HYATT HOTELS CORP, 10-Q filed on 5/5/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2015
May 1, 2015
Common Class A
May 1, 2015
Common Class B
Document Information
 
 
 
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, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Trading Symbol
 
 
Entity Common Stock, Shares Outstanding
 
34,721,957 
110,655,463 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
REVENUES:
 
 
Owned and leased hotels
$ 509 
$ 548 
Management and franchise fees
105 
89 
Other revenues
21 
Other revenues from managed properties
433 
416 
Total revenues
1,054 
1,074 
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
Owned and leased hotels
384 
415 
Depreciation and amortization
79 
95 
Other direct costs
Selling, general, and administrative
94 
87 
Other costs from managed properties
433 
416 
Direct And Selling, General, And Administrative Expenses
995 
1,021 
Net gains and interest income from marketable securities held to fund operating programs
Equity losses from unconsolidated hospitality ventures
(6)
(7)
Interest expense
(17)
(19)
Gains on sales of real estate
61 
Other loss, net
(18)
(12)
INCOME BEFORE INCOME TAXES
34 
80 
PROVISION FOR INCOME TAXES
(12)
(24)
NET INCOME
22 
56 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 22 
$ 56 
EARNINGS PER SHARE - Basic
 
 
Net income - Basic (in dollars per share)
$ 0.15 
$ 0.36 
Net income attributable to Hyatt Hotels Corporation - Basic (in dollars per share)
$ 0.15 
$ 0.36 
EARNINGS PER SHARE - Diluted
 
 
Net income - Diluted (in dollars per share)
$ 0.15 
$ 0.36 
Net income attributable to Hyatt Hotels Corporation - Diluted (in dollars per share)
$ 0.15 
$ 0.36 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
NET INCOME
$ 22 
$ 56 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
Foreign currency translation adjustments, net of tax (benefit) expense of $- and $1 in 2015 and 2014, respectively
(55)
Unrealized gains (losses) on available for sale securities, net of tax (benefit) expense of $- and $1 in 2015 and 2014, respectively
(3)
Other comprehensive loss
(53)
(2)
Comprehensive income (loss)
(31)
54 
Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to Hyatt Hotels Corporation
$ (31)
$ 54 
Condensed Consolidated Statements of Comprehensive Income (Loss) Parentheticals (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
Foreign currency translation adjustments, tax
$ 0 
$ 1 
Unrealized gains (losses) on available for sale securities, tax
$ 0 
$ 1 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
ASSETS
 
 
Cash and cash equivalents
$ 563 
$ 685 
Restricted cash
341 
359 
Short-term investments
80 
130 
Receivables, net of allowances of $15 and $13 at March 31, 2015 and December 31, 2014, respectively
362 
274 
Inventories
16 
17 
Prepaids and other assets
139 
108 
Prepaid income taxes
35 
47 
Deferred tax assets
33 
26 
Assets held for sale
63 
Total current assets
1,574 
1,709 
Investments
342 
334 
Property and equipment, net
4,100 
4,186 
Financing receivables, net of allowances
19 
40 
Goodwill
132 
133 
Intangibles, net
532 
552 
Deferred tax assets
186 
196 
Other assets
1,024 
993 
TOTAL ASSETS
7,909 
8,143 
LIABILITIES AND EQUITY
 
 
Current maturities of long-term debt
Accounts payable
140 
130 
Accrued expenses and other current liabilities
449 
468 
Accrued compensation and benefits
101 
120 
Liabilities held for sale
Total current liabilities
699 
730 
Long-term debt
1,370 
1,381 
Other long-term liabilities
1,414 
1,401 
Total liabilities
3,483 
3,512 
Commitments and contingencies (see Note 10)
   
   
EQUITY:
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of March 31, 2015 and December 31, 2014
Common stock
Additional paid-in capital
2,455 
2,621 
Retained earnings
2,187 
2,165 
Treasury stock at cost, 195,423 shares and 36,273 shares at March 31, 2015 and December 31, 2014
(8)
(1)
Accumulated other comprehensive loss
(213)
(160)
Total stockholders' equity
4,422 
4,627 
Noncontrolling interests in consolidated subsidiaries
Total equity
4,426 
4,631 
TOTAL LIABILITIES AND EQUITY
$ 7,909 
$ 8,143 
Condensed Consolidated Balance Sheet Parentheticals (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Allowance for Doubtful Accounts Receivable, Current
$ 15 
$ 13 
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)
Treasury Stock, Shares (in shares)
195,423 
36,273 
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)
35,497,157 
37,676,490 
Common Stock, Shares, Issued (in shares)
35,692,580 
37,712,763 
Common Class B
 
 
Common Stock, Par or Stated Value Per Share (per share)
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized (in shares)
442,649,875 
443,399,875 
Common Stock, Shares, Outstanding (in shares)
110,655,463 
111,405,463 
Common Stock, Shares, Issued (in shares)
110,655,463 
111,405,463 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
NET INCOME
$ 22 
$ 56 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
79 
95 
Deferred income taxes
Equity losses from unconsolidated hospitality ventures, including distributions received
14 
Foreign currency losses
Gains on sales of real estate
(8)
(61)
Working capital changes and other
(94)
(60)
Net cash provided by operating activities
15 
49 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Purchases of marketable securities and short-term investments
(157)
(112)
Proceeds from marketable securities and short-term investments
175 
102 
Contributions to investments
(12)
(14)
Capital expenditures
(61)
(41)
Proceeds from sales of real estate, net of cash disposed
69 
316 
Sales proceeds transferred to escrow as restricted cash
(232)
Sales proceeds transferred from escrow to cash and cash equivalents
306 
Decrease in restricted cash - investing
18 
11 
Other investing activities
(7)
Net cash provided by investing activities
41 
329 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Repurchase of common stock
(187)
(59)
Other financing activities
(6)
(7)
Net cash used in financing activities
(193)
(66)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
15 
(1)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(122)
311 
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR
685 
454 
CASH AND CASH EQUIVALENTS-END OF PERIOD
563 
765 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
Cash paid during the period for interest
32 
36 
Cash paid during the period for income taxes
18 
38 
Non-cash investing activities are as follows:
 
 
Change in accrued capital expenditures
$ (6)
$ 1 
Organization
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively, "Hyatt Hotels Corporation") provide hospitality services on a worldwide basis through the development, management, franchising, licensing and ownership of hospitality related businesses. We develop, own, operate, manage, franchise, license or provide services to a portfolio of properties consisting of full service hotels, select service hotels, resorts and other properties, including timeshare, fractional and other forms of residential or vacation properties. As of March 31, 2015, (i) we operated or franchised 282 full service hotels, comprising 113,777 rooms throughout the world, (ii) we operated or franchised 280 select service hotels, comprising 38,296 rooms, of which 266 hotels are located in the United States, and (iii) our portfolio of properties included 5 franchised all inclusive Hyatt-branded resorts, comprising 1,881 rooms. Our portfolio of properties operate in 50 countries around the world and we hold ownership interests in certain of these properties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Company," "HHC," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries and (ii) the term "Hyatt portfolio of properties" or "portfolio of properties" refers to hotels and other properties that we develop, own, operate, manage, franchise, license or provide services to, including under our Park Hyatt, Andaz, Hyatt, Grand Hyatt, Hyatt Regency, Hyatt Centric, Hyatt Place, Hyatt House, Hyatt Ziva, Hyatt Zilara, Hyatt Residences and Hyatt Residential Club brands.
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, 2014 (the "2014 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 April 2014, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2014-08 ("ASU 2014-08"), Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations and expands the required disclosures surrounding discontinued operations. The provisions of ASU 2014-08 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption was permitted for disposals that had not been reported in previously issued financial statements. We elected to early adopt ASU 2014-08 in the second quarter of 2014 and have no disposals which qualify as discontinued operations.
Future Adoption of Accounting Standards
In May 2014, the FASB released Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single, comprehensive revenue recognition model for contracts with customers. The provisions of ASU 2014-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is currently evaluating the impact of adopting ASU 2014-09.
In June 2014, the FASB released Accounting Standards Update No. 2014-10 (“ASU 2014-10”), Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 removes the financial reporting distinction between development stage entities and other reporting entities from GAAP and it eliminates an exception provided in the consolidation guidance for development stage enterprises. The provisions of ASU 2014-10 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. When adopted, ASU 2014-10 is not expected to materially impact our condensed consolidated financial statements.
In August 2014, the FASB released Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and the related footnote disclosures. The provisions of ASU 2014-15 are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. When adopted, ASU 2014-15 is not expected to materially impact our condensed consolidated financial statements.
In February 2015, the FASB released Accounting Standards Update No. 2015-01 (“ASU 2015-01”), Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates all requirements regarding the separate classification, presentation, and disclosure of extraordinary events and transactions. The provisions of ASU 2015-01 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. When adopted, ASU 2015-01 is not expected to materially impact our condensed consolidated financial statements.
In February 2015, the FASB released Accounting Standards Update No. 2015-02 (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance related to management’s evaluation of consolidation for certain legal entities. The provisions of ASU 2015-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating the impact of adopting ASU 2015-02.
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, 2015 and December 31, 2014 are as follows:
 
March 31, 2015
 
December 31, 2014
Equity method investments
$
319

 
$
311

Cost method investments
23

 
23

Total investments
$
342

 
$
334


During the three months ended March 31, 2015 and 2014, we recorded $0 and $1 million, respectively, in impairment charges in equity losses from unconsolidated hospitality ventures. The 2014 impairment charges related to two equity method investments.
Income from cost method investments included in other loss, net on our condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 was $0 and $1 million, respectively.
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,
 
2015
 
2014
Total revenues
$
244

 
$
283

Gross operating profit
60

 
56

Loss from continuing operations
(13
)
 
(15
)
Net loss
(13
)
 
(15
)
Fair Value Measurement
Fair Value Measurement
FAIR VALUE MEASUREMENT
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs that places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivative instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2015 and December 31, 2014, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2015
 
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
$
37

 
$
37

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
345

 
345

 

 

Preferred shares
282

 

 

 
282

Time deposits
80

 

 
80

 

U.S. government obligations
123

 

 
123

 

U.S. government agencies
45

 

 
45

 

Corporate debt securities
146

 

 
146

 

Mortgage-backed securities
28

 

 
28

 

Asset-backed securities
33

 

 
33

 

Municipal and provincial notes and bonds
3

 

 
3

 


 
December 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
$
70

 
$
70

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
341

 
341

 

 

Preferred shares
280

 

 

 
280

Time deposits
130

 

 
130

 

U.S. government obligations
127

 

 
127

 

U.S. government agencies
34

 

 
34

 

Corporate debt securities
128

 

 
128

 

Mortgage-backed securities
23

 

 
23

 

Asset-backed securities
23

 

 
23

 

Municipal and provincial notes and bonds
3

 

 
3

 


During the three months ended March 31, 2015 and 2014, 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 money market funds, mutual funds, preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other U.S. government agencies, corporate debt securities, mortgage-backed securities, asset-backed securities and municipal and provincial notes and bonds. 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 fair value of our mutual funds were classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Time deposits are recorded at par value, which approximates fair value and are included within short-term investments and classified as Level Two. 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.
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, 2015 and 2014.
Hyatt holds redeemable, convertible preferred shares in Playa Hotels and Resorts B.V. ("Playa"). 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 shares are 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, plus any unpaid dividends accumulated thereon. As a result, we have classified the preferred investment as an available for sale ("AFS") 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 income (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, increasing to 12% per annum 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 in Playa as of March 31, 2015 and December 31, 2014, is as follows:
 
March 31, 2015
 
December 31, 2014
Expected term
0.50 years

 
0.75 years

Risk-free Interest Rate
0.14
%
 
0.19
%
Volatility
43.0
%
 
43.9
%
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, 2015 and December 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.
As of March 31, 2015 and December 31, 2014, the cost or amortized cost value for our preferred investment in Playa was $271 million and the fair value of this AFS debt security was as follows: 
 
Fair Value Measurements at Reporting Date using Significant Unobservable Inputs (Level 3) - Preferred Shares
 
2015
 
2014
Fair value at January 1, recorded in other assets
$
280

 
$
278

Gross unrealized gains, recorded in other comprehensive income (loss)
2

 

Gross unrealized losses, recorded in other comprehensive income (loss)

 
(2
)
Fair value at March 31, recorded in other assets
$
282

 
$
276



There were no realized gains or losses on AFS debt securities for the three months ended March 31, 2015 and 2014.

Other Financial Instruments
We estimated the fair value of financing receivables using a 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, 2015 and December 31, 2014, 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 a 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, 2015
 
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, net (current and long-term)
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
26

 
$
29

 
$

 
$

 
$
29

Unsecured financing to hotel owners
19

 
19

 

 

 
19

Debt, excluding capital lease obligations
(1,362
)
 
(1,479
)
 

 
(1,327
)
 
(152
)

 
Asset (Liability)
 
December 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, net (current and long-term)
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
26

 
$
29

 
$

 
$

 
$
29

Unsecured financing to hotel owners
15

 
14

 

 

 
14

Debt, excluding capital lease obligations
(1,373
)
 
(1,479
)
 

 
(1,319
)
 
(160
)
Financing Receivables
Financing Receivables
FINANCING RECEIVABLES
We have divided our financing receivables, which include loans and other financing arrangements, into two 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 underlying hotel properties currently in operation. At March 31, 2015 and December 31, 2014, these loans represent 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%. All secured financing to hotel owners financing receivables are scheduled to mature in 2015.
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 receivables have stated maturities and interest rates. However, the expected repayment terms may be dependent on the future cash flows of the hotels and these instruments, therefore, are not considered loans as the repayment dates are not fixed or determinable. Because the other types of financing arrangements are not considered loans, we do not include them in our impaired loans analysis.
The two portfolio segments of financing receivables and their balances at March 31, 2015 and December 31, 2014 are as follows:
 
March 31, 2015
 
December 31, 2014
Secured financing to hotel owners
$
39

 
$
39

Unsecured financing to hotel owners
107

 
102

 
146

 
141

Less allowance for losses
(101
)
 
(100
)
Less current portion included in receivables, net
(26
)
 
(1
)
Total long-term financing receivables, net
$
19

 
$
40


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. In addition to loans, we include other types of financing arrangements in the unsecured financing to hotel owners portfolio which we do not assess individually for impairment. However, we regularly evaluate our reserves for these other types of financing arrangements and record provisions in the financing receivables allowance as necessary. Impairment charges for loans within both 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, 2015 and 2014:
 
Secured Financing
 
Unsecured Financing
 
Total
Allowance at January 1, 2015
$
13

 
$
87

 
$
100

  Provisions

 
2

 
2

  Other Adjustments

 
(1
)
 
(1
)
Allowance at March 31, 2015
$
13

 
$
88

 
$
101


Secured Financing

Unsecured Financing
 
Total
Allowance at January 1, 2014
$
13


$
83

 
$
96

  Provisions


2

 
2

  Other Adjustments

 
1

 
1

Allowance at March 31, 2014
$
13

 
$
86

 
$
99


We routinely evaluate loans within financing receivables for impairment. To determine whether an impairment has occurred, we evaluate the collectability of both interest and principal. A loan is considered to be impaired when the Company determines that it is probable that we will not be able to collect all amounts due under the contractual terms. We do not record interest income for impaired loans unless cash is received, in which case the payment is recorded to other loss, net in the accompanying condensed consolidated statements of income. During the three months ended March 31, 2015 and 2014, we did not record any impairment charges for loans to hotel owners.
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, 2015 and December 31, 2014, all of which had a related allowance recorded against them:
Impaired Loans
March 31, 2015
 
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
51

 
36

 
(51
)
 
52


Impaired Loans
December 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
52

 
37

 
(52
)
 
52


Interest income recognized on these impaired loans within other loss, net on our condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 was as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Secured financing to hotel owners
$
1

 
$

Unsecured financing to hotel owners

 



Credit Monitoring
On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity.
Past-due Receivables—We determine financing receivables to be past due based on the contractual terms of each individual financing receivable agreement.
Non-Performing Receivables—Receivables are determined to be non-performing based upon the following criteria: (1) if interest or principal is more than 90 days past due for secured financing to hotel owners and unsecured financing to hotel owners or (2) 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, 2015 and 2014, no interest income was accrued for secured financing to hotel owners and unsecured financing to hotel owners more than 90 days past due.
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, 2015 and December 31, 2014:
 
Analysis of Financing Receivables
March 31, 2015
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
39

Unsecured financing to hotel owners*
3

 
3

 
87

Total
$
3

 
$
3

 
$
126


Analysis of Financing Receivables
December 31, 2014
 
Receivables
Past Due
 
Greater than 90 Days Past Due
 
Receivables on
Non-Accrual
Status
Secured financing to hotel owners
$

 
$

 
$
39

Unsecured financing to hotel owners*
3

 
3

 
87

Total
$
3

 
$
3

 
$
126

* 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. During the three months ended March 31, 2015 and 2014, we did not have any acquisitions.
Dispositions
Hyatt Regency Indianapolis—During the three months ended March 31, 2015, we sold Hyatt Regency Indianapolis for $69 million, net of closing costs, to an unrelated third party, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $8 million, which has been recognized in gains on sales of real estate on our condensed consolidated statements of income during the three months ended March 31, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment. As of December 31, 2014, we had classified the assets and liabilities of this property as held for sale on our condensed consolidated balance sheets.
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 total of $311 million, net of closing costs, to an unrelated third party. In connection with the sale, we transferred net cash and cash equivalents of $3 million, resulting in a net sales price of $308 million. We recorded a pre-tax gain of approximately $61 million for the three months ended March 31, 2014. 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 sales have been used in a like-kind exchange.
As a result of certain of the above-mentioned dispositions, we have agreed to provide indemnifications to third-party purchasers for certain liabilities incurred prior to sale and for breach of certain representations and warranties made during the sales process, such as representations of valid title, authority, and environmental issues that may not be limited by a contractual monetary amount. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition of certain hotels. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by an intermediary. The proceeds are recorded to restricted cash on our condensed consolidated balance sheets and released once they are utilized as part of a like-kind exchange agreement or when a like-kind exchange agreement is not completed within the allowable time period.
In conjunction with the sales of nine select service properties and one full service property during the three months ended March 31, 2014, we entered into like-kind exchange agreements with an intermediary for seven of the select service hotels. During the three months ended March 31, 2014, we recorded and released net proceeds of $232 million 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 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 $74 million proceeds from the sale of this hotel were placed into an escrow account administered by an intermediary. 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.
Assets and Liabilities Held for Sale
During the first quarter of 2015, we committed to a plan to sell one Hyatt House hotel and classified the related assets and liabilities within our owned and leased hotels segment as held for sale at March 31, 2015. Assets held for sale related to this hotel were $5 million, which primarily relates to property and equipment, net. Liabilities held for sale were insignificant.
Goodwill and Intangible Assets
Goodwill and Intangible Assets Disclosure
GOODWILL AND INTANGIBLE ASSETS
We review the carrying value of our goodwill and indefinite-lived brand intangible asset 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. When determining fair value, 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 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. 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. During the three months ended March 31, 2015 and 2014, no impairment charges were recorded related to goodwill or our indefinite-lived brand intangible asset. Goodwill was $132 million and $133 million at March 31, 2015 and December 31, 2014, respectively. As of December 31, 2014, we classified $14 million of goodwill related to Hyatt Regency Indianapolis as held for sale on our condensed consolidated balance sheets. During the three months ended March 31, 2015, we sold Hyatt Regency Indianapolis (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 acquired franchise and management intangibles are generally amortized on a straight-line basis over their contract terms, which range from approximately 5 to 40 years and 20 to 30 years, respectively. 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, 2015 and 2014.
The following is a summary of intangible assets at March 31, 2015 and December 31, 2014:
 
 
March 31, 2015
 
Weighted-
Average Useful
Lives in Years
 
December 31, 2014
Contract acquisition costs
$
347

 
25

 
$
355

Acquired franchise and management intangibles
156

 
24

 
156

Lease related intangibles
137

 
111

 
143

Advanced bookings intangibles
12

 
5

 
12

Brand intangible
7

 

 
7

Other
8

 
11

 
8

 
667

 
 
 
681

Accumulated amortization
(135
)
 
 
 
(129
)
Intangibles, net
$
532

 
 
 
$
552


Amortization expense relating to intangible assets was as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Amortization expense
$
8

 
$
8

Liabilities
Other Liabilities Disclosure
LIABILITIES
Other long-term liabilities at March 31, 2015 and December 31, 2014 consist of the following:
 
March 31, 2015
 
December 31, 2014
Deferred gains on sales of hotel properties
$
381

 
$
383

Deferred compensation plans
345

 
341

Hyatt Gold Passport Fund
295

 
284

Guarantee liabilities (see Note 10)
95

 
110

Other
298

 
283

Total
$
1,414

 
$
1,401


Accrued expenses and other current liabilities includes $138 million and $132 million of liabilities held for the Hyatt Gold Passport Fund at March 31, 2015 and December 31, 2014, respectively.
Income Taxes
INCOME TAXES
INCOME TAXES
The effective income tax rates for the three months ended March 31, 2015 and 2014, were 35.3% and 30.1%, respectively.
For the three months ended March 31, 2015, the effective tax rate differs from the U.S. statutory federal income tax rate of 35% primarily due to the effect of state and foreign taxes on operations and a benefit of $2 million for deferred tax adjustments to reflect the impact of regulations issued by the Internal Revenue Service in the quarter.
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.
Unrecognized tax benefits were $51 million and $40 million at March 31, 2015 and December 31, 2014, respectively, of which $20 million would impact the effective tax rate in each period if recognized.
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, 2015, we are committed, under certain conditions, to lend or invest up to $239 million, net of any related letters of credit, in various business ventures.
Performance Guarantees—Certain of our contractual agreements with third-party owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At inception of a performance guarantee, we recognize a guarantee obligation liability for the fair value of our guarantee obligation which we amortize into income using a systematic and rational risk-based approach over the term of the performance guarantee. To the extent we determine an obligation to fund under a guarantee is both probable and estimable, we record an expense for the separate contingent liability.
Our most significant performance guarantee relates to four managed hotels in France that we began managing in the second quarter of 2013 (“the four managed hotels in France”), which has a term of 7 years, with approximately 5 ¼ years remaining, and does not have an annual cap. The remaining maximum exposure related to our performance guarantees at March 31, 2015 was $415 million, of which €362 million ($388 million using exchange rates as of March 31, 2015) relates to the four managed hotels in France.
We had total guarantee liabilities of $112 million and $111 million at March 31, 2015 and December 31, 2014, respectively, which included $89 million and $103 million recorded in other long-term liabilities and $23 million and $8 million in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively. Our total guarantee liabilities are comprised of the fair value of the guarantee obligation liabilities recorded upon inception, net of amortization and any separate contingent liabilities, net of cash payments. Performance guarantee expense and income from amortization of the guarantee obligation liabilities are recorded in other loss, net on the condensed consolidated statements of income, see Note 16.
The following table details the total performance guarantee liability (inclusive of the initial guarantee obligation liability, net of amortization and the contingent liability, net of cash payments) related to the four managed hotels in France:
 
 
2015
 
2014
Beginning balance, January 1
 
$
106

 
$
123

Amortization of initial guarantee obligation liability into income
 
(2
)
 
(2
)
Performance guarantee expense
 
16

 
15

Net (payments) receipts during the period
 
1

 
(5
)
Foreign currency exchange (gain) loss
 
(13
)
 
1

Ending balance, March 31
 
$
108

 
$
132


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, 2015 and December 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 primarily related to our unconsolidated hospitality ventures investments in certain properties. The maximum exposure under these agreements as of March 31, 2015 was $234 million. As of March 31, 2015, we had a $6 million liability representing the carrying value of these guarantees recorded within other long-term liabilities on our condensed consolidated balance sheets with an offset to investments. Included within the $234 million in debt guarantees are the following:
Property Description
 
Maximum Guarantee Amount
 
Amount Recorded at March 31, 2015
 
Amount Recorded at December 31, 2014
Vacation ownership property
 
$
79

 
$

 
$

Hotel property in Brazil
 
75

 
2

 
2

Hotel property in Hawaii
 
30

 
1

 
1

Hotel property in Minnesota
 
25

 
3

 
3

Hotel property in Colorado
 
15

 

 
1

Other
 
10

 

 

Total Debt Repayment Guarantees
 
$
234

 
$
6

 
$
7


With respect to certain debt repayment guarantees related to unconsolidated 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 generally based on each partner’s ownership percentage. In relation to the vacation ownership property debt repayment guarantee, for which we no longer have an investment in the unconsolidated venture, we have the ability to fully recover from third parties any amounts we may be required to fund. Assuming successful enforcement of these types of agreements with our respective partners and third parties, our maximum exposure under the various debt repayment guarantees as of March 31, 2015 is $103 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 portion of the 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 Hyatt and generally insures our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Losses estimated to be paid within twelve months are $28 million and $24 million as of March 31, 2015 and December 31, 2014, respectively, 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 $66 million and $63 million as of March 31, 2015 and December 31, 2014, respectively, and are included in other long-term liabilities on the condensed consolidated balance sheets. At March 31, 2015, standby letters of credit amounting to $7 million had been issued to provide collateral for the estimated claims, which are guaranteed by us. For further discussion, see the “Letters of Credit” section of this footnote.
Collective Bargaining Agreements—At March 31, 2015, approximately 24% of our U.S. based employees were covered by various collective bargaining agreements, generally providing for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and we believe that our employee relations are satisfactory.
Surety Bonds—Surety bonds issued on our behalf totaled $23 million as of March 31, 2015 and primarily relate to workers’ compensation, taxes, licenses, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf as of March 31, 2015 totaled $64 million, the majority of which relate to our ongoing operations. Of the $64 million letters of credit outstanding, $8 million reduces the available capacity under our revolving credit facility.
Capital Expenditures—As part of our ongoing business operations, significant expenditures are required to complete renovation projects that have been approved.
Other—We act as general partner of various partnerships owning hotel properties 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, 2015 and 2014, respectively.
 
Stockholders’
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2015
$
4,627

 
$
4

 
$
4,631

Net income
22

 

 
22

Other comprehensive loss
(53
)
 

 
(53
)
Repurchase of common stock
(187
)
 

 
(187
)
Employee stock plan issuance
1

 

 
1

Share based payment activity
12

 

 
12

Balance at March 31, 2015
$
4,422

 
$
4

 
$
4,426

 
 
 
 
 
 
 
 
 
 
 
 
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


Accumulated Other Comprehensive LossThe following table details the accumulated other comprehensive loss activity for the three months ended March 31, 2015 and 2014, respectively.
 
Balance at
January 1, 2015
 
Current period other comprehensive income (loss) before reclassification
 
Amount reclassified from accumulated other comprehensive loss
 
Balance at March 31, 2015
Foreign currency translation adjustments
$
(155
)
 
$
(55
)
 
$

 
$
(210
)
Unrealized gains on AFS securities
6

 
2

 

 
8

Unrecognized pension cost
(5
)
 

 

 
(5
)
Unrealized losses on derivative instruments
(6
)
 

 

 
(6
)
Accumulated Other Comprehensive Loss
$
(160
)
 
$
(53
)
 
$

 
$
(213
)
 
 
 
 
 
 
 
 
 
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 gains (losses) on AFS securities
6

 
(3
)
 

 
3

Unrecognized pension cost
(5
)
 

 

 
(5
)
Unrealized losses on derivative instruments
(7
)
 

 

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

 
$
(70
)
Share RepurchaseDuring 2014 and 2013 our board of directors authorized the repurchase of up to $700 million and $400 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, 2015 and 2014, the Company repurchased 3,192,629 and 1,172,645 shares of common stock, respectively. These shares were repurchased at a weighted-average price of $58.67 and $51.71 per share, respectively, for an aggregate purchase price of $187 million and $61 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 during the three months ended March 31, 2015 represented approximately 2% of the Company's total shares of common stock outstanding as of December 31, 2014. The shares repurchased during the three months ended March 31, 2014 represented less than 1% of the Company's total shares of common stock outstanding as of December 31, 2013. The shares of Class A common stock that were repurchased on the open market were retired and returned to authorized and unissued status while the shares of Class B common stock that were repurchased were retired and the total number of authorized Class B shares was reduced by the number of shares repurchased. As of March 31, 2015, we had $257 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 footnote 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 in other revenues from managed properties and other costs from managed properties on our condensed consolidated statements of income. Compensation expense related to these awards for the three months ended March 31, 2015 and 2014 are as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Stock appreciation rights
$
7

 
$
2

Restricted stock units
9

 
5

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 and are accounted for as equity instruments.
During the three months ended March 31, 2015, the Company granted 461,378 SARs to employees with a weighted-average grant date fair value of $21.36. The fair value of each SAR was estimated on the grant date 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 is based on the closing stock price of our Class A common stock as of the grant date. We record compensation expense for RSUs over the requisite service period of the individual grantee. 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 is insignificant as of, and for the three months ended, March 31, 2015. During the three months ended March 31, 2015, the Company granted a total of 410,217 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 $56.52.
Performance Vested Restricted Stock—The Company has granted PSSs to certain executive officers. 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, 2015, the Company granted to its executive officers a total of 146,902 PSSs, which vest in full if the maximum performance metric is achieved. The PSSs had a weighted-average grant date fair value of $56.27. The performance period is three years beginning January 1, 2015 and ending December 31, 2017. The PSSs will vest at the end of the performance period only if the performance threshold is met; there is no interim performance metric. At the end of the performance period, the PSSs that do not vest will be forfeited and will return to treasury stock. During the three months ended March 31, 2015, 159,150 shares were returned to treasury stock, related to the 2012 PSS grant.
Our total unearned compensation for our stock-based compensation programs as of March 31, 2015 was $4 million for SARs, $27 million for RSUs and $7 million for PSSs, which will be recorded to compensation expense over the next four years with respect to SARs and RSUs, with a limited portion of the RSU awards extending to five 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 have 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 for this space from related parties is $7 million.
Legal Services—A partner in a law firm that provided services to us throughout the three months ended March 31, 2015 and 2014, is the brother-in-law of our Executive Chairman. We incurred insignificant and $1 million of legal fees with this firm for the three months ended March 31, 2015 and 2014, respectively. Legal fees, when expensed, are included in selling, general, and administrative expenses. As of March 31, 2015 and December 31, 2014, we had insignificant amounts due to the law firm.
Other Services—A member of our board of directors is a partner in a firm whose affiliates previously owned hotels, which were sold during the first quarter of 2015, from which we recorded insignificant and $1 million of management and franchise fees during the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 we had no amounts due from these properties. As of December 31, 2014, we had insignificant 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 $5 million and $7 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and December 31, 2014, we had receivables due from these properties of $12 million and $11 million, respectively. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 10) to these entities. Our ownership interest in these equity method investments generally varies from 24% to 70%. See Note 3 for further details regarding these investments.
Share Repurchase—During the three months ended March 31, 2015, we repurchased 750,000 shares of Class B common stock at a weighted average price of $59.54 per share, for an aggregate purchase price of approximately $45 million. The shares repurchased represented approximately 0.5% of the Company's total shares of common stock outstanding prior to the repurchase. The shares of Class B common stock were repurchased from trusts held for the benefit of certain Pritzker family members in privately-negotiated transactions and were retired, thereby reducing the total number of shares outstanding and reducing the shares of Class B common stock authorized and outstanding by the repurchased share amount.
Segment Information
Segment Information
SEGMENT INFORMATION
Our reportable 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 portfolio of brands to franchisees located in the United States, 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 portfolio 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 portfolio of brands located primarily in Europe, Africa, the Middle East and India, as well as countries along the Persian Gulf, the Arabian Sea, and Nepal. 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 revenue and 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; gains on sales of real estate; other loss, net; depreciation and amortization; interest expense; and provision for income taxes.
The table below shows summarized consolidated financial information by segment. Included within corporate and other are unallocated corporate expenses, the results of our vacation ownership business prior to the sale in the fourth quarter of 2014, license fees related to Hyatt Residence Club, and the results of our co-branded credit card.
 
Three Months Ended March 31,
 
2015
 
2014
Owned and leased hotels
 
 
 
Owned and leased hotels revenues
$
509

 
$
548

Adjusted EBITDA
124

 
125

Depreciation and amortization
71

 
86

Americas management and franchising
 
 
 
Management and franchise fees revenues
88

 
75

Other revenues from managed properties
400

 
379

Intersegment revenues (a)
19

 
21

Adjusted EBITDA
69

 
56

Depreciation and amortization
5

 
5

ASPAC management and franchising
 
 
 
Management and franchise fees revenues
21

 
21

Other revenues from managed properties
19

 
16

Intersegment revenues (a)

 
1

Adjusted EBITDA
11

 
11

Depreciation and amortization

 

EAME/SW Asia management
 
 
 
Management and franchise fees revenues
16

 
18

Other revenues from managed properties
14

 
12

Intersegment revenues (a)
3

 
3

Adjusted EBITDA
6

 
11

Depreciation and amortization
1

 
2

Corporate and other
 
 
 
Revenues
9

 
30

Adjusted EBITDA
(41
)
 
(31
)
Depreciation and amortization
2

 
2

Eliminations (a)
 
 
 
Revenues
(22
)
 
(25
)
Adjusted EBITDA

 

Depreciation and amortization

 

TOTAL
 
 
 
Revenues
$
1,054

 
$
1,074

Adjusted EBITDA
169

 
172

Depreciation and amortization
79

 
95

(a)
Intersegment revenues are included in the management and franchise fees revenues and eliminated in Eliminations.
The table below shows summarized consolidated balance sheet information by segment:
Total Assets
 
 
 
 
March 31, 2015
 
December 31, 2014
Owned and leased hotels
$
5,703

 
$
5,682

Americas management and franchising
1,232

 
1,165

ASPAC management and franchising
104

 
106

EAME/SW Asia management
194

 
184

Corporate and other
3,903

 
4,030

Eliminations (a)
(3,227
)
 
(3,024
)
TOTAL
$
7,909

 
$
8,143

(a)
Segment assets include intercompany and investments in subsidiaries which are 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, 2015 and 2014.
 
Three Months Ended March 31,
 
2015
 
2014
Adjusted EBITDA
$
169

 
$
172

Equity losses from unconsolidated hospitality ventures
(6
)
 
(7
)
Gains on sales of real estate
8

 
61

Other loss, net (see Note 16)
(18
)
 
(12
)
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA
(23
)
 
(20
)
EBITDA
130

 
194

Depreciation and amortization
(79
)
 
(95
)
Interest expense
(17
)
 
(19
)
Provision for income taxes
(12
)
 
(24
)
Net income attributable to Hyatt Hotels Corporation
$
22

 
$
56

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,
 
2015
 
2014
Numerator:
 
 
 
Net income
$
22

 
$
56

Net income attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
22

 
$
56

Denominator:
 
 
 
Basic weighted average shares outstanding
147,285,258

 
155,449,102

Share-based compensation
1,354,053

 
1,041,764

Diluted weighted average shares outstanding
148,639,311

 
156,490,866

Basic Earnings Per Share:
 
 
 
Net income
$
0.15

 
$
0.36

Net income attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.15

 
$
0.36

Diluted Earnings Per Share:
 
 
 
Net income
$
0.15

 
$
0.36

Net income attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.15

 
$
0.36


The computations of diluted net income per share for the three months ended March 31, 2015 and 2014 do not include 2,500 and 135,000 shares of Class A common stock, respectively, assumed to be issued as stock-settled SARs because they are anti-dilutive.
Other Loss, Net
Other Loss, Net
OTHER LOSS, NET
The table below provides a reconciliation of the components in other loss, net, for the three months ended March 31, 2015 and 2014, respectively.
 
Three Months Ended March 31,
 
2015
 
2014
Performance guarantee expense
$
(16
)
 
$
(17
)
Foreign currency losses
(7
)
 

Interest income
2

 
2

Guarantee liability amortization
2

 
2

Other
1

 
1

Other loss, net
$
(18
)
 
$
(12
)
Significant Accounting Policies (Policies)
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.
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.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs that places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivative instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
We estimated the fair value of financing receivables using a 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.
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 a 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.
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, increasing to 12% per annum after the second year, with such dividends to be paid-in-kind.
Our portfolio of marketable securities consists of various types of money market funds, mutual funds, preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other U.S. government agencies, corporate debt securities, mortgage-backed securities, asset-backed securities and municipal and provincial notes and bonds. 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 fair value of our mutual funds were classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Time deposits are recorded at par value, which approximates fair value and are included within short-term investments and classified as Level Two. 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 have divided our financing receivables, which include loans and other financing arrangements, into two 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 underlying hotel properties currently in operation. At March 31, 2015 and December 31, 2014, these loans represent 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%. All secured financing to hotel owners financing receivables are scheduled to mature in 2015.
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 receivables have stated maturities and interest rates. However, the expected repayment terms may be dependent on the future cash flows of the hotels and these instruments, therefore, are not considered loans as the repayment dates are not fixed or determinable. Because the other types of financing arrangements are not considered loans, we do not include them in our impaired loans analysis.
We individually assess all loans in the secured financing to hotel owners portfolio and the unsecured financing to hotel owners portfolio for impairment. In addition to loans, we include other types of financing arrangements in the unsecured financing to hotel owners portfolio which we do not assess individually for impairment. However, we regularly evaluate our reserves for these other types of financing arrangements and record provisions in the financing receivables allowance as necessary. Impairment charges for loans within both 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.
We routinely evaluate loans within financing receivables for impairment. To determine whether an impairment has occurred, we evaluate the collectability of both interest and principal. A loan is considered to be impaired when the Company determines that it is probable that we will not be able to collect all amounts due under the contractual terms. We do not record interest income for impaired loans unless cash is received, in which case the payment is recorded to other loss, net in the accompanying condensed consolidated statements of income.
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 or (2) 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, 2015 and 2014, no interest income was accrued for secured financing to hotel owners and unsecured financing to hotel owners more than 90 days past due.
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 review the carrying value of our goodwill and indefinite-lived brand intangible asset 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. When determining fair value, 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 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. 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.
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 acquired franchise and management intangibles are generally amortized on a straight-line basis over their contract terms, which range from approximately 5 to 40 years and 20 to 30 years, respectively. 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.
With respect to certain debt repayment guarantees related to unconsolidated 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 generally based on each partner’s ownership percentage. In relation to the vacation ownership property debt repayment guarantee, for which we no longer have an investment in the unconsolidated venture, we have the ability to fully recover from third parties any amounts we may be required to fund.
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.
Performance Guarantees—Certain of our contractual agreements with third-party owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At inception of a performance guarantee, we recognize a guarantee obligation liability for the fair value of our guarantee obligation which we amortize into income using a systematic and rational risk-based approach over the term of the performance guarantee. To the extent we determine an obligation to fund under a guarantee is both probable and estimable, we record an expense for the separate contingent liability.
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 portion of the 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 Hyatt and generally insures our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses.
We act as general partner of various partnerships owning 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 reportable 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 portfolio of brands to franchisees located in the United States, 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 portfolio 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 portfolio of brands located primarily in Europe, Africa, the Middle East and India, as well as countries along the Persian Gulf, the Arabian Sea, and Nepal. 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 revenue and 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; gains on sales of real estate; other loss, net; depreciation and amortization; interest expense; and provision for income taxes.
Adopted Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2014-08 ("ASU 2014-08"), Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations and expands the required disclosures surrounding discontinued operations. The provisions of ASU 2014-08 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption was permitted for disposals that had not been reported in previously issued financial statements. We elected to early adopt ASU 2014-08 in the second quarter of 2014 and have no disposals which qualify as discontinued operations.
Future Adoption of Accounting Standards
In May 2014, the FASB released Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single, comprehensive revenue recognition model for contracts with customers. The provisions of ASU 2014-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is currently evaluating the impact of adopting ASU 2014-09.
In June 2014, the FASB released Accounting Standards Update No. 2014-10 (“ASU 2014-10”), Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 removes the financial reporting distinction between development stage entities and other reporting entities from GAAP and it eliminates an exception provided in the consolidation guidance for development stage enterprises. The provisions of ASU 2014-10 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. When adopted, ASU 2014-10 is not expected to materially impact our condensed consolidated financial statements.
In August 2014, the FASB released Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and the related footnote disclosures. The provisions of ASU 2014-15 are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. When adopted, ASU 2014-15 is not expected to materially impact our condensed consolidated financial statements.
In February 2015, the FASB released Accounting Standards Update No. 2015-01 (“ASU 2015-01”), Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates all requirements regarding the separate classification, presentation, and disclosure of extraordinary events and transactions. The provisions of ASU 2015-01 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. When adopted, ASU 2015-01 is not expected to materially impact our condensed consolidated financial statements.
In February 2015, the FASB released Accounting Standards Update No. 2015-02 (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance related to management’s evaluation of consolidation for certain legal entities. The provisions of ASU 2015-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating the impact of adopting ASU 2015-02.
Equity And Cost Method Investments (Tables)
Our equity and cost method investment balances recorded at March 31, 2015 and December 31, 2014 are as follows:
 
March 31, 2015
 
December 31, 2014
Equity method investments
$
319

 
$
311

Cost method investments
23

 
23

Total investments
$
342

 
$
334

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,
 
2015
 
2014
Total revenues
$
244

 
$
283

Gross operating profit
60

 
56

Loss from continuing operations
(13
)
 
(15
)
Net loss
(13
)
 
(15
)
Fair Value Measurement (Tables)
As of March 31, 2015 and December 31, 2014, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2015
 
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
$
37

 
$
37

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
345

 
345

 

 

Preferred shares
282

 

 

 
282

Time deposits
80

 

 
80

 

U.S. government obligations
123

 

 
123

 

U.S. government agencies
45

 

 
45

 

Corporate debt securities
146

 

 
146

 

Mortgage-backed securities
28

 

 
28

 

Asset-backed securities
33

 

 
33

 

Municipal and provincial notes and bonds
3

 

 
3

 


 
December 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
$
70

 
$
70

 
$

 
$

Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
341

 
341

 

 

Preferred shares
280

 

 

 
280

Time deposits
130

 

 
130

 

U.S. government obligations
127

 

 
127

 

U.S. government agencies
34

 

 
34

 

Corporate debt securities
128

 

 
128

 

Mortgage-backed securities
23

 

 
23

 

Asset-backed securities
23

 

 
23

 

Municipal and provincial notes and bonds
3

 

 
3

 

A summary of the significant assumptions used to estimate the fair value of our preferred investment in Playa as of March 31, 2015 and December 31, 2014, is as follows:
 
March 31, 2015
 
December 31, 2014
Expected term
0.50 years

 
0.75 years

Risk-free Interest Rate
0.14
%
 
0.19
%
Volatility
43.0
%
 
43.9
%
Dividend Yield
10
%
 
10
%
As of March 31, 2015 and December 31, 2014, the cost or amortized cost value for our preferred investment in Playa was $271 million and the fair value of this AFS debt security was as follows: 
 
Fair Value Measurements at Reporting Date using Significant Unobservable Inputs (Level 3) - Preferred Shares
 
2015
 
2014
Fair value at January 1, recorded in other assets
$
280

 
$
278

Gross unrealized gains, recorded in other comprehensive income (loss)
2

 

Gross unrealized losses, recorded in other comprehensive income (loss)

 
(2
)
Fair value at March 31, recorded in other assets
$
282

 
$
276

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

 
Asset (Liability)
 
March 31, 2015
 
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, net (current and long-term)
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
26

 
$
29

 
$

 
$

 
$
29

Unsecured financing to hotel owners
19

 
19

 

 

 
19

Debt, excluding capital lease obligations
(1,362
)
 
(1,479
)
 

 
(1,327
)
 
(152
)

 
Asset (Liability)
 
December 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, net (current and long-term)
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
26

 
$
29

 
$

 
$

 
$
29

Unsecured financing to hotel owners
15

 
14

 

 

 
14

Debt, excluding capital lease obligations
(1,373
)
 
(1,479
)
 

 
(1,319
)
 
(160
)
Financing Receivables (Tables)
The two portfolio segments of financing receivables and their balances at March 31, 2015 and December 31, 2014 are as follows:
 
March 31, 2015