HYATT HOTELS CORP, 10-Q filed on 8/1/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 27, 2018
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 Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Trading Symbol h  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   43,269,180
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   68,069,643
v3.10.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
May 16, 2018
Feb. 14, 2018
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
REVENUES:            
Total revenues     $ 1,133 $ 1,149 $ 2,242 $ 2,275
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:            
Depreciation and amortization     79 86 162 173
Other direct costs     7 1 15 17
Selling, general, and administrative     83 90 178 189
Direct and selling, general, and administrative expenses     1,026 1,048 2,056 2,119
Net gains and interest income from marketable securities held to fund rabbi trusts     6 9 9 24
Equity earnings (losses) from unconsolidated hospitality ventures     2 1 (11) (2)
Interest expense     (19) (20) (38) (41)
Gains on sales of real estate     1 60 530 60
Other income (loss), net     5 5 (13) 48
INCOME BEFORE INCOME TAXES     102 156 663 245
PROVISION FOR INCOME TAXES     (25) (53) (175) (87)
NET INCOME     77 103 488 158
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS     0 0 0 0
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION     $ 77 $ 103 $ 488 $ 158
EARNINGS PER SHARE—Basic            
Net income (in dollars per share)     $ 0.67 $ 0.82 $ 4.19 $ 1.24
Net income attributable to Hyatt Hotels Corporation (in dollars per share)     0.67 0.82 4.19 1.24
EARNINGS PER SHARE—Diluted            
Net income (in dollars per share)     0.66 0.81 4.12 1.22
Net income attributable to Hyatt Hotels Corporation (in dollars per share)     0.66 0.81 4.12 1.22
CASH DIVIDENDS DECLARED PER SHARE (in dollars per share) $ 0.15 $ 0.15 $ 0.15 $ 0 $ 0.3 $ 0
Owned and leased hotels            
REVENUES:            
Total revenues     $ 485 $ 576 $ 1,000 $ 1,145
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:            
Owned and leased hotels     357 428 741 852
Costs incurred on behalf of managed and franchised properties     357 428 741 852
Management, franchise, and other fees            
REVENUES:            
Total revenues     142 130 274 244
Amortization of management and franchise agreement assets constituting payments to customers            
REVENUES:            
Total revenues     (5) (5) (10) (9)
Net management, franchise, and other fees            
REVENUES:            
Total revenues     137 125 264 235
Other revenues            
REVENUES:            
Total revenues     9 5 20 22
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties            
REVENUES:            
Total revenues     502 443 958 873
Costs incurred on behalf of managed and franchised properties            
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:            
Owned and leased hotels     500 443 960 888
Costs incurred on behalf of managed and franchised properties     $ 500 $ 443 $ 960 $ 888
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income $ 77 $ 103 $ 488 $ 158
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments, net of tax benefit of $1 for the three and six months ended June 30, 2018 and $- for the three and six months ended June 30, 2017 (46) 19 (23) 60
Unrealized gains on available-for-sale debt securities, net of tax expense of $- for the three and six months ended June 30, 2018 and June 30, 2017, and unrealized gains on available-for-sale equity securities, net of tax expense of $7 and $28 for the three and six months ended June 30, 2017 0 11 0 45
Other comprehensive income (loss) (46) 30 (23) 105
COMPREHENSIVE INCOME 31 133 465 263
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0 0 0
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 31 $ 133 $ 465 $ 263
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - Parentheticals - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Foreign currency translation adjustments, net of tax benefit $ 1 $ 0 $ 1 $ 0
Unrealized gains on available-for-sale debt securities tax $ 0 0 $ 0 0
Unrealized gains on available-for-sale equity securities tax   $ 7   $ 28
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 628 $ 503
Restricted cash 254 [1] 234
Short-term investments 154 49
Receivables, net of allowances of $24 and $21 at June 30, 2018 and December 31, 2017, respectively 379 350
Inventories 13 14
Prepaids and other assets 152 153
Prepaid income taxes 12 24
Assets held for sale 135 0
Total current assets 1,727 1,327
Investments 207 212
Property and equipment, net 3,376 4,034
Financing receivables, net of allowances 14 19
Goodwill 152 150
Intangibles, net 294 305
Deferred tax assets 153 141
Other assets 1,393 1,384
TOTAL ASSETS 7,316 7,572
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 130 136
Accrued expenses and other current liabilities 300 352
Current contract liabilities 335 348
Accrued compensation and benefits 112 145
Liabilities held for sale 28 0
Total current liabilities 916 992
Long-term debt 1,429 1,440
Long-term contract liabilities 429 424
Other long-term liabilities 841 863
Total liabilities 3,615 3,719
Commitments and contingencies
Redeemable noncontrolling interest in preferred shares of a subsidiary 0 10
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at June 30, 2018 and December 31, 2017 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 43,489,266 issued and outstanding at June 30, 2018, and Class B common stock, $0.01 par value per share, 400,364,055 shares authorized, 68,069,643 shares issued and outstanding at June 30, 2018. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 48,231,149 issued and outstanding at December 31, 2017, and Class B common stock, $0.01 par value per share, 402,748,249 shares authorized, 70,753,837 1 1
Additional paid-in capital 399 967
Retained earnings 3,571 3,054
Accumulated other comprehensive loss (276) (185)
Total stockholders’ equity 3,695 3,837
Noncontrolling interests in consolidated subsidiaries 6 6
Total equity 3,701 3,843
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY $ 7,316 $ 7,572
[1] Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, captive insurance subsidiary requirements, debt service on bonds, escrow deposits, and other arrangements.
v3.10.0.1
Condensed Consolidated Balance Sheet - Parentheticals - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Allowance for doubtful accounts receivable, current $ 24 $ 21
Preferred stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares outstanding (in shares) 0 0
Common stock, shares, issued (in shares) 0  
Common Class A    
Common stock, par value per share (in dollars 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) 43,489,266 48,231,149
Common stock, shares, issued (in shares) 43,489,266 48,231,149
Common Class B    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 400,364,055 402,748,249
Common stock, shares, outstanding (in shares) 68,069,643 70,753,837
Common stock, shares, issued (in shares) 68,069,643 70,753,837
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 488 $ 158
Adjustments to reconcile net income to net cash provided by operating activities:    
Gains on sales of real estate (530) (60)
Depreciation and amortization 162 173
Deferred income taxes (12) (8)
Equity losses from unconsolidated hospitality ventures 11 2
Amortization of management and franchise agreement assets constituting payments to customers 10 9
Realized losses 2 41
Working capital changes and other (101) (5)
Net cash provided by operating activities 30 310
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (439) (251)
Proceeds from marketable securities and short-term investments 347 252
Contributions to equity method and other investments (24) (23)
Return of equity method and other investments 13 200
Acquisitions, net of cash acquired (5) (243)
Capital expenditures (121) (133)
Proceeds from sales of real estate, net of cash disposed 992 296
Other investing activities 11 (8)
Net cash provided by investing activities 774 90
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from debt 20 420
Repayments of debt (22) (295)
Repurchases of common stock (588) (348)
Proceeds from redeemable noncontrolling interest in preferred shares in a subsidiary 0 9
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary (10) 0
Dividends paid (35) 0
Other financing activities (12) (5)
Net cash used in financing activities (647) (219)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 2
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, INCLUDING CASH CLASSIFIED WITHIN CURRENT ASSETS HELD FOR SALE 158 183
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH RECLASSIFIED TO ASSETS HELD FOR SALE (9) 0
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 149 183
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 752 573
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 901 $ 756
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash and cash equivalents $ 628 $ 400
Restricted cash [1] 254 340
Restricted cash included in other assets [1] 19 16
Total cash, cash equivalents, and restricted cash 901 756
Cash paid during the period for interest 37 40
Cash paid during the period for income taxes 213 63
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method investments 53 4
Change in accrued capital expenditures $ 5 $ 23
[1] Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, captive insurance subsidiary requirements, debt service on bonds, escrow deposits, and other arrangements.
v3.10.0.1
Organization
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness-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 branded spas and fitness studios, and timeshare, fractional, and other forms of residential or vacation properties. At June 30, 2018, (i) we operated or franchised 343 full service hotels, comprising 132,041 rooms throughout the world, (ii) we operated or franchised 401 select service hotels, comprising 56,869 rooms, of which 352 hotels are located in the United States, and (iii) our portfolio included 6 franchised all inclusive Hyatt-branded resorts, comprising 2,401 rooms, and 3 destination wellness resorts, comprising 399 rooms. At June 30, 2018, our portfolio of properties operated in 59 countries around the world.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us", or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries and (ii) the term "portfolio of properties" refers to hotels and other properties, including branded spas and fitness studios and residential vacation ownership units, that we develop, own, operate, manage, franchise, license, or provide services to, including under our Park Hyatt, Miraval, Grand Hyatt, Hyatt Regency, Hyatt, Andaz, Hyatt Centric, The Unbound Collection by Hyatt, Hyatt Place, Hyatt House, Hyatt Ziva, Hyatt Zilara, exhale, and Hyatt Residence 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, 2017 (the "2017 Form 10-K").
We have eliminated all intercompany accounts and transactions in our condensed consolidated financial statements. We consolidate entities under our control, including entities where we are deemed to be the primary beneficiary.
Management believes 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.
v3.10.0.1
Recently Issued Accounting Pronouncements
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Recently Issued Accounting Pronouncements
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Summary of Significant Accounting Policies
Our significant accounting policies are detailed in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 2 to our Consolidated Financial Statements" within the 2017 Form 10-K. Upon adoption of Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606) and Accounting Standards Update No. 2016-01 ("ASU 2016-01"), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, our accounting policies have been revised as follows:
Revenue Recognition—Our revenues are primarily derived from the following products and services and are generally recognized when control of the product or service has transferred to the customer:
Owned and leased hotels revenues:
Owned and leased hotels revenues are derived from room rentals and services provided at our owned and leased properties and are recognized over time as rooms are occupied and when services are rendered. We present revenues net of sales, occupancy, and other taxes. Taxes collected on behalf of and remitted to governmental taxing authorities are excluded from the transaction price of the underlying products and services. In relation to the loyalty program, a portion of our owned and leased hotels revenues is deferred upon initial stay as points are earned by program members at an owned or leased hotel, and revenues are recognized upon redemption at an owned or leased hotel.
Management, franchise, and other fees:
Management fees primarily consist of a base fee, which is generally computed as a percentage of gross revenues, and an incentive fee, which is generally computed based on a hotel profitability measure. Management fees are recognized over time as services are performed. Additionally, included within our management fees are royalty fees that we recognize as owners derive value from access to Hyatt’s intellectual property ("IP"), including our brand names. Incentive fees may be subject to minimum annual profitability thresholds, and we recognize incentive fee revenues over time as services are rendered only to the extent that a significant reversal is not probable.
Franchise fees consist of an initial fee and ongoing royalty fees calculated based on a percentage of gross room revenues and, as applicable, food and beverage revenues. Royalty fees are recognized over time as franchisees derive value from the license to Hyatt's IP. Initial fees are deferred and recognized over the expected customer life, which is typically the initial term of the franchise agreement.
Management, franchise, and other fees include license fee revenues associated with the licensing of the Hyatt brand name through our co-branded credit card program. License fee revenues are recognized over time as the licensee derives value from access to Hyatt’s brand names.
Net management, franchise, and other fees are reduced by the amortization of management and franchise agreement assets constituting payments to customers ("Contra revenue"). Consideration provided to customers is recognized in other assets and amortized over the expected customer life, which is typically the initial term of the management or franchise agreement.
Other revenues:
Other revenues include revenues from the sale of promotional awards through our co-branded credit card and spa and fitness revenues from exhale. We recognize the revenue from our co-branded credit card upon the fulfillment or expiration of a card member's promotional awards. Revenue is recognized net of expenses incurred to fulfill the promotional award as we are deemed the agent in the transaction. Spa and fitness revenues are recognized at the point in time the products or services are provided to the customer.
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties:
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties represent the reimbursement of costs incurred on behalf of the owners of properties. These costs relate primarily to payroll costs at managed properties where we are the employer, as well as costs associated with reservations, sales, marketing, technology (collectively, "systemwide services"), and the loyalty program operated on behalf of owners. Hyatt is reimbursed for costs incurred based on the terms of the contracts, and revenue is recognized as the underlying performance obligations are satisfied.
Gains on Sales of Real Estate—Gains on sales of real estate are generally recognized when control of the property transfers to the buyer.
Equity Method Investments—We have investments in unconsolidated hospitality ventures accounted for under the equity method. These investments are an integral part of our business and are strategically and operationally important to our overall results. When we receive a distribution from an investment, we determine whether it is a return on our investment or a return of our investment based on the underlying nature of the distribution. We assess investments in unconsolidated hospitality ventures for impairment quarterly.
Debt and Equity Securities—Excluding equity securities classified as equity method investments, debt and equity securities consist of various investments:
Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our condensed consolidated balance sheets based on listed market prices or dealer quotations where available. Equity investments without a readily determinable fair value are recognized at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.
Debt securities consist of various types including preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds. Debt securities are classified as either trading, available for sale ("AFS"), or held to maturity ("HTM").
Trading securities—recognized at fair value based on listed market prices or dealer price quotations where available. Net gains and losses on trading securities are reflected in net gains and interest income from marketable securities held to fund rabbi trusts or other income (loss), net, depending on the nature of the investment, on our condensed consolidated statements of income.
AFS securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our condensed consolidated balance sheets. Realized gains and losses on debt securities are recognized in other income (loss), net on our condensed consolidated statements of income.
HTM securities—debt security investments which we have the ability to hold until maturity and are recorded at amortized cost.
AFS and HTM debt securities are assessed for impairment quarterly.
Loyalty Program—We administer the loyalty program for the benefit of the Hyatt portfolio of properties owned, operated, managed, franchised, or licensed by us during the period of their participation in the loyalty program. The loyalty program is primarily funded through contributions from eligible revenues from loyalty program members, and the funds are used for the redemption of member awards and payment of operating expenses.
The costs of operating the loyalty program, including the estimated cost of award redemption, are charged to the participating properties based on members' qualified expenditures. The revenues received from the properties are deferred, and revenues are recognized as loyalty points are redeemed, net of redemption expense, through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. Operating costs are expensed as incurred through costs incurred on behalf of managed and franchised properties.
We actuarially determine the amount to recognize as revenue when points are redeemed based on statistical formulas that estimate the timing of future point redemptions based on historical experience, including an estimate of breakage for points that will not be redeemed, and an estimate of the points that will eventually be redeemed. Any revenues in excess of the anticipated future redemptions are used to fund the operational expenses of the program.
The loyalty program is funded by payments from the properties and returns on marketable securities. The program invests amounts received from the properties in marketable securities which are included in other current and noncurrent assets (see Note 4). The current and noncurrent deferred revenue liabilities of the loyalty program are classified as contract liabilities (see Note 3).
Adopted Accounting Standards
Revenue from Contracts with Customers—In May 2014, the Financial Accounting Standards Board ("FASB") released ASU 2014-09. ASU 2014-09 supersedes the requirements in Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for contracts with customers. Subsequently, the FASB issued several related ASUs which further clarified the application of the standard including ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year making it effective for interim and fiscal years beginning after December 14, 2017.
We adopted ASU 2014-09, and all related ASUs, utilizing the full retrospective transition method on January 1, 2018, which required us to adjust each prior reporting period presented. The adoption of ASU 2014-09 impacts the timing of the recognition of gains on sales of real estate subject to a long-term management agreement, and the associated impact to deferred tax assets (see Note 11), the classification of Contra revenue, and the timing of revenue recognition related to incentive fees. However, we do not expect the new standard to have a significant impact on incentive fee revenue on a full-year basis. The adoption of ASU 2014-09 also impacts the timing of revenue recognition related to the loyalty program and as a result of the change, we recognized an increase of $116 million to the contract liability related to the loyalty program at January 1, 2018. Upon adoption of ASU 2014-09, we recognized a cumulative effect of a change in accounting principle through retained earnings, including a reclassification of $523 million related to deferred gains at January 1, 2018. We also reclassified certain management and franchise agreement assets from intangibles, net to other assets and certain current and long-term liabilities to current and long-term contract liabilities.
Financial Instruments - Recognition, Measurement, Presentation, and Disclosure—In January 2016, the FASB released ASU 2016-01. ASU 2016-01 revised the accounting for equity investments, excluding those accounted for under the equity method, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 superseded the guidance to classify equity securities with readily determinable fair values into different categories (i.e., trading versus AFS) and requires all equity securities to be measured at fair value on a recurring basis unless an equity security does not have a readily determinable fair value. Equity securities without a readily determinable fair value are remeasured at fair value only in periods in which an observable price change is available or upon identification of an impairment. All changes in fair value are recognized in net income on our condensed consolidated statements of income.
On January 1, 2018, we adopted the provisions of ASU 2016-01 on a modified retrospective basis through a cumulative-effect adjustment to our opening condensed consolidated balance sheet. Upon adoption, unrealized gains of $68 million, net of tax, were reclassified from accumulated other comprehensive loss to opening retained earnings.
Accounting for Income Taxes - Intra-Entity Asset Transfers—In October 2016, the FASB released Accounting Standards Update No. 2016-16 ("ASU 2016-16"), Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted ASU 2016-16 on January 1, 2018 on a modified retrospective basis resulting in a decrease of $4 million to retained earnings.
Statement of Cash Flows - Restricted Cash—In November 2016, the FASB released Accounting Standards Update No. 2016-18 ("ASU 2016-18"), Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires amounts generally described as restricted cash to be included within cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the condensed consolidated statements of cash flows. We adopted the provisions of ASU 2016-18 on January 1, 2018 on a retrospective basis. Upon adoption of ASU 2016-18, restricted cash of $249 million, including $15 million which is recognized within other assets on our consolidated balance sheet at December 31, 2017, is included within the beginning balance of cash and cash equivalents on our condensed consolidated statement of cash flows for the six months ended June 30, 2018. The table below summarizes the changes on our condensed consolidated statements of cash flows for the six months ended June 30, 2017:
 
Six Months Ended June 30,
 
2017
Operating activities
$
1

Investing activities
262

Financing activities
2

Cash, cash equivalents, and restricted cash - beginning of year
91

Cash, cash equivalents, and restricted cash - end of period
$
356


Business Combinations - Definition of a Business—In January 2017, the FASB released Accounting Standards Update No. 2017-01 ("ASU 2017-01"), Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. Generally, our acquisitions and dispositions of individual hotels were previously accounted for as business combinations, however, upon adoption of ASU 2017-01, there is an increased likelihood that certain acquisitions and dispositions of individual hotels will be accounted for as asset transactions. We adopted ASU 2017-01 on January 1, 2018 on a prospective basis and evaluate the impact of the standard on acquisitions and dispositions based on the relevant facts and circumstances.
Derivatives and Hedging - Accounting for Hedging Activities—In August 2017, the FASB released Accounting Standards Update No. 2017-12 ("ASU 2017-12") to improve the financial reporting of hedging relationships to better portray the economic results by making improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU 2017-12 is effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted ASU 2017-12 on April 1, 2018 on a modified retrospective basis, which did not impact our condensed consolidated financial statements upon adoption.

The impact of the changes made to our condensed consolidated financial statements as a result of the adoption of ASU 2014-09, ASU 2016-01, and ASU 2016-16 were as follows:
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
$
577

 
$
(1
)
 
$
576

 
$
1,149

 
$
(4
)
 
$
1,145

Management, franchise, and other fees
130

 

 
130

 
252

 
(8
)
 
244

Amortization of management and franchise agreement assets constituting payments to customers

 
(5
)
 
(5
)
 

 
(9
)
 
(9
)
Net management, franchise, and other fees
130

 
(5
)
 
125

 
252

 
(17
)
 
235

Other revenues
15

 
(10
)
 
5

 
37

 
(15
)
 
22

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties
473

 
(30
)
 
443

 
944

 
(71
)
 
873

Total revenues
1,195

 
(46
)
 
1,149

 
2,382

 
(107
)
 
2,275

DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
430

 
(2
)
 
428

 
857

 
(5
)
 
852

Depreciation and amortization
91

 
(5
)
 
86

 
182

 
(9
)
 
173

Other direct costs
6

 
(5
)
 
1

 
25

 
(8
)
 
17

Selling, general, and administrative
90

 

 
90

 
189

 

 
189

Costs incurred on behalf of managed and franchised properties
473

 
(30
)
 
443

 
944

 
(56
)
 
888

Direct and selling, general, and administrative expenses
1,090

 
(42
)
 
1,048

 
2,197

 
(78
)
 
2,119

Net gains and interest income from marketable securities held to fund rabbi trusts
10

 
(1
)
 
9

 
25

 
(1
)
 
24

Equity earnings (losses) from unconsolidated hospitality ventures
1

 

 
1

 
(2
)
 

 
(2
)
Interest expense
(20
)
 

 
(20
)
 
(41
)
 

 
(41
)
Gains on sales of real estate
34

 
26

 
60

 
34

 
26

 
60

Other income (loss), net
2

 
3

 
5

 
42

 
6

 
48

INCOME BEFORE INCOME TAXES
132

 
24

 
156

 
243

 
2

 
245

PROVISION FOR INCOME TAXES
(45
)
 
(8
)
 
(53
)
 
(86
)
 
(1
)
 
(87
)
NET INCOME
87

 
16

 
103

 
157

 
1

 
158

NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
87

 
$
16

 
$
103

 
$
157

 
$
1

 
$
158

EARNINGS PER SHARE—Basic
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.69

 
$
0.13

 
$
0.82

 
$
1.23

 
$
0.01

 
$
1.24

Net income attributable to Hyatt Hotels Corporation
$
0.69

 
$
0.13

 
$
0.82

 
$
1.23

 
$
0.01

 
$
1.24

EARNINGS PER SHARE—Diluted
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.68

 
$
0.13

 
$
0.81

 
$
1.22

 
$

 
$
1.22

Net income attributable to Hyatt Hotels Corporation
$
0.68

 
$
0.13

 
$
0.81

 
$
1.22

 
$

 
$
1.22


 
December 31, 2017
 
January 1, 2018
 

As Reported
 
Effect of the adoption of
ASU 2014-09
 

As Adjusted
 
Effect of the adoption of ASU 2016-01 and ASU 2016-16
 
As Adjusted
ASSETS
 
 
 
 
 
 
 
 
 
Investments
$
211

 
$
1

 
$
212

 
$
(27
)
 
$
185

Intangibles, net
683

 
(378
)
 
305

 

 
305

Deferred tax assets
242

 
(101
)
 
141

 
1

 
142

Other assets
1,006

 
378

 
1,384

 
22

 
1,406

TOTAL ASSETS
7,672

 
(100
)
 
7,572

 
(4
)
 
7,568

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
 
 
 
 

Accounts payable
$
175

 
$
(39
)
 
$
136

 
$

 
$
136

Accrued expenses and other current liabilities
635

 
(283
)
 
352

 

 
352

Current contract liabilities

 
348

 
348

 

 
348

Long-term contract liabilities

 
424

 
424

 

 
424

Other long-term liabilities
1,725

 
(862
)
 
863

 

 
863

Total liabilities
4,131

 
(412
)
 
3,719

 

 
3,719

Retained earnings
2,742

 
312

 
3,054

 
64

 
3,118

Accumulated other comprehensive loss
(185
)
 

 
(185
)
 
(68
)
 
(253
)
Total equity
3,531

 
312

 
3,843

 
(4
)
 
3,839

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
7,672

 
(100
)
 
7,572

 
(4
)
 
7,568


The adoption of ASU 2014-09 resulted in a reclassification of $10 million from investing into operating activities during the six months ended June 30, 2017 related to cash outflows representing payments to customers. There were no impacts to cash provided by or used in financing activities on our condensed consolidated statements of cash flows.
Future Adoption of Accounting Standards
Leases—In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability; the accounting for lessors remains largely unchanged. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. The real estate leases for a majority of our owned and leased hotels include contingent lease payments, which will be excluded from the impact of ASU 2016-02. We are currently evaluating the impact of adopting ASU 2016-02 and expect this ASU may have a material effect to our condensed consolidated financial statements.
Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss model, which requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to AFS debt securities to be recognized through an allowance for credit losses. The provisions of ASU 2016-13 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-13.
v3.10.0.1
Revenue Recognition
6 Months Ended
Jun. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
We provide products and services to our customers including third-party hotel owners, guests at owned and leased hotels and spa and fitness centers, and a third-party partner through our co-branded credit card program. The products and services offered are comprised of the following performance obligations:
Management and Franchise Agreements:
License to Hyatt’s IP, including the Hyatt brand names—We receive variable consideration from third-party hotel owners in exchange for providing access to our IP, including the Hyatt brand names. The license represents a license of symbolic IP and in exchange for providing the license, Hyatt receives sales-based royalty fees. Royalty fees are generally determined based on a percentage of gross revenues for managed hotels and are generally included in the hotel management fee. Royalty fees for franchised hotels are based on a percentage of gross room revenues and, as applicable, food and beverage revenues. Fees generally are payable on a monthly basis as the third-party hotel owners derive value from access to our IP. Royalty fees are recognized over time through management, franchise, and other fees as services are rendered. Under our franchise agreements, we also receive initial fees from third-party hotel owners. The initial fees do not represent a distinct performance obligation and, therefore, are combined with the royalty fees and recognized through management, franchise, and other fees over the expected customer life.
Systemwide services—We provide sales, reservations, technology, and marketing services on behalf of owners of managed and franchised properties. The promise to provide systemwide services is not a distinct performance obligation because it is attendant to the license of our IP. Therefore, the promise to provide systemwide services is combined with the license of our IP to form a single performance obligation. We have two accounting models depending on the terms of the agreements:
Cost reimbursement model—Third-party hotel owners are required to reimburse us for all costs incurred to operate the systemwide programs with no added margin. The reimbursements are recognized over time within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal with respect to the promise to provide systemwide services. Expenses incurred related to the systemwide programs are recognized within costs incurred on behalf of managed and franchised properties. The reimbursement of systemwide services is billed on a monthly basis based upon an annual estimate of costs to be incurred and are recognized as revenue commensurate with incurring the cost. To the extent that actual costs vary from estimated costs, a true-up billing or refund is issued to the hotels. Any amounts collected and not yet recognized as revenues are deferred and classified as contract liabilities. Any costs incurred in excess of revenues collected are classified as receivables.
Fund model—Third-party hotel owners are invoiced a systemwide assessment fee primarily based on a percentage of hotel revenues on a monthly basis. We recognize the revenues over time as services are provided through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal with respect to systemwide services. Expenses related to the systemwide programs are recognized as incurred through costs incurred on behalf of managed and franchised properties. Over time, we manage the systemwide programs to break-even, but the timing of the revenue received from the owners may not align with the timing of the expenses to operate the programs. Therefore, the difference between the revenues and expenses may impact our net income.
Hotel management agreement services—We provide hotel management agreement services, which form a single performance obligation that qualifies as a series, under the terms of our management agreements. In exchange for providing these services, we receive variable consideration in the form of management fees, which are comprised of base and incentive fees. Incentive fees are typically subject to the achievement of certain annual profitability targets, and therefore, we apply judgment in determining the amount of incentive fees recognized each period. Incentive fees revenue is recognized to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. We rely on internal financial forecasts and historical trends to estimate the amount of incentive fees revenue recognized and the probability that incentive fees will reverse in the future. Generally, base management fees are due and payable on a monthly basis as services are provided, and incentive fees are due and payable based on the terms of the agreement, but at a minimum, incentive fees are billed and collected annually. Revenue is recognized over time through management, franchise, and other fees.
Under the terms of certain management agreements, primarily within the United States, we are the employer of hotel employees. When we are the employer, we are reimbursed for costs incurred related to the employee management services with no added margin, and the reimbursements are recognized over time as services are rendered within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. In jurisdictions in which we are the employer, we have discretion over how employee management services are provided and, therefore, we are the principal and revenues are recognized on a gross basis.
Loyalty program administration—We administer the loyalty program for the benefit of the Hyatt portfolio of properties owned, managed, franchised, or licensed by us. Under the program, members earn loyalty points that can be redeemed for future products and services. Points earned by loyalty program members represent a material right to free or discounted goods or services in the future.
The loyalty program has one performance obligation that consists of marketing and managing the program and arranging for award redemptions by members. The costs of operating the loyalty program are charged to the properties through an assessment fee based on members’ qualified expenditures. The assessment fee is billed and collected monthly, and the revenue received by the program is deferred until a member redeems points. Upon redemption of points at managed and franchised properties, we recognize the previously deferred revenue through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties, net of redemption expense paid to managed and franchised hotels. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent with respect to this performance obligation for managed and franchised hotels, and we are the principal with respect to owned hotels. When loyalty points are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues on our condensed consolidated statements of income.
The revenue recognized each period includes an estimate of breakage for the loyalty points that will not be redeemed. Determining breakage involves significant judgment, and we engage third-party actuaries to estimate the ultimate redemption ratios used in the breakage calculations and to estimate the amount of revenue recognized upon redemption. Changes to the expected ultimate redemption assumptions are reflected in the current period.
Room rentals and other services provided at owned and leased hotels—We provide room rentals and other services to our guests, including but not limited to spa, laundry, and parking. These products and services each represent individual performance obligations and, in exchange for these services, we receive fixed amounts based on published rates or negotiated contracts. Payment is due in full at the time the services are rendered or the goods are provided. If a guest enters into a package including multiple goods or services, the fixed price is allocated to each distinct good or service based on the stand-alone selling price for each item. Revenue is recognized over time within owned and leased hotels revenues when we transfer control of the good or service to the customer. Room rental revenue is recognized on a daily basis as the guest occupies the room, and revenue related to other products and services is recognized when the product or service is provided to the guest.
Hotels commonly enter into arrangements with online travel agencies, trade associations, and other entities. As part of these arrangements, Hyatt may pay the other party a commission or rebate based on the revenue generated through that channel. The determination of whether to recognize revenues gross or net of rebates and commission is made based on the terms of each contract.
Spa and fitness services—Exhale spa and fitness studios provide guests with spa and fitness services as well as retail products in exchange for fixed consideration. Each spa and fitness service represents an individual performance obligation. Payment is due in full and revenue is recognized at the point in time the services are rendered or the products are delivered. If a guest purchases a spa or fitness package, the fixed price is allocated to each distinct product or service based on the published stand-alone selling price for each item and revenues are recognized as the services are rendered.
Co-branded credit card—We have a co-branded credit card agreement with a third party and under the terms of the agreement, we have various performance obligations: granting a license to the Hyatt name, arranging for the fulfillment of points issued to cardholders through the loyalty program, and awarding cardholders with free room nights upon achievement of certain program milestones. The loyalty points and free room nights represent material rights that can be redeemed for free or discounted services in the future.
In exchange for the products and services provided, we receive fixed and variable consideration which is allocated between the performance obligations based upon the relative stand-alone selling prices. Significant judgment is involved in determining the relative stand-alone selling prices, and therefore, we engaged a third-party valuation specialist to assist us. We utilize a relief from royalty method to determine the revenue allocated to the license, which is recognized over time. We utilize observable transaction prices and adjusted market assumptions to determine the stand-alone selling price of a loyalty point, and we utilize a cost plus margin approach to determine the stand-alone selling price of the free room nights. The revenues allocated to loyalty program points and free night awards are deferred and recognized upon redemption, net of redemption expense, as we are deemed to be the agent in the transaction. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent for managed and franchised hotels and we are the principal with respect to owned hotels. When loyalty points and free nights are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues on our condensed consolidated statements of income.
We satisfy the following performance obligations over time: the license of Hyatt’s symbolic IP, hotel management agreement services, administration of the loyalty program, and the license to our brand name through our co-branded credit card agreement. Each of these performance obligations is considered a sales-based royalty or a series of distinct services, and although the activities to fulfill each of these promises may vary from day to day, the nature of each promise is the same and the customer benefits from the services every day.
For each performance obligation satisfied over time, we recognize revenue using an output method based on the value transferred to the customer. Revenue is recognized based on the transaction price and the observable outputs related to each performance obligation. We deem the following to be a faithful depiction of our progress in satisfying these performance obligations:
revenues and operating profits earned by the hotels during the reporting period for access to Hyatt’s IP, as it is indicative of the value third-party owners derive;
underlying revenues and operating profits of the hotels for the promise to provide management agreement services to the hotels;
award night redemptions for the administration of the loyalty program performance obligation; and  
cardholder spend for the license to the Hyatt name through our co-branded credit card, as it is indicative of the value our partner derives from the use of our name.
Within our management agreements, we have two performance obligations: providing a license to Hyatt’s IP and providing management agreement services. Although these constitute two separate performance obligations, both obligations represent services that are satisfied over time, and Hyatt recognizes revenue using an output method based on the performance of the hotel. Therefore, we have not allocated the transaction price between these two performance obligations as the allocation would result in the same pattern of revenue recognition.
Disaggregated Revenues
The following tables present our revenues disaggregated by the nature of the product or service:
 
Three months ended June 30, 2018
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
275

$

$

$

$
6

$
(10
)
$
271

Food and beverage
169




3


172

Other
34




8


42

Owned and leased hotels
478




17

(10
)
485

 
 
 
 
 
 
 
 
Base management fees

53

10

9


(13
)
59

Incentive management fees

20

17

9


(8
)
38

Franchise fees

34

1




35

Other fees

1

2

1

1


5

License fees




5


5

Management, franchise, and other fees

108

30

19

6

(21
)
142

Contra revenue

(3
)

(2
)


(5
)
Net management, franchise, and other fees

105

30

17

6

(21
)
137

 
 
 
 
 
 
 
 
Other revenues




8

1

9

 
 
 
 
 
 
 
 
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties

461

23

17

1


502

 
 
 
 
 
 
 
 
Total
$
478

$
566

$
53

$
34

$
32

$
(30
)
$
1,133

 
Six months ended June 30, 2018
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
572

$

$

$

$
13

$
(19
)
$
566

Food and beverage
341




5


346

Other
72




16


88

Owned and leased hotels
985




34

(19
)
1,000

 
 
 
 
 
 
 
 
Base management fees

102

21

16


(27
)
112

Incentive management fees

33

34

19


(14
)
72

Franchise fees

62

1




63

Other fees

9

4

2

2


17

License fees




10


10

Management, franchise, and other fees

206

60

37

12

(41
)
274

Contra revenue

(6
)
(1
)
(3
)


(10
)
Net management, franchise, and other fees

200

59

34

12

(41
)
264

 
 
 
 
 
 
 
 
Other revenues




17

3

20

 
 
 
 
 
 
 
 
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties

881

43

33

1


958

 
 
 
 
 
 
 
 
Total
$
985

$
1,081

$
102

$
67

$
64

$
(57
)
$
2,242

 
Three months ended June 30, 2017
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
331

$

$

$

$
6

$
(10
)
$
327

Food and beverage
197




3


200

Other
41




8


49

Owned and leased hotels
569




17

(10
)
576

 







Base management fees

52

9

8


(17
)
52

Incentive management fees

19

15

7


(7
)
34

Franchise fees

29

1




30

Other fees

5

2

1

1


9

License fees




5


5

Management, franchise, and other fees

105

27

16

6

(24
)
130

Contra revenue

(3
)
(1
)
(1
)


(5
)
Net management, franchise, and other fees

102

26

15

6

(24
)
125

 
 
 
 
 
 
 
 
Other revenues




3

2

5

 







Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties

409

20

14



443

 







Total
$
569

$
511

$
46

$
29

$
26

$
(32
)
$
1,149

 
Six months ended June 30, 2017
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
657

$

$

$

$
12

$
(19
)
$
650

Food and beverage
392




6


398

Other
82




15


97

Owned and leased hotels
1,131




33

(19
)
1,145

 
 
 
 
 
 
 
 
Base management fees

100

18

14


(33
)
99

Incentive management fees

31

29

16


(12
)
64

Franchise fees

54

2




56

Other fees

10

3

2

1


16

License fees




9


9

Management, franchise, and other fees

195

52

32

10

(45
)
244

Contra revenue

(6
)
(1
)
(2
)


(9
)
Net management, franchise, and other fees

189

51

30

10

(45
)
235

 
 
 
 
 
 
 
 
Other revenues
13




5

4

22

 
 
 
 
 
 
 
 
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties

810

37

26



873

 
 
 
 
 
 
 
 
Total
$
1,144

$
999

$
88

$
56

$
48

$
(60
)
$
2,275


Contract Balances
Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. Under the terms of our management agreements, we earn incentive management fees based on a percentage of hotel profitability. The incentive fee may be contingent on the hotel achieving certain annual profitability targets. We recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable.
Our contract assets were $3 million and insignificant at June 30, 2018 and December 31, 2017, respectively. At June 30, 2018, the contract assets were included in receivables, net. As our profitability hurdles are generally calculated on a full-year basis, we expect our contract asset balance to be insignificant at year-end.
Payments received in advance of performance under the contract are classified as contract liabilities and recognized as revenue as we perform under the contract.
Contract liabilities consisted of the following at June 30, 2018 and December 31, 2017:

June 30, 2018

December 31, 2017

$ Change

% Change
Current contract liabilities
$
335


$
348


$
(13
)

(3.9
)%
Long-term contract liabilities
429


424


5


1.4
 %
Total contract liabilities
$
764

 
$
772

 
$
(8
)
 
(1.0
)%
At June 30, 2018 and December 31, 2017, the contract liabilities balances above include the following:
 
June 30, 2018
 
December 31, 2017
Advanced deposits
$
43

 
$
59

Deferred revenue related to the loyalty program
581

 
561

Deferred revenue related to systemwide services
14

 
9

Initial fees received from franchise owners
31

 
27

Other deferred revenue
95

 
116

Total contract liabilities
$
764

 
$
772


Revenue recognized during the three months ended June 30, 2018 and June 30, 2017 included in the contract liability balance at the beginning of each year was $217 million and $208 million, respectively. Revenue recognized during the six months ended June 30, 2018 and June 30, 2017 included in the contract liability balance at the beginning of each year was $441 million and $423 million, respectively. This revenue was primarily related to advanced deposits and revenue from the loyalty program, which is recognized net of redemption reimbursements paid to third parties.
Revenue Allocated to Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $155 million at June 30, 2018, of which we expect to recognize approximately 45% of the revenue over the next 12 months and the remainder thereafter.
We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for the following:
Deferred revenue related to the loyalty program and revenue from base and incentive management fees as the revenue is allocated to a wholly unperformed performance obligation in a series;
Revenues related to royalty fees as they are considered sales-based royalty fees; and
Revenues received for free nights granted through our co-branded credit card as the awards are required to be redeemed within 12 months.
We elected to apply the practical expedient that permits the omission of prior period information about revenue allocated to future performance obligations under ASU 2014-09.
v3.10.0.1
Debt and Equity Securities
6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Debt and Equity Securities
DEBT AND EQUITY SECURITIES
We make investments in debt and equity securities that we believe are strategically and operationally important to our business. These investments take the form of (i) equity method investments where we have the ability to significantly influence the operations of the entity, (ii) marketable securities held to fund operating programs and for investment purposes, and (iii) other types of investments.
Equity Method Investments
 
June 30, 2018
 
December 31, 2017
Equity method investments
$
207

 
$
185


During the three months ended June 30, 2018, we completed an asset acquisition of our partner's interest in certain unconsolidated hospitality ventures in Brazil for a net purchase price of approximately $5 million. During the three months ended March 31, 2018, we recognized impairment charges of $16 million related to these investments in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income as the carrying value was in excess of fair value. The fair value was determined to be a Level Three fair value measure, and the impairment was deemed other-than-temporary.
During the three and six months ended June 30, 2018, we recognized gains of $2 million and $10 million, respectively, in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment. During the six months ended June 30, 2018, we received related sales proceeds of $10 million.
During the six months ended June 30, 2017, an unconsolidated hospitality venture within our owned and leased hotels segment sold a hotel. We received proceeds of $4 million and recognized a gain of $2 million in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
The following table presents summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenues
$
132

 
$
179

 
$
264

 
$
453

Gross operating profit
49

 
67

 
88

 
145

Income (loss) from continuing operations
16

 
16

 
(3
)
 
(2
</