HYATT HOTELS CORP, 10-Q filed on 4/30/2014
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2014
Apr. 25, 2014
Common Class A
Apr. 25, 2014
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, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Trading Symbol
 
 
Entity Common Stock, Shares Outstanding
 
42,370,187 
112,527,463 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
REVENUES:
 
 
Owned and leased hotels
$ 548 
$ 492 
Management and franchise fees
89 
75 
Other revenues
21 
20 
Other revenues from managed properties
416 
388 
Total revenues
1,074 
975 
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
Owned and leased hotels
415 
391 
Depreciation and amortization
95 
88 
Other direct costs
Selling, general, and administrative
87 
84 
Other costs from managed properties
416 
388 
Direct and selling, general, and administrative expenses
1,021 
958 
Net gains and interest income from marketable securities held to fund operating programs
10 
Equity losses from unconsolidated hospitality ventures
(7)
(1)
Interest expense
(19)
(17)
Asset Impairments
(8)1
Gains on sales of real estate
61 
Other income (loss), net
(12)
INCOME BEFORE INCOME TAXES
80 
(PROVISION) BENEFIT FOR INCOME TAXES
(24)
NET INCOME
56 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 56 
$ 8 
EARNINGS PER SHARE - Basic
 
 
Net income - Basic (in dollars per share)
$ 0.36 
$ 0.05 
Net income attributable to Hyatt Hotels Corporation - Basic (in dollars per share)
$ 0.36 
$ 0.05 
EARNINGS PER SHARE - Diluted
 
 
Net income - Diluted (in dollars per share)
$ 0.36 
$ 0.05 
Net income attributable to Hyatt Hotels Corporation - Diluted (in dollars per share)
$ 0.36 
$ 0.05 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
NET INCOME
$ 56 
$ 8 
Foreign currency translation adjustments, net of tax (benefit) expense of $1 and $- in 2014 and 2013, respectively
(2)
Unrealized loss on available for sale securities, net of tax (benefit) expense of $1 and $- in 2014 and 2013, respectively
(3)
Other comprehensive loss
(2)
(2)
Comprehensive income
54 
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to Hyatt Hotels Corporation
$ 54 
$ 6 
Condensed Consolidated Statements of Comprehensive Income Parentheticals (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Foreign currency translation adjustments, Tax
$ 1 
$ 0 
Unrealized gains on Available for Sale Securities, Tax
$ 1 
$ 0 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
ASSETS
 
 
Cash and cash equivalents
$ 765 
$ 454 
Restricted cash
100 
184 
Short-term investments
30 
30 
Receivables, net of allowances of $12 and $11 at March 31, 2014 and December 31, 2013, respectively
323 
273 
Inventories
75 
77 
Prepaids and other assets
122 
122 
Prepaid income taxes
27 
12 
Deferred tax assets
20 
11 
Total current assets
1,462 
1,163 
Investments
322 
329 
Property and equipment, net
4,378 
4,671 
Financing receivables, net of allowances
119 
119 
Goodwill
147 
147 
Intangibles, net
595 
591 
Deferred tax assets
181 
198 
Other assets
972 
959 
TOTAL ASSETS
8,176 
8,177 
LIABILITIES AND EQUITY
 
 
Current maturities of long-term debt
194 
194 
Accounts payable
131 
133 
Accrued expenses and other current liabilities
419 
411 
Accrued compensation and benefits
113 
133 
Total current liabilities
857 
871 
Long-term debt
1,293 
1,289 
Other long-term liabilities
1,251 
1,240 
Total liabilities
3,401 
3,400 
Commitments and contingencies (see Note 9)
   
   
EQUITY:
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of March 31, 2014 and December 31, 2013
Common stock
Additional paid-in capital
2,959 
3,015 
Retained earnings
1,877 
1,821 
Treasury stock at cost, 36,273 shares at March 31, 2014 and December 31, 2013
(1)
(1)
Accumulated other comprehensive loss
(70)
(68)
Total stockholders' equity
4,767 
4,769 
Noncontrolling interests in consolidated subsidiaries
Total equity
4,775 
4,777 
TOTAL LIABILITIES AND EQUITY
$ 8,176 
$ 8,177 
Condensed Consolidated Balance Sheet Parentheticals (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Allowance for Doubtful Accounts Receivable, Current
$ 12 
$ 11 
Preferred Stock, Par or Stated Value Per Share (per share)
$ 0.01 
$ 0.01 
Preferred Stock, Shares Authorized (in shares)
10,000,000 
10,000,000 
Preferred Stock, Shares Outstanding (in shares)
Common Class A
 
 
Common Stock, Par or Stated Value Per Share (per share)
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized (in shares)
1,000,000,000 
1,000,000,000 
Common Stock, Shares, Outstanding (in shares)
42,844,803 
43,584,144 
Common Stock, Shares, Issued (in shares)
42,881,076 
43,620,417 
Treasury Stock, Shares (in shares)
36,273 
36,273 
Common Class B
 
 
Common Stock, Par or Stated Value Per Share (per share)
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized (in shares)
444,521,875 
444,521,875 
Common Stock, Shares, Outstanding (in shares)
112,527,463 
112,527,463 
Common Stock, Shares, Issued (in shares)
112,527,463 
112,527,463 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
NET INCOME
$ 56 
$ 8 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
95 
88 
Deferred income taxes
(2)
Asset Impairments
1
Equity losses from unconsolidated hospitality ventures, net of distributions received
14 
Gains on sales of real estate
(61)
Working capital changes and other
(60)
(82)
Net cash provided by operating activities
49 
27 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Purchases of marketable securities and short-term investments
(112)
(31)
Proceeds from marketable securities and short-term investments
102 
77 
Contributions to investments
(14)
(36)
Acquisitions, net of cash acquired
(85)
Capital expenditures
(41)
(43)
Proceeds from sales of real estate and assets held for sale, net of cash disposed
316 
36 
Sales proceeds transferred to escrow as restricted cash
(232)
(23)
Sale proceeds transferred from escrow to cash and cash equivalents
306 
Decrease (increase) in restricted cash - investing
11 
(8)
Other investing activities
(7)
10 
Net cash provided by (used in) investing activities
329 
(103)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Proceeds from long-term debt
11 
Repurchase of common stock
(59)
(27)
Other financing activities
(7)
(2)
Net cash used in financing activities
(66)
(18)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(1)
11 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
311 
(83)
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR
454 
413 
CASH AND CASH EQUIVALENTS-END OF PERIOD
765 
330 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
Cash paid during the period for interest
36 
30 
Cash paid during the period for income taxes
38 
18 
Non-cash operating activities are as follows:
 
 
Non-cash performance guarantee
115 
Non-cash investing activities are as follows:
 
 
Non-cash contract acquisition costs
115 
Change in accrued capital expenditures
Capital leases
$ 3 
$ 0 
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, 2014, we operated or franchised 272 full service hotels under the Hyatt portfolio of brands, consisting of 110,685 rooms throughout the world. As of March 31, 2014, we operated or franchised 255 select service hotels under the Hyatt portfolio of brands with 34,565 rooms, of which 249 hotels are located in the United States. As of March 31, 2014, our Hyatt portfolio of brands included 2 franchised all inclusive Hyatt-branded resorts, consisting of 925 rooms. We operate these hotels in 47 countries around the world. We hold ownership interests in certain of these hotels. We develop, operate, manage, license or provide services to the Hyatt portfolio of brands including 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, 2013 (the "2013 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 February 2013, the Financial Accounting Standards Board ("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. The adoption of ASU 2013-04 did not 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. The adoption of ASU 2013-05 did not materially impact our condensed consolidated financial statements.

In July 2013, the FASB released Accounting Standards Update No. 2013-11 ("ASU 2013-11"), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The provisions of ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 did not 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. 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, 2014 and December 31, 2013 are as follows:
 
 
March 31, 2014
 
December 31, 2013
Equity method investments
$
315

 
$
320

Cost method investments
7

 
9

Total investments
$
322

 
$
329


During 2013, a wholly owned Hyatt subsidiary invested $325 million in Playa Hotels & Resorts B.V. ("Playa"), a company that was formed to own, operate and develop all inclusive resorts, certain of which will be Hyatt-branded. Playa issued Hyatt common shares and preferred shares in return for our investment. Our investment in common shares gives us a common ownership interest of 21.8%, which has been classified as an equity method investment. The investment in preferred shares has been classified as an available for sale debt security and recorded in other assets on the condensed consolidated balance sheets. See Note 4 for further discussion of our investment in preferred shares.
Income from cost method investments included in other income (loss), net in our condensed consolidated statements of income for the three months ended March 31, 2014 and 2013 was $1 million and insignificant, respectively.
During the three months ended March 31, 2014, we recorded $1 million in impairment charges in equity losses from unconsolidated hospitality ventures related to two equity method investments.
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,
 
2014
 
2013
Total revenues
$
283

 
$
226

Gross operating profit
56

 
74

Income (loss) from continuing operations
(15
)
 
3

Net income (loss)
(15
)
 
3

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. 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, 2014 and December 31, 2013, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2014
 
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
$
89

 
$
89

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
337

 
337

 

 

Preferred shares
276

 

 

 
276

U.S. government obligations
120

 

 
120

 

U.S. government agencies
46

 

 
46

 

Corporate debt securities
122

 

 
122

 

Mortgage-backed securities
22

 

 
22

 

Asset-backed securities
19

 

 
19

 

Municipal and provincial notes and bonds
4

 

 
4

 


 
December 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
$
71

 
$
71

 
$

 
$

Marketable securities included in short-term investments, prepaids and other assets and other assets
 
 
 
 
 
 
 
Mutual funds
334

 
334

 

 

Preferred shares
278

 

 

 
278

U.S. government obligations
121

 

 
121

 

U.S. government agencies
46

 

 
46

 

Corporate debt securities
112

 

 
112

 

Mortgage-backed securities
20

 

 
20

 

Asset-backed securities
18

 

 
18

 

Municipal and provincial notes and bonds
4

 

 
4

 


During the three months ended March 31, 2014 and 2013, 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 mutual funds, preferred shares and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities and municipal and provincial notes and bonds. The fair value of our mutual funds was 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, other than our investment in preferred shares, 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.
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 was insignificant for the three months ended March 31, 2014 and 2013.
During the year ended December 31, 2013, we invested $271 million in Playa as of the closing date of the transaction for redeemable, convertible preferred shares. Hyatt has the option to convert its preferred shares into shares of common stock at any time through the later of the second anniversary of the closing of our investment or an initial public offering by Playa. The preferred investment is redeemable at Hyatt's option in August 2021. In the event of an initial public offering or other equity issuance, Hyatt has the option to request that Playa redeem up to $125 million of preferred shares. As a result, we have classified the preferred investment as an available for sale debt security, which is included in other assets on our condensed consolidated balance sheets. The investment is remeasured quarterly to fair value and the changes are recorded through other comprehensive loss.
We estimated the fair value of the Playa preferred shares using an option pricing model. This model requires that we make certain assumptions regarding the expected volatility, term, risk-free interest rate over the expected term, dividend yield and enterprise value. As Playa is not publicly traded, there is no market value for its stock. Therefore, we utilized observable data for a group of comparable peer companies to assist in developing our volatility assumptions. The expected volatility of Playa’s stock price was developed using weighted average measures of implied volatility and historic volatility for its peer group for a period equal to our expected term of the option. The weighted-average risk-free interest rate was based on a zero coupon U.S. Treasury instrument whose term was consistent with the expected term. We anticipate receiving cumulative preferred dividends on our preferred shares; therefore, the expected dividend yield was assumed to be 10% per annum compounding quarterly for two years and increasing to 12% after the second year, with such dividends to be paid-in-kind.
A summary of the significant assumptions used to estimate the fair value of our preferred investment as of March 31, 2014 and December 31, 2013, is as follows:
 
March 31, 2014
 
December 31, 2013
Expected term
1.75 years

 
2 years

Risk-free Interest Rate
0.37
%
 
0.38
%
Volatility
44.2
%
 
47.7
%
Dividend Yield
10
%
 
10
%

Our valuation considers a number of objective and subjective factors that we believe market participants would consider, including: Playa's business and results of operations, including related industry trends affecting Playa's operations; Playa's forecasted operating performance and projected future cash flows; liquidation preferences, redemption rights, and other rights and privileges of Playa's preferred stock; and market multiples of comparable peer companies.
As of March 31, 2014, financial forecasts were used in the computation of the enterprise value using the income approach. The financial forecasts were based on assumed revenue growth rates and operating margin levels. The risks associated with achieving these forecasts were assessed in selecting the appropriate cost of capital. There is inherent uncertainty in our assumptions, and fluctuations in these assumptions will result in different estimates of fair value. Due to the lack of availability of market data, the preferred shares are classified as Level Three. Based on the assumptions used for the three months ended March 31, 2014, the fair value of our preferred shares was $276 million and is recorded in other assets on our condensed consolidated balance sheets, resulting in a $2 million gross unrealized loss recorded in other comprehensive loss as of March 31, 2014.
Included in our portfolio of marketable securities are investments in debt securities classified as available for sale. At March 31, 2014 and December 31, 2013 these were as follows:
 
 
March 31, 2014
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Total preferred shares
$
271

 
$
5

 
$

 
$
276

 
 
December 31, 2013
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Total preferred shares
$
271

 
$
7

 
$

 
$
278



Gross realized gains and losses on available for sale securities were insignificant for the three months ended March 31, 2014 and 2013, respectively.

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, as of March 31, 2014 and December 31, 2013, consisted primarily of $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), $196 million of 6.875% senior notes due 2019 (the "2019 Notes"), $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), and $350 million of 3.375% senior notes due 2023 (the "2023 Notes" which, together with the 2016 Notes, the 2019 Notes, and the 2021 Notes are collectively referred to as the "Senior Notes"), bonds and other long-term debt. Our Senior Notes and bonds 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. We estimated the fair value of our other long-term debt instruments using discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the availability of market data, we have classified our other long-term debt as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.
The carrying amounts and fair values of our other financial instruments are as follows:

 
Asset (Liability)
 
March 31, 2014
 
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
$
26

 
$
28

 
$

 
$

 
$
28

Vacation ownership mortgage receivable
37

 
37

 

 

 
37

Unsecured financing to hotel owners
64

 
64

 

 

 
64

Debt, excluding capital lease obligations
(1,277
)
 
(1,338
)
 

 
(1,297
)
 
(41
)

 
Asset (Liability)
 
December 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
$
26

 
$
28

 
$

 
$

 
$
28

Vacation ownership mortgage receivable
37

 
38

 

 

 
38

Unsecured financing to hotel owners
64

 
64

 

 

 
64

Debt, excluding capital lease obligations
(1,275
)
 
(1,296
)
 

 
(1,263
)
 
(33
)
Financing Receivables
Financing Receivables
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 at March 31, 2014 and December 31, 2013 include 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, 2014, the weighted-average interest rate on vacation ownership mortgage receivables was 13.9%.
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. Our other financing arrangements have stated maturities and interest rates. However, the expected repayment terms may be dependent on the future cash flows of the hotels and these financing receivable instruments, therefore, are not considered loans as the repayment dates are not fixed or determinable. Because the other types of financing 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, 2014 and December 31, 2013 are as follows:
 
 
March 31, 2014
 
December 31, 2013
Secured financing to hotel owners
$
39

 
$
39

Vacation ownership mortgage receivables at various interest rates with varying payments through 2031 (see below)
43

 
44

Unsecured financing to hotel owners
150

 
147

 
232

 
230

Less allowance for losses
(105
)
 
(103
)
Less current portion included in receivables, net
(8
)
 
(8
)
Total long-term financing receivables, net
$
119

 
$
119


Financing receivables held by us as of March 31, 2014 are scheduled to mature as follows:
Year Ending December 31,
Secured Financing to Hotel Owners
 
Vacation Ownership Mortgage Receivables
2014
$
1

 
$
6

2015
38

 
7

2016

 
7

2017

 
5

2018

 
4

Thereafter

 
14

Total
39

 
43

Less allowance
(13
)
 
(6
)
Net financing receivables
$
26

 
$
37


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. In addition to loans, we include other types of financing arrangements in unsecured financing to hotel owners which we do not assess individually for impairment. 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, 2014 and 2013:
 
Secured Financing
 
Vacation Ownership
 
Unsecured Financing
 
Total
Allowance at January 1, 2014
$
13

 
$
7

 
$
83

 
$
103

  Provisions

 

 
2

 
2

  Write-offs

 
(1
)
 

 
(1
)
  Other Adjustments

 

 
1

 
1

Allowance at March 31, 2014
$
13

 
$
6

 
$
86

 
$
105


Secured Financing

Vacation Ownership

Unsecured Financing

Total
Allowance at January 1, 2013
$
7


$
9


$
83


$
99

  Provisions




2


2

  Write-offs


(1
)



(1
)
Allowance at March 31, 2013
$
7

 
$
8

 
$
85

 
$
100


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 recognize interest income for impaired loans unless cash is received, in which case the payment is recorded to other income (loss), net in the accompanying condensed consolidated statements of income. During the three months ended March 31, 2014 and 2013, 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, 2014 and December 31, 2013, all of which had a related allowance recorded against them:
Impaired Loans
March 31, 2014
 
Gross Loan Balance (Principal and Interest)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Loan Balance
Secured financing to hotel owners
$
39

 
$
39

 
$
(13
)
 
$
39

Unsecured financing to hotel owners
53

 
37

 
(53
)
 
52


Impaired Loans
December 31, 2013
 
Gross Loan Balance (Principal and Interest)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Loan Balance
Secured financing to hotel owners
$
39

 
$
39

 
$
(13
)
 
$
40

Unsecured financing to hotel owners
51

 
37

 
(51
)
 
52


Interest income recognized on these impaired loans within other income (loss), net on our condensed consolidated statements of income for the three months ended March 31, 2014 and 2013 was insignificant.
 
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, 2014 and 2013, 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, 2014 and 2013, 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 cash is 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, 2014 and December 31, 2013:
 
Analysis of Financing Receivables
March 31, 2014
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
39

Vacation ownership mortgage receivables
2

 

 

Unsecured financing to hotel owners*
3

 
3

 
84

Total
$
5

 
$
3

 
$
123


Analysis of Financing Receivables
December 31, 2013
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
39

Vacation ownership mortgage receivables
2

 

 

Unsecured financing to hotel owners*
3

 
3

 
82

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 future cash flows available for payment of these financing receivables. However, a majority of these payments are not past due.
Acquisitions and Dispositions
Acquisitions and Dispositions
ACQUISITIONS AND DISPOSITIONS
We continually assess strategic acquisitions and dispositions to complement our current business.
Acquisitions
The Driskill—During the three months ended March 31, 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 consist of $72 million of property and equipment, a $7 million indefinite lived brand intangible, a $5 million management intangible and $1 million of other assets which have been included primarily in our owned and leased hotel segment.
Dispositions
Hyatt, Hyatt Place, Hyatt House 2014—During the three months ended March 31, 2014, we sold nine select service properties and one full service property for a combined $311 million, net of closing costs, to an unrelated third party. As part of the sale, we transferred cash and cash equivalents of $3 million upon disposition, resulting in a net sales price of $308 million. This transaction resulted in a pre-tax gain of approximately $61 million. The properties will remain Hyatt-branded hotels for a minimum of 25 years under long-term agreements. The gain has been recognized in gains on sales of real estate on our condensed consolidated statements of income during the three months ended March 31, 2014. The operating results and financial position of these hotels prior to the sale remain within our owned and leased hotels segment. See "Like-Kind Exchange Agreements" below, as proceeds from the sale have been used in a like-kind exchange.
Hyatt Place 2013—During the three months ended March 31, 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. 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 the sale of two of the three properties was held as restricted for use in a potential like-kind exchange.
Like-Kind Exchange Agreements
In conjunction with the sale of nine select service properties and one full service property during the three months ended March 31, 2014, we entered into a like-kind exchange agreement with an intermediary for seven of the select service hotels sold. Pursuant to the like-kind exchange agreement, the proceeds from the sale of these hotels were placed into an escrow account administered by an intermediary. Accordingly, during the three months ended March 31, 2014, we recorded and released net proceeds of $232 million related to seven of the properties from restricted cash as they were utilized as part of the like-kind exchange agreement to acquire the Hyatt Regency Orlando.
In conjunction with the 2013 sale of Hyatt Key West during the year ended December 31, 2013, we entered into a like-kind exchange agreement with an intermediary. Pursuant to the like-kind exchange agreement, the proceeds from the sale of this hotel were placed into an escrow account administered by an intermediary. Accordingly, we classified net proceeds of $74 million related to this property as restricted cash on our condensed consolidated balance sheets as of December 31, 2013. During the three months ended March 31, 2014, the proceeds were released from restricted cash as they were utilized as part of the like-kind exchange agreement to acquire the Hyatt Regency Orlando.
In conjunction with the sale of the three select service properties in 2013, we entered into a like-kind exchange agreement with an intermediary for two of the three hotels. Pursuant to the like-kind exchange agreement, the net proceeds of $23 million from the sales of these two hotels were placed into an escrow account administered by an intermediary. During the year ended December 31, 2013, we released the net proceeds from restricted cash on our condensed consolidated balance sheets, as like-kind exchange agreements were not consummated within allowable time periods.
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 during our annual impairment test during the fourth quarter or at an interim date if indications of impairment exist by performing either a qualitative or quantitative assessment. 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 of our goodwill is in excess of the fair value, we must determine our implied fair value of goodwill to evaluate if any impairment charge is necessary. During the three months ended March 31, 2014 and 2013, no impairment charges were recorded related to goodwill or our indefinite lived intangible asset. Goodwill was $147 million at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014 and December 31, 2013, our indefinite lived brand intangible acquired as part of the 2013 acquisition of The Driskill was $7 million, see Note 6.

Definite lived intangible assets primarily include contract acquisition costs, acquired franchise and management intangibles, lease related intangibles and advanced bookings 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 15 to 30 years, respectively. Lease related intangibles are amortized on a straight-line basis over the lease term. Advanced bookings are generally amortized on a straight-line basis over the period of the advanced bookings. Definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges related to definite lived intangible assets during the three months ended March 31, 2014 and 2013, respectively.
The following is a summary of intangible assets at March 31, 2014 and December 31, 2013:
 
 
March 31, 2014
 
Weighted
Average Useful
Lives in Years
 
December 31, 2013
Contract acquisition costs
$
359

 
26

 
$
348

Franchise and management intangibles
171

 
23

 
170

Lease related intangibles
155

 
110

 
155

Advanced booking intangibles
8

 
7

 
8

Brand Intangible
7

 

 
7

Other
8

 
12

 
8

 
708

 
 
 
696

Accumulated amortization
(113
)
 
 
 
(105
)
Intangibles, net
$
595

 
 
 
$
591


Amortization expense relating to intangible assets was as follows:
 
 
Three Months Ended March 31,
 
2014
 
2013
Amortization expense
$
8

 
$
6

Income Taxes
INCOME TAXES
INCOME TAXES
An income tax expense of $24 million, resulting in 30.1% effective income tax rate was recorded for the three months ended March 31, 2014. An income tax benefit of $5 million, resulting in a (214.8)% effective tax rate, was recorded for the three months ended March 31, 2013.
For the three months ended March 31, 2014, the effective tax rate differs from the U.S. statutory federal income tax rate of 35% primarily due to a $4 million benefit for the release of a valuation allowance of a foreign subsidiary and a benefit of $2 million related to a state legislative change enacted in the first quarter of 2014. In addition, a benefit of $2 million (including interest) was recognized as a result of settling federal and state income tax audits.
For the three months ended March 31, 2013, the effective tax rate differed 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 and a benefit of $2 million (including interest) related to the settlement of our tax audits.
The unrecognized tax benefits were $51 million and $53 million at March 31, 2014 and December 31, 2013, respectively, of which $26 million and $27 million, respectively, would impact the effective tax rate if recognized. It is reasonably possible that a reduction of up to $4 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, 2014, we are committed, under certain conditions, to lend or invest up to $441 million, net of any related letters of credit, in various business ventures.
Included in the $441 million in commitments is 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 $380 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 $253 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, 2014, and therefore netted against our future commitments amount disclosed above. For further discussion, see the "Letters of Credit" section of this footnote.
We have executed a purchase and sale agreement to exercise our option to acquire the Hyatt Regency Grand Cypress hotel for $190 million. As of March 31, 2014, we have recorded a capital lease obligation in current maturities of long-term debt on our condensed consolidated balance sheets.
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, 2014, we recorded a $17 million charge related to these agreements. Under these agreements, we recorded a guarantee liability of $122 million, net of amortization and using exchange rates as of March 31, 2014. As of March 31, 2014, we recorded a separate contingent liability for expected funding under these guarantee agreements of $15 million. The remaining maximum potential payments related to these agreements are $546 million, which primarily includes the following:
Property Description
 
Maximum Guarantee Amount (local currency)
 
Maximum Guarantee Amount (USD at March 31, 2014)
 
Initial Liability Recorded (local currency)
 
Liability Recorded at March 31, 2014
 
Contingent Liability recorded (USD at March, 31, 2014
Four hotels in France*
 
€377
 
$
518

 
€90
 
$
117

 
$
15

*Our performance guarantee for the four hotels in France has a term of 7 years and does not have an annual cap.
In connection with the inception of a performance guarantee, we recognize a liability for the fair value of our guarantee obligation within other long-term liabilities on our condensed consolidated balance sheets with an offset to contract acquisition cost intangible assets. Upon commencement of the guarantee period, we amortize the guarantee liability using a systematic and rational risk-based approach over the term of the respective performance guarantee. During the three months ended March 31, 2014, we amortized $2 million of these liabilities as income to other income (loss), net on the condensed consolidated statements of income.
Additionally, we enter 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, 2014, 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 debt repayment guarantees related to our hospitality venture investments in certain properties. The maximum exposure under these agreements as of March 31, 2014 was $288 million. As of March 31, 2014, we had a $9 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 Recorded at March 31, 2014
Vacation ownership development
 
$
110

 
$
1

Hotel property in Brazil
 
75

 
2

Hawaii hotel development
 
30

 
1

Hotel property in Minnesota
 
25

 
4

Hotel property in Colorado
 
15

 
1

Other
 
33

 

Total Debt Repayment Guarantees
 
$
288

 
$
9


With respect to 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 the various debt repayment guarantees as of March 31, 2014 would be $162 million.
Self Insurance—The Company obtains commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property and other miscellaneous coverages. A reasonable amount of risk is retained on a self insurance basis primarily through a U.S. based and licensed captive insurance company that is a wholly owned subsidiary of the Company and generally insures our deductible and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Losses estimated to be paid within 12 months are $28 million as of March 31, 2014, and are classified within accrued expenses and other current liabilities on the condensed consolidated balance sheets, while losses expected to be payable in later periods are $56 million as of March 31, 2014, and are included in other long-term liabilities on the condensed consolidated balance sheets. At March 31, 2014, standby letters of credit amounting to $7 million had been issued to provide collateral for the estimated claims. We guarantee the letters of credit. For further discussion, see the “Letters of Credit” section of this footnote.
Surety Bonds—Surety bonds issued on our behalf or guaranteed by us totaled $100 million at March 31, 2014 and primarily relate to workers’ compensation, taxes, construction, licenses, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf as of March 31, 2014 totaled $125 million, the majority of which relate to our ongoing operations. Of the $125 million letters of credit outstanding, $104 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 that own hotel properties subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in the assets financed and/or other assets of the partnership(s) 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, 2014 and 2013, respectively.
 
 
Stockholders’
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2014
$
4,769

 
$
8

 
$
4,777

Net income
56

 

 
56

Other comprehensive loss
(2
)
 

 
(2
)
Repurchase of common stock
(61
)
 

 
(61
)
Employee stock plan issuance
1

 

 
1

Share based payment activity
4

 

 
4

Balance at March 31, 2014
$
4,767

 
$
8

 
$
4,775

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2013
$
4,811

 
$
10

 
$
4,821

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
$
4,794

 
$
10

 
$
4,804


 
Accumulated Other Comprehensive LossThe following table details the accumulated other comprehensive loss activity for the three months ended March 31, 2014 and 2013, respectively.
 
Balance at January 1, 2014
 
Current period other comprehensive income (loss) before reclassification
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Balance at March 31, 2014
Foreign currency translation adjustments
$
(62
)
 
$
1

 
$

 
$
(61
)
Unrealized gain (loss) on AFS securities
6

 
(3
)
 

 
3

Unrecognized pension cost
(5
)
 

 

 
(5
)
Unrealized loss on derivative instruments
(7
)
 

 

 
(7
)
Accumulated Other Comprehensive Loss
$
(68
)
 
$
(2
)
 
$

 
$
(70
)
 
 
 
 
 
 
 
 
 
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
$
(54
)
 
$
(4
)
 
$
2

 
$
(56
)
Unrecognized pension cost
(6
)
 

 

 
(6
)
Unrealized loss on derivative instruments
(7
)
 

 

 
(7
)
Accumulated Other Comprehensive Loss
$
(67
)
 
$
(4
)
 
$
2

 
$
(69
)
(a) Foreign currency translation adjustments, net of an insignificant tax impact, reclassified from accumulated other comprehensive loss were recognized within equity losses from unconsolidated hospitality ventures on the condensed consolidated statements of income.
Share RepurchaseDuring 2013 and 2012, our Board of Directors authorized the repurchase of up to $400 million and $200 million, respectively, 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.
During the three months ended March 31, 2014 and 2013, the Company repurchased 1,172,645 and 664,951 shares of common stock, respectively. These shares were repurchased at a weighted average price of $51.71 and $41.32 per share, respectively, for an aggregate purchase price of $61 million and $27 million, respectively, excluding related expenses that were insignificant in both periods. Of the $61 million aggregate purchase price during the three months ended March 31, 2014, $59 million was settled in cash during the period. The shares repurchased represented less than 1% of the Company's total shares of common stock outstanding prior to the repurchase in both periods. The shares of Class A common stock that were repurchased on the open market were retired and returned to authorized and unissued status. As of March 31, 2014 we had $128 million remaining under the current share repurchase authorization.
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") 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. Compensation expense related to these awards for the three months ended March 31, 2014 and 2013 are as follows:
 
Three Months Ended March 31,
 
2014
 
2013
Stock appreciation rights
$
2

 
$
2

Restricted stock units
5

 
4

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, 2014, the Company granted 327,307 SARs to employees with a weighted average grant date fair value of $22.57. 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, 2014. During the three months ended March 31, 2014, the Company granted a total of 376,328 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 $49.39.
Performance Vested Restricted Stock—The Company has granted to certain executive officers PSSs. 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, 2014, the Company granted to its executive officers a total of 162,906 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 $49.39. The performance period is three years beginning January 1, 2014 and ending December 31, 2016. 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, 2014 was $19 million for SARs, $43 million for RSUs and $7 million for PSSs, which will be recorded to compensation expense primarily over the next four years with respect to SARs and RSUs, with a limited portion of the RSU awards extending to six years, and over the next two years with respect to PSSs.
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. Future sublease income from sublease agreements with related parties under our master lease is $9 million.
Legal Services—A partner in a law firm that provided services to us throughout the three months ended March 31, 2014 and 2013 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, 2014 and 2013, respectively. Legal fees, when expensed, are included in selling, general and administrative expenses. As of March 31, 2014 and December 31, 2013, 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, 2014 and 2013, respectively. As of March 31, 2014 and December 31, 2013, 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 $7 million and $8 million for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014 and December 31, 2013, we had receivables due from these properties of $10 million and $7 million, respectively. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 9) to these entities. Our ownership interest in these equity method investments generally varies from 8% to 70%.
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. 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; gains on sales of real estate; other income (loss), 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.
 
 
Three Months Ended March 31,
 
2014
 
2013
Owned and Leased Hotels (a) (b)
 
 
 
Revenues
$
548

 
$
492

Adjusted EBITDA
125

 
95

Depreciation and Amortization
86

 
81

Americas Management and Franchising
 
 
 
Revenues
454

 
422

Intersegment Revenues (c)
21

 
19

Adjusted EBITDA
56

 
48

Depreciation and Amortization
5

 
5

ASPAC Management and Franchising
 
 
 
Revenues
37

 
35

Intersegment Revenues (c)
1

 
1

Adjusted EBITDA
11

 
9

Depreciation and Amortization

 

EAME/SW Asia Management
 
 
 
Revenues
30

 
25

Intersegment Revenues (c)
3

 
3

Adjusted EBITDA
11

 
8

Depreciation and Amortization
2

 

Corporate and other
 
 
 
Revenues
30

 
24

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

 
2

Eliminations (c)
 
 
 
Revenues
(25
)
 
(23
)
Adjusted EBITDA

 

Depreciation and Amortization

 

TOTAL
 
 
 
Revenues
$
1,074

 
$
975

Adjusted EBITDA
172

 
131

Depreciation and Amortization
95

 
88

 
(a)
In conjunction with our regular assessment of impairment indicators in the first quarter of 2013, 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)
Assets within the Owned and Leased Hotels segment at March 31, 2014 equaled $5,542 million compared to $5,895 million at December 31, 2013. The decrease in assets is primarily due to the disposition of nine select service properties and one full service property during the three months ended March 31, 2014.
(c)
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, 2014 and 2013.
 
 
Three Months Ended March 31,
 
2014
 
2013
Adjusted EBITDA
$
172

 
$
131

Equity losses from unconsolidated hospitality ventures
(7
)
 
(1
)
Asset impairments

 
(8
)
Gains on sales of real estate
61

 

Other income (loss), net (see Note 15)
(12
)
 
2

Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA
(20
)
 
(16
)
EBITDA
194

 
108

Depreciation and amortization
(95
)
 
(88
)
Interest expense
(19
)
 
(17
)
(Provision) benefit for income taxes
(24
)
 
5

Net income attributable to Hyatt Hotels Corporation
$
56

 
$
8

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,
 
2014
 
2013
Numerator:
 
 
 
Net income
$
56

 
$
8

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
56

 
$
8

Denominator:
 
 
 
Basic weighted average shares outstanding:
155,449,102

 
161,931,525

Share-based compensation
1,041,764

 
606,352

Diluted weighted average shares outstanding
156,490,866

 
162,537,877

Basic Earnings Per Share:
 
 
 
Net income
$
0.36

 
$
0.05

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.36

 
$
0.05

Diluted Earnings Per Share:
 
 
 
Net income
$
0.36

 
$
0.05

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.36

 
$
0.05


The computations of diluted net income per share for the three months ended March 31, 2014 and 2013 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,
 
2014
 
2013
Stock-settled SARs
135,000

 
47,000

RSUs

 
4,000

Other Income (Loss), Net
Other Income (Loss), Net
OTHER INCOME (LOSS), NET
Other income (loss), net includes performance guarantee expense (see Note 9), interest income, guarantee liability amortization (see Note 9), and foreign currency losses on foreign currency exchange rate instruments. The table below provides a reconciliation of the components in other income (loss), net, for the three months ended March 31, 2014 and 2013, respectively.
 
 
Three Months Ended March 31,
 
2014
 
2013
Performance guarantee expense
$
(17
)
 
$

Interest income
2

 
5

Guarantee liability amortization
2

 

Foreign currency losses

 
(2
)
Other
1

 
(1
)
Other income (loss), net
$
(12
)
 
$
2

Subsequent Events
Subsequent Events [Text Block]
SUBSEQUENT EVENT
In April 2014, a joint venture in which we held an interest and which was classified as an equity method investment, sold the Hyatt Place Austin Downtown to a third party, for which we received proceeds of $25 million.  This transaction resulted in an approximate gain of $18 million, which will be recognized in the second quarter of 2014.  The company will continue to franchise the hotel.
Significant Accounting Policies (Policies)
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, as of March 31, 2014 and December 31, 2013, consisted primarily of $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), $196 million of 6.875% senior notes due 2019 (the "2019 Notes"), $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), and $350 million of 3.375% senior notes due 2023 (the "2023 Notes" which, together with the 2016 Notes, the 2019 Notes, and the 2021 Notes are collectively referred to as the "Senior Notes"), bonds and other long-term debt. Our Senior Notes and bonds 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. We estimated the fair value of our other long-term debt instruments using discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the availability of market data, we have classified our other long-term debt as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.
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. 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.
Our portfolio of marketable securities consists of various types of mutual funds, preferred shares and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities and municipal and provincial notes and bonds. The fair value of our mutual funds was 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, other than our investment in preferred shares, 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.
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 at March 31, 2014 and December 31, 2013 include 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, 2014, the weighted-average interest rate on vacation ownership mortgage receivables was 13.9%.
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. Our other financing arrangements have stated maturities and interest rates. However, the expected repayment terms may be dependent on the future cash flows of the hotels and these financing receivable instruments, therefore, are not considered loans as the repayment dates are not fixed or determinable. Because the other types of financing 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.
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. In addition to loans, we include other types of financing arrangements in unsecured financing to hotel owners which we do not assess individually for impairment. 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, 2014 and 2013, 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, 2014 and 2013, 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 cash is 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 recognize interest income for impaired loans unless cash is received, in which case the payment is recorded to other income (loss), net in the accompanying condensed consolidated statements of income.
Definite lived intangible assets primarily include contract acquisition costs, acquired franchise and management intangibles, lease related intangibles and advanced bookings 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 15 to 30 years, respectively. Lease related intangibles are amortized on a straight-line basis over the lease term. Advanced bookings are generally amortized on a straight-line basis over the period of the advanced bookings. Definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.
We review the carrying value of our goodwill and indefinite lived brand intangible during our annual impairment test during the fourth quarter or at an interim date if indications of impairment exist by performing either a qualitative or quantitative assessment. 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 of our goodwill is in excess of the fair value, we must determine our implied fair value of goodwill to evaluate if any impairment charge is necessary.
In connection with the inception of a performance guarantee, we recognize a liability for the fair value of our guarantee obligation within other long-term liabilities on our condensed consolidated balance sheets with an offset to contract acquisition cost intangible assets. Upon commencement of the guarantee period, we amortize the guarantee liability using a systematic and rational risk-based approach over the term of the respective performance guarantee.
We act as general partner of various partnerships that own hotel properties subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in the assets financed and/or other assets of the partnership(s) 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. 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; gains on sales of real estate; other income (loss), net; depreciation and amortization; interest expense; and (provision) benefit for income taxes.
In February 2013, the Financial Accounting Standards Board ("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. The adoption of ASU 2013-04 did not 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. The adoption of ASU 2013-05 did not materially impact our condensed consolidated financial statements.
In July 2013, the FASB released Accounting Standards Update No. 2013-11 ("ASU 2013-11"), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The provisions of ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 did not materially impact our condensed consolidated financial statements.

Equity And Cost Method Investments (Tables)
Our equity and cost method investment balances recorded at March 31, 2014 and December 31, 2013 are as follows:
 
 
March 31, 2014
 
December 31, 2013
Equity method investments
$
315

 
$
320

Cost method investments
7

 
9

Total investments
$
322

 
$
329

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,
 
2014
 
2013
Total revenues
$
283

 
$
226

Gross operating profit
56

 
74

Income (loss) from continuing operations
(15
)
 
3

Net income (loss)
(15
)
 
3

Fair Value Measurement (Tables)
As of March 31, 2014 and December 31, 2013, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2014
 
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
$
89

 
$
89

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
337

 
337

 

 

Preferred shares
276

 

 

 
276

U.S. government obligations
120

 

 
120

 

U.S. government agencies
46

 

 
46

 

Corporate debt securities
122

 

 
122

 

Mortgage-backed securities
22

 

 
22

 

Asset-backed securities
19

 

 
19

 

Municipal and provincial notes and bonds
4

 

 
4

 


 
December 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
$
71

 
$
71

 
$

 
$

Marketable securities included in short-term investments, prepaids and other assets and other assets
 
 
 
 
 
 
 
Mutual funds
334

 
334

 

 

Preferred shares
278

 

 

 
278

U.S. government obligations
121

 

 
121

 

U.S. government agencies
46

 

 
46

 

Corporate debt securities
112

 

 
112

 

Mortgage-backed securities
20

 

 
20

 

Asset-backed securities
18

 

 
18

 

Municipal and provincial notes and bonds
4

 

 
4

 

A summary of the significant assumptions used to estimate the fair value of our preferred investment as of March 31, 2014 and December 31, 2013, is as follows:
 
March 31, 2014
 
December 31, 2013
Expected term
1.75 years

 
2 years

Risk-free Interest Rate
0.37
%
 
0.38
%
Volatility
44.2
%
 
47.7
%
Dividend Yield
10
%
 
10
%
Included in our portfolio of marketable securities are investments in debt securities classified as available for sale. At March 31, 2014 and December 31, 2013 these were as follows:
 
 
March 31, 2014
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Total preferred shares
$
271

 
$
5

 
$

 
$
276

 
 
December 31, 2013
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Total preferred shares
$
271

 
$
7

 
$

 
$
278

The carrying amounts and fair values of our other financial instruments are as follows:

 
Asset (Liability)
 
March 31, 2014
 
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
$
26

 
$
28

 
$

 
$

 
$
28

Vacation ownership mortgage receivable
37

 
37

 

 

 
37

Unsecured financing to hotel owners
64

 
64

 

 

 
64

Debt, excluding capital lease obligations
(1,277
)
 
(1,338
)
 

 
(1,297
)
 
(41
)

 
Asset (Liability)
 
December 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
$
26

 
$
28

 
$

 
$

 
$
28

Vacation ownership mortgage receivable
37

 
38

 

 

 
38

Unsecured financing to hotel owners
64

 
64

 

 

 
64

Debt, excluding capital lease obligations
(1,275
)