2021 Notes" which, together with the 2015 Notes, the 2016 Notes and the 2019 Notes are collectively our "Senior Notes"), and construction loans. Our Senior Notes are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities. Construction loans have been classified as Level Three, as we subjectively determine the risk rating which impacts the discount rate.
The carrying amounts and fair values of our other financial instruments are as follows:

 
Asset (Liability)
 
March 31, 2013
 
Carrying Value
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Financing receivables
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
310

 
$
315

 
$

 
$

 
$
315

Vacation ownership mortgage receivable
38

 
39

 

 

 
39

Unsecured financing to hotel owners
64

 
63

 

 

 
63

Debt, excluding capital lease obligations
(1,028
)
 
(1,140
)
 

 
(1,118
)
 
(22
)

 
Asset (Liability)
 
December 31, 2012
 
Carrying Value
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Financing receivables
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
310

 
$
314

 
$

 
$

 
$
314

Vacation ownership mortgage receivable
39

 
39

 

 

 
39

Unsecured financing to hotel owners
64

 
64

 

 

 
64

Debt, excluding capital lease obligations
(1,017
)
 
(1,137
)
 

 
(1,126
)
 
(11
)
Financing Receivables
Financing Receivables
5.    FINANCING RECEIVABLES
We have divided our financing receivables, which include loans and other financing arrangements, into three portfolio segments based on their initial measurement, risk characteristics and our method for monitoring or assessing credit risk. These portfolio segments correspond directly with our assessed class of receivables and are as follows:
Secured Financing to Hotel Owners—These financing receivables are senior secured mortgage loans and are collateralized by hotel properties currently in operation. These loans consist primarily of a $277 million mortgage loan receivable to an unconsolidated hospitality venture which was formed to acquire ownership of a hotel property in Waikiki, Hawaii. This mortgage receivable has interest set at 30-day LIBOR+3.75% due monthly and a stated maturity date of July 2013. As a result, it is classified as a current receivable. Secured financing to hotel owners also includes financing provided to certain franchisees for the renovation and conversion of certain franchised hotels. These franchisee loans accrue interest at fixed rates ranging between 5.0% and 5.5%.
Vacation Ownership Mortgage Receivables—These financing receivables are comprised of various mortgage loans related to our financing of vacation ownership interval sales. As of March 31, 2013, the weighted-average interest rate on vacation ownership mortgage receivables was 14.0%.

Unsecured Financing to Hotel Owners—These financing receivables are primarily made up of individual unsecured loans and other types of financing arrangements provided to hotel owners. During 2012, we entered into a loan agreement to provide a $50 million mezzanine loan for the construction of a hotel that we will manage. Under the loan agreement, interest accrues at the greater of one-month LIBOR plus 5.0%, or 6.5%. Our other financing receivables have stated maturities and interest rates. However, the expected repayment terms may be dependent on the future cash flows of the hotels and these instruments, therefore, are not considered loans as the repayment dates are not fixed or determinable. Because these arrangements are not considered loans, we do not include them in our impaired loans analysis. Since these receivables may come due earlier than the stated maturity date, the expected maturity dates have been excluded from the maturities table below.
The three portfolio segments of financing receivables and their balances at March 31, 2013 and December 31, 2012 are as follows:
 
 
March 31, 2013
 
December 31, 2012
Secured financing to hotel owners
$
317

 
$
317

Vacation ownership mortgage receivables at various interest rates with varying payments through 2022
46

 
48

Unsecured financing to hotel owners
149

 
147

 
512

 
512

Less allowance for losses
(100
)
 
(99
)
Less current portion included in receivables, net
(287
)
 
(287
)
Total long-term financing receivables, net
$
125

 
$
126


Financing receivables held by us as of March 31, 2013 are scheduled to mature as follows:
Year Ending December 31,
Secured Financing to Hotel Owners
 
Vacation Ownership Mortgage Receivables
2013
$
278

 
$
7

2014
1

 
8

2015
38

 
7

2016

 
6

2017

 
5

2018

 
4

Thereafter

 
9

Total
317

 
46

Less allowance
(7
)
 
(8
)
Net financing receivables
$
310

 
$
38


Allowance for Losses and Impairments
We individually assess all loans in the secured financing to hotel owners portfolio and the unsecured financing to hotel owners portfolio for impairment. We assess the vacation ownership mortgage receivables portfolio, which consists entirely of loans, for impairment on an aggregate basis. We do not assess, for impairment, our other financing arrangements included in unsecured financing to hotel owners. However, we do regularly evaluate our reserves for these other financing arrangements and record provisions in the financing receivables allowance as necessary. Impairment charges for loans within all three portfolios and reserves related to our other financing arrangements are recorded as provisions in the financing receivables allowance. We consider the provisions on all of our portfolio segments to be adequate based on the economic environment and our assessment of the future collectability of the outstanding loans.
The following tables summarize the activity in our financing receivables allowance for the three months ended March 31, 2013 and 2012:
 
Secured Financing
 
Vacation Ownership
 
Unsecured Financing
 
Total
Allowance at January 1, 2013
$
7

 
$
9

 
$
83

 
$
99

  Provisions

 

 
2

 
2

  Write-offs

 
(1
)
 

 
(1
)
  Recoveries

 

 

 

Allowance at March 31, 2013
$
7

 
$
8

 
$
85

 
$
100



Secured Financing

Vacation Ownership

Unsecured Financing

Total
Allowance at January 1, 2012
$
7


$
8


$
75


$
90

  Provisions


1


3


4

  Write-offs


(1
)

(3
)

(4
)
  Recoveries







Allowance at March 31, 2012
$
7


$
8


$
75


$
90



We routinely evaluate loans within financing receivables for impairment. To determine whether an impairment has occurred, we evaluate the collectability of both interest and principal. A loan is considered to be impaired when the Company determines that it is probable that we will not be able to collect all amounts due under the contractual terms. We do not record interest income for impaired loans unless cash is received, in which case the payment is recorded to other income, net in the accompanying condensed consolidated statements of income. During the three months ended March 31, 2013 and 2012, we did not record any impairment charges for loans to hotel owners. The gross value of our impaired loans and related reserve does increase, outside of impairments recognized, due to the accrual and related reserve of interest income on these loans.
An analysis of our loans included in secured financing to hotel owners and unsecured financing to hotel owners had the following impaired amounts at March 31, 2013 and December 31, 2012, all of which had a related allowance recorded against them:
Impaired Loans
March 31, 2013
 
Gross Loan Balance (Principal and Interest)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Loan Balance
Secured financing to hotel owners
$
40

 
$
40

 
$
(7
)
 
$
40

Unsecured financing to hotel owners
54

 
40

 
(54
)
 
54


Impaired Loans
December 31, 2012
 
Gross Loan Balance (Principal and Interest)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Loan Balance
Secured financing to hotel owners
$
40

 
$
39

 
$
(7
)
 
$
40

Unsecured financing to hotel owners
53

 
40

 
(53
)
 
51


Interest income recognized on these impaired loans within other income, net on our condensed consolidated statements of income for the three months ended March 31, 2013 and 2012 was as follows:
Interest Income
 
 
Three Months Ended March 31,
 
 
2013
 
2012
Secured financing to hotel owners
 
$

 
$
1

Unsecured financing to hotel owners
 

 


Credit Monitoring
On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity.
Past-due Receivables—We determine financing receivables to be past-due based on the contractual terms of each individual financing receivable agreement.
Non-Performing Receivables—Receivables are determined to be non-performing based upon the following criteria: (1) if interest or principal is more than 90 days past due for secured financing to hotel owners and unsecured financing to hotel owners; (2) if interest or principal is more than 120 days past due for vacation ownership mortgage receivables; or (3) if an impairment charge has been recorded for a loan or a provision established for our other financing arrangements. For the three months ended March 31, 2013 and 2012, no interest income was accrued for secured financing to hotel owners and unsecured financing to hotel owners more than 90 days past due or for vacation ownership receivables more than 120 days past due. For the three months ended March 31, 2013 and 2012, insignificant interest income was accrued for vacation ownership receivables past due more than 90 days but less than 120 days.
If a financing receivable is non-performing, we place the financing receivable on non-accrual status. We only recognize interest income when received for financing receivables on non-accrual status. Accrual of interest income is resumed when the receivable becomes contractually current and collection doubts are removed.
The following tables summarize our aged analysis of past-due financing receivables by portfolio segment, the gross balance of financing receivables greater than 90 days past-due and the gross balance of financing receivables on non-accrual status as of March 31, 2013 and December 31, 2012:
 
Analysis of Financing Receivables
March 31, 2013
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
40

Vacation ownership mortgage receivables
2

 

 

Unsecured financing to hotel owners *
3

 
3

 
83

Total
$
5

 
$
3

 
$
123


Analysis of Financing Receivables
December 31, 2012
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
40

Vacation ownership mortgage receivables
2

 

 

Unsecured financing to hotel owners *
3

 
3

 
81

Total
$
5

 
$
3

 
$
121


* Certain of these receivables have been placed on non-accrual status and we have recorded allowances for these receivables based on estimates of the future cash flows available for payment of these financing receivables. However, a majority of these payments are not past due.
Acquisitions, Dispositions, and Discontinued Operations
Acquisitions Dispositions And Discontinued Operations
ACQUISITIONS AND DISPOSITIONS
We continually assess strategic acquisitions and dispositions to complement our current business.
Acquisitions
The Driskill—During the first quarter of 2013, we acquired The Driskill hotel in Austin, Texas ("The Driskill") for a purchase price of approximately $85 million. The Driskill has a long-standing presence in a market which we view as a key location for our guests. Due to the iconic nature of the hotel and its membership in the Historic Hotels of America and Associated Luxury Hotels International, we have chosen to retain The Driskill name. Of the total $85 million purchase price, significant assets acquired include $65 million of property and equipment, a $7 million indefinite-lived brand intangible, a $2 million management intangible and $2 million of other assets. Additionally, the acquisition created $9 million of goodwill which is deductible for tax purposes and was recognized within our owned and leased segment. These amounts are based on a preliminary estimated fair value asset allocation. As of March 31, 2013 our valuation of property and intangibles acquired was ongoing and therefore our purchase price allocation, including the amount of goodwill recognized, may change.
Dispositions
Hyatt Place—During the first quarter of 2013, we sold three Hyatt Place properties for a combined $36 million, net of closing costs, to an unrelated third party, resulting in a pre-tax gain of approximately $2 million. The value of these properties had been classified as assets and liabilities held for sale as of December 31, 2012. The Company retained long-term management agreements for each hotel with the purchaser of the hotels. The gain on sale has been deferred and is being recognized in management and franchise fees over the term of the management contracts, within our Americas management and franchising segment. The operations of the hotels prior to the sale remain within our owned and leased hotels segment. See "Like-Kind Exchange Agreements", below, as proceeds from two of the three properties sold have been held as restricted for use in a potential like-kind exchange.
Like-Kind Exchange Agreements
In conjunction with the first quarter 2013 sale of two of the three Hyatt Place properties discussed above, we entered into a like-kind exchange agreement with an intermediary. Pursuant to the like-kind exchange agreement, the proceeds from the sales of these two hotels were placed into an escrow account administered by an intermediary. Accordingly, we classified the net proceeds of $23 million related to these two properties as restricted cash on our condensed consolidated balance sheet as of March 31, 2013.
Assets Held for Sale
During the first quarter of 2013, we reclassified $4 million of Company-owned artwork as held for sale.
Goodwill And Intangible Assets
Goodwill And Intangible Assets
GOODWILL AND INTANGIBLE ASSETS
We review the carrying value of our goodwill and indefinite lived brand intangible by comparing the carrying value of our brand intangible, and our goodwill at the reporting unit level, to their respective fair values during our annual impairment test in the fourth quarter or more often as needed, by performing either a qualitative assessment or a two-step process. We define a reporting unit at the individual property or business level. When determining fair value in step one, we utilize internally developed discounted future cash flow models, third party appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We then compare the estimated fair value to our carrying value. If the carrying value of our indefinite lived brand intangible is in excess of the fair value, an impairment charge is recognized in an amount equal to the excess. If the carrying value is in excess of the fair value, we must determine our implied fair value of goodwill to measure if any impairment charge is necessary.
Goodwill was $144 million at March 31, 2013 and $133 million at December 31, 2012. During the three months ended March 31, 2013, we recognized $9 million of goodwill in conjunction with the acquisition of The Driskill (see Note 6). The remaining increase in goodwill was driven by fluctuations in foreign currency on the goodwill recognized in conjunction with the Hyatt Regency Mexico City acquisition. During the three months ended March 31, 2013 and 2012, no impairment charges were recorded related to goodwill. During the three months ended March 31, 2013, we acquired an indefinite-lived brand intangible of $7 million in conjunction with the acquisition of The Driskill (see Note 6).

Definite lived intangible assets primarily include contract acquisition costs, acquired lease rights, and acquired franchise and management intangibles. Contract acquisition costs and franchise and management intangibles are generally amortized on a straight-line basis over their contract terms, which range from approximately 5 to 40 years and 20 to 30 years, respectively. Acquired lease rights are amortized on a straight-line basis over the lease term. Definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. During the three months ended March 31, 2013, we entered into 30 year management agreements for four hotels in France. In conjunction with the management agreements, we also entered into a seven year performance guarantee. At inception of the agreement, we recorded the fair value of this performance guarantee. Using exchange rates at March 31, 2013 the guarantee is $115 million with an offsetting contract acquisition cost intangible of $115 million. The intangible will amortize into expense over the 30 year term of the management agreements beginning in the second quarter in conjunction with the conversion of the hotels to Hyatt management. For more information on the performance guarantee liability, see Note 11. There were no impairment charges related to intangible assets with definite lives during the three months ended March 31, 2013 and 2012.




The following is a summary of intangible assets at March 31, 2013 and December 31, 2012:
 
 
March 31, 2013
 
Weighted
Average Useful
Lives in Years
 
December 31, 2012
Contract acquisition costs
$
317

 
26

 
$
203

Acquired lease rights
132

 
112

 
139

Franchise and management intangibles
125

 
25

 
122

Brand Intangible
7

 

 

Other
8

 
14

 
10

 
589

 
 
 
474

Accumulated amortization
(90
)
 
 
 
(86
)
Intangibles, net
$
499

 
 
 
$
388


Amortization expense relating to intangible assets was as follows:
 
 
Three Months Ended March 31,
 
2013
 
2012
Amortization expense
$
6

 
$
5

Debt
Debt Disclosure [Text Block]
DEBT
Long-term debt, net of current maturities, at March 31, 2013 and December 31, 2012 was $1,228 million and $1,229 million, respectively. Refer to Note 18 for subsequent events related to our long-term debt.
Floating Average Rate Construction Loan - During 2012, we obtained a construction loan in order to develop a hotel in Brazil. The term of this loan is up to 18 years and the interest is at a floating average rate estimated at 7.5%. As of March 31, 2013, we have borrowed $11 million against this construction loan of which $10 million has not yet been utilized in construction and is therefore held in restricted cash.
Derivative Instruments
Derivative Instruments
DERIVATIVE INSTRUMENTS
It is our policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we have a policy of only entering into contracts with carefully selected major financial institutions based upon their credit rating and other factors. Our derivative instruments do not contain credit-risk related contingent features.
All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheet until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the statement of cash flows. Cash flows from undesignated derivative financial instruments are included in the investing category on the condensed consolidated statement of cash flows. We do not offset any derivative assets or liabilities in the balance sheet and none of our derivatives are subject to master netting arrangements.
Interest Rate Swap Agreements—In the normal course of business, we are exposed to the impact of interest rate changes due to our borrowing activities. Our objective is to manage the risk of interest rate changes on the results of operations, cash flows, and the market value of our debt by creating an appropriate balance between our fixed and floating-rate debt. Interest rate derivative transactions, including interest rate swaps, are entered into to maintain a level of exposure to interest rates which the Company deems acceptable.
As of March 31, 2013 and December 31, 2012, we held a total of four $25 million interest rate swap contracts, each of which expires on August 15, 2015. Taken together, these swap contracts effectively convert a total of $100 million of the $250 million of our 2015 Notes to floating rate debt based on three-month LIBOR plus a fixed rate component. The fixed rate component of the four swaps varies by contract, ranging from 4.5675% to 4.77%. The interest rate swaps were designated as a fair value hedge as their objective is to protect the 2015 Notes against changes in fair value due to changes in the three-month LIBOR interest rate. The swaps were designated as fair value hedges at inception and at March 31, 2013 and December 31, 2012 were highly effective in offsetting fluctuations in the fair value of the 2015 Notes.
At March 31, 2013 and December 31, 2012, the fixed to floating interest rate swaps were recorded within other assets at a value of $1 million and $1 million, respectively, offset by a fair value adjustment to long-term debt of $1 million and $1 million, respectively. At March 31, 2013 and December 31, 2012, the difference between the other asset value and fair market value adjustment to long-term debt includes the ineffective portion of the swap life-to-date which was insignificant.
Foreign Currency Exchange Rate Instruments—We transact business in various foreign currencies and utilize foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Our strategy is to have increases or decreases in our foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany loans and other intercompany transactions. Our foreign currency forward contracts generally settle within 12 months. We do not use these forward contracts for trading purposes. We do not designate these forward contracts as hedging instruments. Accordingly, we record the fair value of these contracts as of the end of our reporting period to our condensed consolidated balance sheets with changes in fair value recorded in our condensed consolidated statements of income within other income, net for both realized and unrealized gains and losses. The balance sheet classification for the fair values of these forward contracts is to prepaids and other assets for unrealized gains and to accrued expenses and other current liabilities for unrealized losses.
The U.S. dollar equivalent of the notional amount of the outstanding forward contracts, the majority of which relate to intercompany loans, with terms of less than one year, is as follows (in U.S. dollars):
 
March 31, 2013
 
December 31, 2012
Pound Sterling
$
152

 
$
161

Korean Won
37

 
31

Swiss Franc
29

 
32

Canadian Dollar
4

 
30

Total notional amount of forward contracts
$
222

 
$
254


Certain energy contracts at our hotel facilities include derivatives. However, we qualify for and have elected the normal purchases or sales exemption for these derivatives.
The effects of derivative instruments on our condensed consolidated financial statements were as follows as of March 31, 2013December 31, 2012 and for the three months ended March 31, 2013 and 2012:
Fair Values of Derivative Instruments
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
Location
 
March 31,
2013
 
December 31,
2012
 
Balance Sheet Location
 
March 31,
2013
 
December 31,
2012
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other assets
 
$
1

 
$
1

 
Other long-term
liabilities
 
$

 
$

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
Prepaids and
other assets
 

 

 
Accrued expenses and
other current liabilities
 

 
1

Total derivatives
 
 
$
1

 
$
1

 
 
 
$

 
$
1


Effect of Derivative Instruments on Income
 
 
 
Three Months Ended March 31,
 
Location of
Gain (Loss)
 
2013
 
2012
Fair value hedges:
 
 
 
 
 
Interest rate swaps
 
 
 
 
 
Gains (losses) on derivatives
Other income, net*
 
$

 
$

Gains (losses) on borrowings
Other income, net*
 

 

 
 
 
 
Three Months Ended March 31,
 
Location of
Gain (Loss)
2013
 
2012
Derivatives not designated as hedges:
 
 
 
 
 
Foreign currency forward contracts
Other income, net
 
$
11

 
$
(6
)
 
*
For the three months ended March 31, 2013, there was an insignificant gain recognized in income related to the ineffective portion of these hedges. For the three months ended March 31, 2012, there was an insignificant loss recognized in income related to the ineffective portion of these hedges. No amounts were excluded from the assessment of hedge effectiveness for the three months ended March 31, 2013 and 2012.
Income Taxes
Income Tax Disclosure
INCOME TAXES

An income tax benefit of $5 million, resulting in a negative 214.8% effective tax rate, was recorded for the three months ended March 31, 2013 and an income tax expense of $4 million, resulting in a 32.8% effective tax rate, was recorded for the three months ended March 31, 2012. For the three months ended March 31, 2013, the effective tax rate differs from the U.S. statutory federal income tax rate of 35% primarily due to a $4 million benefit for an adjustment to certain deferred tax assets that should have been recorded in prior periods and a benefit of $2 million (including interest) related to the settlement of our tax audits.
For the three months ended March 31, 2012 the effective tax rate is lower than the U.S. statutory federal income tax rate of 35% primarily due to the release of $5 million in reserves for interest related to our treatment for expensing certain renovation costs in prior years. The rate was further reduced by foreign earnings subject to tax at rates below the U.S. rate. These benefits are partially offset by an increase of approximately $4 million (including $2 million of interest and penalties) for uncertain tax positions in foreign jurisdictions.
Total unrecognized tax benefits were $53 million and $75 million at March 31, 2013 and December 31, 2012, respectively, of which $28 million and $42 million, respectively, would impact the effective tax rate if recognized. It is reasonably possible that a reduction of up to $6 million of unrecognized tax benefits could occur within twelve months resulting from the resolution of audit examinations and the expiration of certain statutes of limitations.
Commitments And Contingencies
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements, which are discussed below:
Commitments—As of March 31, 2013, we are committed, under certain conditions, to lend or invest up to $536 million, net of any related letters of credit, in various business ventures.
Significant items included in the $536 million in commitments are the following:

Our share of a hospitality venture’s commitment to purchase a hotel within a to-be completed building in New York City for a total purchase price of $375 million. The hospitality venture will be funded upon the purchase of the hotel, and our share of the purchase price commitment is 66.67% (or approximately $250 million). In accordance with the purchase agreement, we have agreed to fund a $50 million letter of credit as security towards this future purchase obligation. The agreement stipulates that the purchase of the completed property is contingent upon the completion of certain contractual milestones. The $50 million funded letter of credit is included as part of our total letters of credit outstanding at March 31, 2013, and therefore netted against our future commitments amount disclosed above. For further discussion, see the "Letters of Credit" section of this footnote below.

Our commitment to develop, own and operate a hotel property in the state of Hawaii through a hospitality venture formed in 2010. The expected remaining commitment under the hospitality venture agreement at March 31, 2013 is $36 million. The hotel is expected to open in the second half of 2013.
Performance Guarantees—Certain of our contractual arrangements with third party owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. During the three months ended March 31, 2013, we recorded a $1 million charge under one of these agreements. Under separate agreements, we had $115 million accrued as of March 31, 2013. The remaining maximum potential payments related to these agreements are $505 million.
Included within the remaining maximum potential performance guarantees of $505 million is a performance guarantee agreement which we entered into during the three months ended March 31, 2013 related to management agreements with four hotels in France. In connection with the inception of the performance guarantee we recognized a liability for the fair value of our guarantee obligation within other long term liabilities on our condensed consolidated balance sheets in the amount of Euro 90 million, or $115 million, with an offsetting contract acquisition cost intangible asset as of March 31, 2013. The performance guarantee does not have an annual cap and the maximum total commitment under the performance guarantee is Euro 377 million, or $483 million, as of March 31, 2013. The performance guarantee liability will be amortized using a systematic and rational, risk-based approach over the seven year term of the performance guarantee. The amortization of the liability will be recorded as income to other income, net on the condensed consolidated statements of income beginning in the second quarter in conjunction with the conversion of the hotels to Hyatt management.
Additionally, we entered into certain management contracts where we have the right, but not an obligation, to make payments to certain hotel owners if their hotels do not achieve specified levels of operating profit. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management contract. As of March 31, 2013, there were no amounts recorded in accrued expenses and other current liabilities related to these performance test clauses.
Debt Repayment Guarantees—We have entered into various repayment debt guarantees related to our hospitality venture investments in certain properties. The maximum exposure under these agreements as of March 31, 2013 is $288 million. As of March 31, 2013, we had a $10 million liability representing the carrying value of these guarantees. Included within the $288 million in debt guarantees are the following:
Property Description
 
Maximum Guarantee Amount
 
Amount Accrued at March 31, 2013
Vacation ownership development
 
$
110

 
$
1

Hotel property in Brazil
 
75

 
3

Hawaii hotel development
 
48

 
1

Hotel property in Minnesota
 
25

 
5

Other
 
30

 

Total Debt Repayment Guarantees
 
$
288

 
$
10


With respect to debt repayment guarantees related to certain hospitality venture properties, the Company has agreements with its respective partners that require each partner to pay a pro-rata portion of the guarantee amount based on each partner’s ownership percentage. Assuming successful enforcement of these agreements, our maximum exposure under our various debt repayment guarantees as of March 31, 2013, would be $153 million.
Surety Bonds—Surety bonds issued on our behalf totaled $23 million at March 31, 2013, and primarily relate to workers’ compensation, taxes, licenses, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf as of March 31, 2013 totaled $113 million, the majority of which relate to our ongoing operations. Of the $113 million letters of credit outstanding, $100 million reduces the available capacity under our revolving credit facility.
Capital Expenditures—As part of our ongoing business operations, significant expenditures are required to complete renovation projects that have been approved.
Other —We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in assets financed and/or other assets of the partnership and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures, we may provide standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or actions of the other hospitality venture owners.
We are subject from time to time to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. We reasonably recognize a liability associated with commitments and contingencies when a loss is probable and reasonably estimable. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.
Equity
Equity
EQUITY
Stockholders’ Equity and Noncontrolling InterestsThe following table details the equity activity for the three months ended March 31, 2013 and 2012, respectively.
 
 
Stockholders’
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2013
$
4,821

 
$
10

 
$
4,831

Net income
8

 

 
8

Other comprehensive loss
(2
)
 

 
(2
)
Repurchase of common stock
(27
)
 

 
(27
)
Share based payment activity
4

 

 
4

Balance at March 31, 2013
$
4,804

 
$
10

 
$
4,814

 
 
 
 
 
 
Balance at January 1, 2012
$
4,818

 
$
10

 
$
4,828

Net income
10

 

 
10

Other comprehensive income
20

 

 
20

Share based payment activity
6

 

 
6

Balance at March 31, 2012
$
4,854

 
$
10

 
$
4,864


 
    
Accumulated Other Comprehensive LossThe following table details the accumulated other comprehensive loss activity for the three months ended March 31, 2013 and 2012, respectively.

 
Balance at
January 1, 2013
 
Current period other comprehensive income (loss) before reclassification
 
Amount Reclassified from Accumulated Other Comprehensive Loss (a)
 
Balance at
March 31, 2013
Foreign currency translation adjustments
$
(35
)
 
$
(4
)
 
$
2

 
$
(37
)
Unrealized gain (loss) on AFS securities

 

 
 
 

Unrecognized pension cost
(6
)
 

 
 
 
(6
)
Unrealized loss on derivative instruments
(7
)
 

 
 
 
(7
)
Accumulated Other Comprehensive Loss
$
(48
)
 
$
(4
)
 
$
2

 
$
(50
)
(a) Foreign currency translation adjustments, net of $- of tax, reclassified from accumulated other comprehensive loss were recognized within equity losses from unconsolidated hospitality ventures on the condensed consolidated statements of income.
 
 
 
 
 
 
 
 
 
Balance at
January 1, 2012
 
Current period other comprehensive income (loss)
 
Balance at
March 31, 2012
Foreign currency translation adjustments
$
(64
)
 
$
18
 
 
$
(46
)
Unrealized gain (loss) on AFS securities
(2
)
 
2
 
 

Unrecognized pension cost
(6
)
 
 
 
(6
)
Unrealized loss on derivative instruments
(8
)
 
 
 
(8
)
Accumulated Other Comprehensive Loss
$
(80
)
 
$
20
 
 
$
(60
)
2012 Share RepurchaseDuring the year ended December 31, 2012 we announced that the Board of Directors authorized the repurchase of up to $200 million of the Company's common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan, at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion. During the three months ended March 31, 2013, the Company repurchased 664,951 shares of Class A common stock at a weighted average price of $41.32 per share, for an aggregate purchase price of $27 million, excluding related expenses, which were insignificant. The $27 million of share repurchases was settled in cash during the quarter. The shares repurchased represented less than 1% of the Company's total shares of common stock outstanding prior to the repurchase. The shares of Class A common stock were repurchased on the open market, retired, and returned to authorized and unissued status. As of March 31, 2013 we had $36 million remaining under the 2012 share repurchase plan. See Note 18 for subsequent events related to our 2013 share repurchase plan.
Stock-Based Compensation
Stock-Based Compensation
STOCK-BASED COMPENSATION
As part of our long-term incentive plan, we award Stock Appreciation Rights ("SARs"), Restricted Stock Units ("RSUs"), Performance Share Units ("PSUs"), and Performance Vested Restricted Stock ("PSSs") to certain employees. Compensation expense and unearned compensation figures within this note exclude amounts related to employees of our managed hotels as this expense has been and will continue to be reimbursed by our third party hotel owners and is recorded on the lines other revenues from managed properties and other costs from managed properties in our condensed consolidated statements of income. Expenses related to these awards for the three months ended March 31, 2013 and 2012 are as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Stock appreciation rights
$
2

 
$
2

Restricted stock units
4

 
3

Performance share units and Performance vested restricted stock
1

 
1


Stock Appreciation Rights—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life as determined by the plan. All SARs have a 10-year contractual term and are settled in shares of our Class A common stock. The Company is accounting for these SARs as equity instruments.
During the three months ended March 31, 2013, the Company granted 526,917 SARs to employees with a weighted average grant date fair value of $17.98. The fair value of each SAR was estimated on the date of grant using the Black-Scholes-Merton option-valuation model.
Restricted Stock Units—The Company grants both RSUs that may be settled in stock and RSUs that may be settled in cash. Each vested stock-settled RSU will be settled with a single share of our Class A common stock. The value of the stock-settled RSUs was based on the closing stock price of our Class A common stock as of the grant date. We record compensation expense earned for RSUs on a straight-line basis from the date of grant. In certain situations we also grant cash-settled RSUs which are recorded as a liability instrument. The liability and related expense for cash-settled RSUs are insignificant as of, and for the three months ended March 31, 2013. During the three months ended March 31, 2013, the Company granted a total of 453,356 RSUs (an insignificant portion of which are cash-settled RSUs) to employees which, with respect to stock-settled RSUs, had a weighted average grant date fair value of $43.44.
Performance Share Units and Performance Vested Restricted Stock—The Company has granted to certain executive officers both PSUs, which are performance stock units, and PSSs, which are performance vested restricted stock. The number of PSUs that will ultimately vest and be paid out in Class A common stock and the number of PSSs that will ultimately vest, with no further restrictions, on transfer depends upon the performance of the Company at the end of the applicable three year performance period relative to the applicable performance target. During the three months ended March 31, 2013, the Company granted to its executive officers a total of 218,686 PSSs, which vest in full if the maximum performance metric is achieved. At the end of the performance period, the PSSs that do not vest will be forfeited. The PSSs had a weighted average grant date fair value of $43.44. The performance period is three years beginning January 1, 2013 and ending December 31, 2015. The PSSs will vest at the end of the performance period only if the performance threshold is met; there is no interim performance metric.
Our total unearned compensation for our stock-based compensation programs as of March 31, 2013 was $20 million for SARs, $44 million for RSUs and $7 million for PSUs and PSSs, which will be recorded to compensation expense primarily over the next four years with respect to SARs and RSUs and over the next three years with respect to PSUs and PSSs. The amortization for certain RSU awards extends to eight years.
Related-Party Transactions
Related-Party Transactions
    RELATED-PARTY TRANSACTIONS
In addition to those included elsewhere in the notes to the condensed consolidated financial statements, related-party transactions entered into by us are summarized as follows:
Leases—Our corporate headquarters has been located at the Hyatt Center in Chicago, Illinois, since 2005. A subsidiary of the Company holds a master lease for a portion of the Hyatt Center and has entered into sublease agreements with certain related parties. During the first quarter of 2012, one of these sublease agreements was amended to reduce the related party's occupied space. As a result, we received a payment of $4 million in 2012, representing the discounted future sublease payments, less furniture and fixtures acquired. Future sublease income from sublease agreements with related parties under our master lease is $10 million.
Legal Services—A partner in a law firm that provided services to us throughout the three months ended March 31, 2013 and 2012 is the brother-in-law of our Executive Chairman. We incurred $1 million in legal fees with this firm for the three months ended March 31, 2013 and 2012, respectively. Legal fees, when expensed, are included in selling, general and administrative expenses. As of March 31, 2013, and December 31, 2012, we had $1 million and insignificant amounts due to the law firm, respectively.
Other Services—A member of our board of directors is a partner in a firm whose affiliates own hotels from which we recorded management and franchise fees of $2 million during the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and December 31, 2012, we had $1 million in receivables due from these properties.
Equity Method Investments—We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We recorded fees of $8 million and $10 million for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and December 31, 2012, we had receivables due from these properties of $8 million and $7 million, respectively. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 11) to these entities. Our ownership interest in these equity method investments generally varies from 8% to 60%.
Segment Information
Segment Information
SEGMENT INFORMATION
Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is the Chief Executive Officer. Our results for the three months ended March 31, 2013 reflect the segment structure of our organization following our realignment, which was effective during the fourth quarter of 2012. Segment results presented here for the three months ended March 31, 2012, have been recast to show our results as if our new operating structure had existed in this period.
Following the realignment our three operating segments are (1) the Americas management and franchising; (2) ASPAC management and franchising; and (3) EAME/SW Asia management. These operating segments, together with our owned and leased hotels, form our reportable segments. Our unallocated corporate overhead, the results of our vacation ownership business, and the results of our Hyatt co-branded credit card continue to be reported within corporate and other. We define our reportable segments as follows:
Owned and Leased Hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations and for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.
Americas Management and Franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our family of brands to franchisees located in the U.S., Latin America, Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
ASPAC Management and Franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our family of brands to franchisees located in Southeast Asia, as well as China, Australia, South Korea and Japan. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
EAME/SW Asia Management—This segment derives its earnings primarily from hotel management of our family of brands located primarily in Europe, Africa and the Middle East as well as countries along the Persian Gulf, the Arabian Sea, and India. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
Our chief operating decision maker evaluates performance based on each segment’s Adjusted EBITDA. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro-rata share of unconsolidated hospitality ventures' Adjusted EBITDA before equity losses from unconsolidated hospitality ventures; asset impairments; other income, net; depreciation and amortization; interest expense; and (provision) benefit for income taxes.
The table below shows summarized consolidated financial information by segment. Included within corporate and other are unallocated corporate expenses, revenues and expenses on our vacation ownership properties, and the results of our co-branded credit card.
 
(in millions)
Three Months Ended March 31,
 
2013
 
2012
Owned and Leased Hotels (a)
 
 
 
Revenues
$
492

 
473

Adjusted EBITDA
95

 
93

Depreciation and Amortization
81

 
80

Americas Management and Franchising
 
 
 
Revenues
422

 
434

Intersegment Revenues (b)
19

 
18

Adjusted EBITDA
48

 
46

Depreciation and Amortization
5

 
4

ASPAC Management and Franchising
 
 
 
Revenues
35

 
31

Intersegment Revenues (b)
1

 
1

Adjusted EBITDA
9

 
11

Depreciation and Amortization

 

EAME/SW Asia Management
 
 
 
Revenues
25

 
21

Intersegment Revenues (b)
3

 
3

Adjusted EBITDA
8

 
6

Depreciation and Amortization

 

Corporate and other
 
 
 
Revenues
24

 
21

Adjusted EBITDA
(29
)
 
(31
)
Depreciation and Amortization
2

 
2

Eliminations (b)
 
 
 
Revenues
(23
)
 
(22
)
Adjusted EBITDA

 

Depreciation and Amortization

 

TOTAL
 
 
 
Revenues
$
975

 
$
958

Adjusted EBITDA
131

 
125

Depreciation and Amortization
88

 
86

 
(a)
In conjunction with our regular assessment of impairment indicators, we identified property and equipment whose carrying value exceeded its fair value and as a result recorded an $8 million impairment charge to asset impairments in the condensed consolidated statements of income in the three months ended March 31, 2013.
(b)
Intersegment revenues are included in the segment revenue totals and eliminated in Eliminations.

The table below provides a reconciliation of our consolidated Adjusted EBITDA to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporation for the three months ended March 31, 2013 and 2012.
 
 
Three Months Ended March 31,
 
2013
 
2012
Adjusted EBITDA
$
131

 
$
125

Equity losses from unconsolidated hospitality ventures
(1
)
 
(1
)
Asset impairments
(8
)
 

Other income, net (see Note 17)
2

 
12

Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA
(16
)
 
(18
)
EBITDA
108

 
118

Depreciation and amortization
(88
)
 
(86
)
Interest expense
(17
)
 
(18
)
(Provision) benefit for income taxes
5

 
(4
)
Net income attributable to Hyatt Hotels Corporation
$
8

 
$
10

Earnings Per Share
Earnings Per Share
EARNINGS PER SHARE
The calculation of basic and diluted earnings per share, including a reconciliation of the numerator and denominator, are as follows:
 
 
Three Months Ended March 31,
 
2013
 
2012
Numerator:
 
 
 
Net income
$
8

 
$
10

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
8

 
$
10

Denominator:
 
 
 
Basic weighted average shares outstanding:
161,931,525

 
165,525,076

Share-based compensation
606,352

 
491,375

Diluted weighted average shares outstanding
162,537,877

 
166,016,451

Basic Earnings Per Share:
 
 
 
Net income
$
0.05

 
$
0.06

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.05

 
$
0.06

Diluted Earnings Per Share:
 
 
 
Net income
$
0.05

 
$
0.06

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.05

 
$
0.06


The computations of diluted net income per share for the three months ended March 31, 2013 and 2012 do not include the following shares of Class A common stock assumed to be issued as stock-settled SARs and RSUs because they are anti-dilutive.
 
 
Three Months Ended March 31,
 
2013
 
2012
Stock-settled SARs
47,000

 
195,000

RSUs
4,000

 
143,000

Other Income (Loss), Net
Other Income (Loss), Net
OTHER INCOME, NET
Other income, net includes interest income, gains on other marketable securities, and foreign currency losses on foreign currency exchange rate instruments (see Note 9). The table below provides a reconciliation of the components in other income, net for the three months ended March 31, 2013 and 2012, respectively.
 
 
Three Months Ended March 31,
 
2013
 
2012
Interest income
$
5

 
$
5

Gains on other marketable securities

 
8

Foreign currency losses
(2
)
 

Other
(1
)
 
(1
)
Other income, net
$
2

 
$
12

Subsequent Event
Subsequent Events [Text Block]
SUBSEQUENT EVENT

On April 15, 2013, we announced that we will redeem all of our $250 million outstanding aggregate principal amount of our 2015 Notes on May 10, 2013. In accordance with the terms of the 2015 Notes, the redemption price is expected to be approximately $281 million.
On April 25, 2013, we announced that we commenced a cash tender offer to purchase any and all of our $250 million outstanding aggregate principal amount of 2019 Notes in accordance with the terms and subject to the conditions set forth in the Offer to Purchase, dated April 25, 2013. The terms and conditions of the Offer to Purchase are included in Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on April 25, 2013. Holders who validly tender any of their 2019 Notes at or prior to 5:00 p.m., New York City time, on May 3, 2013 will be eligible to receive an early tender premium as described in the Offer to Purchase.

On May 1, 2013, we announced that the Board of Directors authorized the repurchase of up to an additional $200 million of the Company's common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan, at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion. The common stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of common stock and the program may be suspended or discontinued at any time.
Significant Accounting Policies (Policies)
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 at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs that places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivative instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
We estimated the fair value of financing receivables using discounted cash flow analysis based on current market assumptions for similar types of arrangements. Based upon the availability of market data, we have classified our financing receivables as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates. Fluctuations in these assumptions will result in different estimates of fair value. For further information on financing receivables, see Note 5.
We estimated the fair value of debt, excluding capital leases, which consists primarily of our $250 million of 5.750% senior notes due 2015 (the "2015 Notes"), $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), $250 million of 6.875% senior notes due 2019 (the "2019 Notes"), and $250 million of 5.375% senior notes due 2021 (the "2021 Notes" which, together with the 2015 Notes, the 2016 Notes and the 2019 Notes are collectively our "Senior Notes"), and construction loans. Our Senior Notes are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities. Construction loans have been classified as Level Three, as we subjectively determine the risk rating which impacts the discount rate.
Our portfolio of marketable securities consists of various types of U.S. Treasury securities, mutual funds, common stock, and fixed income securities, including government agencies, municipal, provincial and corporate bonds. The fair value of our mutual funds and certain equity securities were classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The remaining securities were classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
We invest a portion of our cash balance into short-term interest bearing money market funds that have a maturity of less than ninety days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis.
Our derivative instruments are foreign currency exchange rate instruments and interest rate swaps. The instruments are valued using an income approach with factors such as interest rates and yield curves, which represent market observable inputs and are generally classified as Level Two. Credit valuation adjustments may be made to ensure that derivatives are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality and our nonperformance risk. As of March 31, 2013 and December 31, 2012, the credit valuation adjustments were insignificant. See Note 9 for further details on our derivative instruments.
We individually assess all loans in the secured financing to hotel owners portfolio and the unsecured financing to hotel owners portfolio for impairment. We assess the vacation ownership mortgage receivables portfolio, which consists entirely of loans, for impairment on an aggregate basis. We do not assess, for impairment, our other financing arrangements included in unsecured financing to hotel owners. However, we do regularly evaluate our reserves for these other financing arrangements and record provisions in the financing receivables allowance as necessary. Impairment charges for loans within all three portfolios and reserves related to our other financing arrangements are recorded as provisions in the financing receivables allowance. We consider the provisions on all of our portfolio segments to be adequate based on the economic environment and our assessment of the future collectability of the outstanding loans
On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity.
Past-due Receivables—We determine financing receivables to be past-due based on the contractual terms of each individual financing receivable agreement.
Non-Performing Receivables—Receivables are determined to be non-performing based upon the following criteria: (1) if interest or principal is more than 90 days past due for secured financing to hotel owners and unsecured financing to hotel owners; (2) if interest or principal is more than 120 days past due for vacation ownership mortgage receivables; or (3) if an impairment charge has been recorded for a loan or a provision established for our other financing arrangements. For the three months ended March 31, 2013 and 2012, no interest income was accrued for secured financing to hotel owners and unsecured financing to hotel owners more than 90 days past due or for vacation ownership receivables more than 120 days past due. For the three months ended March 31, 2013 and 2012, insignificant interest income was accrued for vacation ownership receivables past due more than 90 days but less than 120 days.
If a financing receivable is non-performing, we place the financing receivable on non-accrual status. We only recognize interest income when received for financing receivables on non-accrual status. Accrual of interest income is resumed when the receivable becomes contractually current and collection doubts are removed.
We routinely evaluate loans within financing receivables for impairment. To determine whether an impairment has occurred, we evaluate the collectability of both interest and principal. A loan is considered to be impaired when the Company determines that it is probable that we will not be able to collect all amounts due under the contractual terms. We do not record interest income for impaired loans unless cash is received, in which case the payment is recorded to other income, net in the accompanying condensed consolidated statements of income.
We have divided our financing receivables, which include loans and other financing arrangements, into three portfolio segments based on their initial measurement, risk characteristics and our method for monitoring or assessing credit risk.
We review the carrying value of our goodwill and indefinite lived brand intangible by comparing the carrying value of our brand intangible, and our goodwill at the reporting unit level, to their respective fair values during our annual impairment test in the fourth quarter or more often as needed, by performing either a qualitative assessment or a two-step process. We define a reporting unit at the individual property or business level. When determining fair value in step one, we utilize internally developed discounted future cash flow models, third party appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We then compare the estimated fair value to our carrying value. If the carrying value of our indefinite lived brand intangible is in excess of the fair value, an impairment charge is recognized in an amount equal to the excess. If the carrying value is in excess of the fair value, we must determine our implied fair value of goodwill to measure if any impairment charge is necessary.
It is our policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we have a policy of only entering into contracts with carefully selected major financial institutions based upon their credit rating and other factors. Our derivative instruments do not contain credit-risk related contingent features.
All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheet until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the statement of cash flows. Cash flows from undesignated derivative financial instruments are included in the investing category on the condensed consolidated statement of cash flows. We do not offset any derivative assets or liabilities in the balance sheet and none of our derivatives are subject to master netting arrangements.
We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in assets financed and/or other assets of the partnership and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures, we may provide standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or actions of the other hospitality venture owners.
We are subject from time to time to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. We reasonably recognize a liability associated with commitments and contingencies when a loss is probable and reasonably estimable. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.

Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is the Chief Executive Officer. Our results for the three months ended March 31, 2013 reflect the segment structure of our organization following our realignment, which was effective during the fourth quarter of 2012. Segment results presented here for the three months ended March 31, 2012, have been recast to show our results as if our new operating structure had existed in this period.
Following the realignment our three operating segments are (1) the Americas management and franchising; (2) ASPAC management and franchising; and (3) EAME/SW Asia management. These operating segments, together with our owned and leased hotels, form our reportable segments. Our unallocated corporate overhead, the results of our vacation ownership business, and the results of our Hyatt co-branded credit card continue to be reported within corporate and other. We define our reportable segments as follows:
Owned and Leased Hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations and for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.
Americas Management and Franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our family of brands to franchisees located in the U.S., Latin America, Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
ASPAC Management and Franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our family of brands to franchisees located in Southeast Asia, as well as China, Australia, South Korea and Japan. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
EAME/SW Asia Management—This segment derives its earnings primarily from hotel management of our family of brands located primarily in Europe, Africa and the Middle East as well as countries along the Persian Gulf, the Arabian Sea, and India. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
Our chief operating decision maker evaluates performance based on each segment’s Adjusted EBITDA. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro-rata share of unconsolidated hospitality ventures' Adjusted EBITDA before equity losses from unconsolidated hospitality ventures; asset impairments; other income, net; depreciation and amortization; interest expense; and (provision) benefit for income taxes.
In December 2011, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2011-10 ("ASU 2011-10"), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sales (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. The adoption of ASU 2011-10 did not materially impact our condensed consolidated financial statements.
In December 2011, the FASB released Accounting Standards Update No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and in January 2013 the FASB released Accounting Standards Update No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires companies to provide new disclosures about offsetting and related arrangements for financial instruments and derivatives. ASU 2013-01 clarified the scope of ASU 2011-11. The provisions of ASU 2011-11 and ASU 2013-01 are effective for annual reporting periods beginning on or after January 1, 2013, and are required to be applied retrospectively. The adoption of ASU 2011-11 and ASU 2013-01 did not materially impact our condensed consolidated financial statements.
In July 2012, the FASB released Accounting Standards Update No. 2012-02 ("ASU 2012-02"), Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 gives companies the option to perform a qualitative assessment before calculating the fair value of the indefinite-lived intangible asset. Under the guidance in ASU 2012-02, if this option is selected, a company is not required to calculate the fair value of the indefinite-lived intangible unless the entity determines it is more likely than not that its fair value is less than its carrying amount. The provisions of ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, but early adoption was permitted. The adoption of ASU 2012-02 did not materially impact our condensed consolidated financial statements.
In February 2013, the FASB released Accounting Standards Update No. 2013-02 ("ASU 2013-02"), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income (loss) by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The provisions of ASU 2013-02 are effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 resulted in additional disclosure within our equity footnote.
In February 2013, the FASB released Accounting Standards Update No. 2013-04 ("ASU 2013-04"), Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The provisions of ASU 2013-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. When adopted, ASU 2013-04 is not expected to materially impact our condensed consolidated financial statements.

In March 2013, the FASB released Accounting Standards Update No. 2013-05 ("ASU 2013-05"), Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). ASU 2013-05 requires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. The provisions of ASU 2013-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. When adopted, ASU 2013-05 is not expected to materially impact our condensed consolidated financial statements.
Equity And Cost Method Investments (Tables)
Our equity and cost method investment balances recorded at March 31, 2013 and December 31, 2012 are as follows:
 
 
March 31, 2013
 
December 31, 2012
Equity method investments
$
261

 
$
222

Cost method investments
71

 
71

Total investments
$
332

 
$
293

The following table presents summarized financial information for all unconsolidated ventures in which we hold an investment that is accounted for under the equity method.
 
 
 
Three Months Ended March 31,
 
 
2013
 
2012
Total revenues
 
$
226

 
$
243

Gross operating profit
 
74

 
71

Income (loss) from continuing operations
 
3

 
(2
)
Net income (loss)
 
3

 
(2
)
Fair Value Measurement (Tables)
As of March 31, 2013 and December 31, 2012, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2013
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities recorded in
cash and cash equivalents
 
 
 
 
 
 
 
Interest bearing money market funds
$
95

 
$
95

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
291

 
291

 

 

Equity securities
10

 
10

 

 

U.S. government obligations
116

 

 
116

 

U.S. government agencies
54

 

 
54

 

Corporate debt securities
500

 

 
500

 

Mortgage-backed securities
23