HYATT HOTELS CORP, 10-Q filed on 5/2/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 26, 2019
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, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Trading Symbol h  
Emerging Growth Company false  
Entity Small Business false  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   38,217,414
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   67,115,828
v3.19.1
Condensed Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
REVENUES:    
Total revenues $ 1,241 $ 1,109
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Depreciation and amortization 80 83
Other direct costs 45 8
Selling, general, and administrative 128 95
Direct and selling, general, and administrative expenses 1,215 1,030
Net gains and interest income from marketable securities held to fund rabbi trusts 30 3
Equity losses from unconsolidated hospitality ventures (3) (13)
Interest expense (19) (19)
Gains on sales of real estate 1 529
Asset impairments (3) 0
Other income (loss), net 51 (18)
INCOME BEFORE INCOME TAXES 83 561
PROVISION FOR INCOME TAXES (20) (150)
NET INCOME 63 411
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 63 $ 411
EARNINGS PER SHARE—Basic    
Net income (in dollars per share) $ 0.60 $ 3.47
Net income attributable to Hyatt Hotels Corporation (in dollars per share) 0.60 3.47
EARNINGS PER SHARE—Diluted    
Net income (in dollars per share) 0.59 3.40
Net income attributable to Hyatt Hotels Corporation (in dollars per share) $ 0.59 $ 3.40
Owned and leased hotels    
REVENUES:    
Total revenues $ 470 $ 515
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Owned and leased hotels 357 384
Costs incurred on behalf of managed and franchised properties 357 384
Management, franchise, and other fees    
REVENUES:    
Total revenues 141 132
Amortization of management and franchise agreement assets constituting payments to customers    
REVENUES:    
Total revenues (5) (5)
Net management, franchise, and other fees    
REVENUES:    
Total revenues 136 127
Other revenues    
REVENUES:    
Total revenues 45 11
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties    
REVENUES:    
Total revenues 590 456
Costs incurred on behalf of managed and franchised properties    
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Owned and leased hotels 605 460
Costs incurred on behalf of managed and franchised properties $ 605 $ 460
v3.19.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net income $ 63 $ 411
Other comprehensive income (loss), net of taxes:    
Foreign currency translation adjustments, net of tax expense of $- for the three months ended March 31, 2019 and March 31, 2018 (6) 23
Unrealized losses on derivative activity, net of tax benefit of $(1) and $- for the three months ended March 31, 2019 and March 31, 2018, respectively (4)  
Unrealized losses on derivative activity, net of tax benefit of $(1) and $- for the three months ended March 31, 2019 and March 31, 2018, respectively   0
Other comprehensive income (loss) (10) 23
COMPREHENSIVE INCOME 53 434
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 53 $ 434
v3.19.1
Condensed Consolidated Statements of Comprehensive Income - Parentheticals - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Foreign currency translation adjustments, net of tax (benefit) $ 0 $ 0
Unrealized gains on derivative activity, net of tax expense $ (1)  
Unrealized gains on derivative activity, net of tax expense   $ 0
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 547 $ 570
Restricted cash 24 [1] 33
Short-term investments 54 116
Receivables, net of allowances of $30 and $26 at March 31, 2019 and December 31, 2018, respectively 472 427
Inventories 14 14
Prepaids and other assets 156 149
Prepaid income taxes 35 36
Total current assets 1,302 1,345
Equity method investments 230 233
Property and equipment, net 3,605 3,608
Financing receivables, net of allowances 17 13
Operating lease right-of-use assets 507  
Goodwill 320 283
Intangibles, net 481 628
Deferred tax assets 173 180
Other assets 1,400 1,353
TOTAL ASSETS 8,035 7,643
CURRENT LIABILITIES:    
Current maturities of long-term debt 131 11
Accounts payable 174 151
Accrued expenses and other current liabilities 263 361
Current contract liabilities 395 388
Accrued compensation and benefits 108 150
Current operating lease liabilities 34  
Total current liabilities 1,105 1,061
Long-term debt 1,621 1,623
Long-term contract liabilities 454 442
Long-term operating lease liabilities 405  
Other long-term liabilities 822 840
Total liabilities 4,407 3,966
Commitments and contingencies (see Note 13)
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at March 31, 2019 and December 31, 2018 0 0
Common Stock 1 1
Additional paid-in capital 0 50
Retained earnings 3,831 3,819
Accumulated other comprehensive loss (210) (200)
Total stockholders' equity 3,622 3,670
Noncontrolling interests in consolidated subsidiaries 6 7
Total equity 3,628 3,677
TOTAL LIABILITIES AND EQUITY $ 8,035 $ 7,643
[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.
v3.19.1
Condensed Consolidated Balance Sheet - Parentheticals - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Allowance for doubtful accounts receivable, current $ 30 $ 26
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) 38,401,176 39,507,817
Common stock, shares, issued (in shares) 38,401,176 39,507,817
Common Class B    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 399,110,240 399,110,240
Common stock, shares, outstanding (in shares) 67,115,828 67,115,828
Common stock, shares, issued (in shares) 67,115,828 67,115,828
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 63 $ 411
Adjustments to reconcile net income to net cash provided by operating activities:    
Gains on sales of real estate (1) (529)
Depreciation and amortization 80 83
Release of contingent consideration liability (25) 0
Amortization of share awards 21 18
Deferred income taxes 1 (10)
Equity losses from unconsolidated hospitality ventures 3 13
Amortization of management and franchise agreement assets constituting payments to customers 5 5
Working capital changes and other (134) 63
Net cash provided by operating activities 13 54
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (67) (97)
Proceeds from marketable securities and short-term investments 123 104
Contributions to equity method and other investments (7) (10)
Return of equity method and other investments 0 12
Acquisitions, net of cash acquired (15) 0
Capital expenditures (66) (60)
Proceeds from sales of real estate, net of cash disposed 0 992
Other investing activities (7) (6)
Net cash provided by (used in) investing activities (39) 935
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from debt 120 20
Repayments of debt (1) (21)
Repurchases of common stock (102) (75)
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary 0 (10)
Dividends paid (20) (18)
Other financing activities (2) (5)
Net cash used in financing activities (5) (109)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0 (3)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (31) 877
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 622 752
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 591 $ 1,629
v3.19.1
Condensed Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash and cash equivalents $ 547 $ 1,160
Restricted cash [1] 24 450
Restricted cash included in other assets [1] 20 19
Total cash, cash equivalents, and restricted cash 591 1,629
Cash paid during the period for interest 39 35
Cash paid during the period for income taxes 10 10
Cash paid for amounts included in the measurement of operating lease liabilities 13  
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method investments 0 4
Non-cash issuance of financing receivables 1 0
Change in accrued capital expenditures $ 1 $ 1
[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.
v3.19.1
Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Millions
Total
Common Stock Amount
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests in Consolidated Subsidiaries
Balance, beginning of period at Dec. 31, 2017 $ 3,839 $ 1 $ 967 $ 3,118 $ (253) $ 6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 434     411 23  
Repurchase of common stock (75)   (75)      
Employee stock plan issuance 1   1      
Share-based payment activity 13   13      
Cash dividends (18)     (18)    
Balance, end of period at Mar. 31, 2018 4,194 1 906 3,511 (230) 6
Balance, beginning of period at Dec. 31, 2018 3,677 1 50 3,819 (200) 7
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 53     63 (10)  
Noncontrolling interests (1)         (1)
Repurchase of common stock (102)   (71) (31)    
Employee stock plan issuance 1   1      
Share-based payment activity 20   20      
Cash dividends (20)     (20)    
Balance, end of period at Mar. 31, 2019 $ 3,628 $ 1 $ 0 $ 3,831 $ (210) $ 6
v3.19.1
Condensed Consolidated Statements of Changes in Stockholders' Equity - Parenthetical - $ / shares
3 Months Ended
Mar. 11, 2019
Mar. 29, 2018
Mar. 31, 2019
Mar. 31, 2018
Statement of Stockholders' Equity [Abstract]        
Cash dividend (in dollars per share) $ 0.19 $ 0.15 $ 0.19 $ 0.15
v3.19.1
Organization
3 Months Ended
Mar. 31, 2019
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, timeshare, fractional, and other forms of residential, vacation, and condominium ownership units. At March 31, 2019, (i) we operated or franchised 423 full service hotels, comprising 149,149 rooms throughout the world, (ii) we operated or franchised 433 select service hotels, comprising 61,310 rooms, of which 374 hotels are located in the United States, and (iii) our portfolio included 6 franchised all-inclusive Hyatt-branded resorts, comprising 2,402 rooms, and 3 destination wellness resorts, comprising 410 rooms. At March 31, 2019, our portfolio of properties operated in 61 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and which operate under other tradenames or marks owned by such hotel or licensed by third parties.
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, (ii) the term "properties" refers to hotels, resorts, and other properties, including branded spas and fitness studios, and residential, vacation, and condominium ownership units that we develop, own, operate, manage, franchise, or to which we provide services or license our trademarks, (iii) "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 the Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson, Hyatt Centric, Hyatt House, Hyatt Place, Joie de Vivre, tommie, Exhale, and Hyatt Residence Club brands, (iv) the term "worldwide hotel portfolio" includes our full and select service hotels, and (v) the term "worldwide property portfolio" includes our wellness and all-inclusive resorts, branded spas and fitness studios, and residential, vacation, and condominium ownership units in addition to our worldwide hotel portfolio.
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, 2018 (the "2018 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.
v3.19.1
Recently Issued Accounting Pronouncements
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Recently Issued Accounting Pronouncements
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted 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 ("ROU") and lease liability with certain practical expedients available. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make fixed minimum lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of fixed minimum lease payments over the lease term, including optional periods for which it is reasonably certain the renewal option will be exercised.
In July 2018, the FASB released Accounting Standards Update No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, providing entities with an additional optional transition method. The provisions of ASU 2016-02, and all related ASUs, are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted.
We adopted ASU 2016-02 utilizing the optional transition approach under ASU 2018-11 and applied the package of practical expedients beginning January 1, 2019. As a result of applying the optional transition approach, our reporting for periods prior to January 1, 2019 continue to be reported in accordance with Leases (Topic 840).
We elected the following additional practical expedients: (i) for office space, land, and hotel leases, we have not separated the lease and nonlease components, which primarily relate to common area maintenance and utilities, (ii) we combine lease and nonlease components for those leases where we are the lessor, and (iii) for all leases that are twelve months or less, we excluded these short-term leases from the ROU assets and lease liabilities.
For leases that were in place upon adoption, we used the remaining lease term as of January 1, 2019 in determining the incremental borrowing rate ("IBR"). For the initial measurement of the lease liabilities for leases commencing after January 1, 2019, the IBR at the lease commencement date was applied.
For operating leases, the adoption of ASU 2016-02 resulted in the initial recognition of ROU assets of $512 million and related lease liabilities of $452 million on our condensed consolidated balance sheets. Upon adoption, we reclassified $103 million of below market lease related intangibles and $49 million of deferred rent and other lease liabilities to the operating ROU assets. The net tax impact upon adoption was insignificant. The adoption of ASU 2016-02 did not significantly impact our accounting for finance leases or for those leases where we are the lessor. Additionally, ASU 2016-02 did not materially affect our condensed consolidated statements of income or our condensed consolidated statements of cash flows.
The impact on our condensed consolidated balance sheet upon adoption of ASU 2016-02 was as follows:
 
December 31, 2018
 
January 1, 2019
 

As reported
 
Effect of the adoption of ASU 2016-02
 
As adjusted
ASSETS
 
 
 
 
 
Prepaids and other assets
$
149

 
$
(2
)
 
$
147

Intangibles, net
628

 
(103
)
 
525

Other assets
1,353

 
(7
)
 
1,346

Operating lease right-of-use assets

 
512

 
512

TOTAL ASSETS
$
7,643

 
$
400

 
$
8,043

LIABILITIES AND EQUITY
 
 
 
 
 
Accounts payable
$
151

 
$
(1
)
 
$
150

Accrued expenses and other current liabilities
361

 
(2
)
 
359

Current operating lease liabilities

 
34

 
34

Long-term operating lease liabilities

 
418

 
418

Other long-term liabilities
840

 
(49
)
 
791

Total liabilities
3,966

 
400

 
4,366

Total equity
3,677

 

 
3,677

TOTAL LIABILITIES AND EQUITY
$
7,643

 
$
400

 
$
8,043


Intangibles - Goodwill and Other - Internal-Use Software—In August 2018, the FASB released Accounting Standards Update No. 2018-15 ("ASU 2018-15"), Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of ASU 2018-15 are to be applied using a prospective or retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We early adopted ASU 2018-15 on January 1, 2019 on a prospective basis which did not materially impact our condensed consolidated financial statements.
Future Adoption of Accounting Standards
Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("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 available-for-sale ("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.
Fair Value Measurement—In August 2018, the FASB released Accounting Standards Update No. 2018-13 ("ASU 2018-13"), Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements. The provisions of ASU 2018-13 are to be applied using a prospective or retrospective approach, depending on the amendment 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 2018-13.
v3.19.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers
REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenues
The following tables present our revenues disaggregated by the nature of the product or service:
 
Three Months Ended March 31, 2019
 
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
$
266

$

$

$

$
7

$
(7
)
$
266

Food and beverage
157




3


160

Other
35




9


44

Owned and leased hotels
458




19

(7
)
470

 
 
 
 
 
 
 
 
Base management fees

57

12

8


(14
)
63

Incentive management fees

14

17

8


(5
)
34

Franchise fees

32





32

Other fees


3

2

1


6

License fees




6


6

Management, franchise, and other fees

103

32

18

7

(19
)
141

Amortization of management and franchise agreement assets constituting payments to customers

(4
)

(1
)


(5
)
Net management, franchise, and other fees

99

32

17

7

(19
)
136

 
 
 
 
 
 
 
 
Other revenues

36



9


45

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

548

24

17

1


590

 
 
 
 
 
 
 
 
Total
$
458

$
683

$
56

$
34

$
36

$
(26
)
$
1,241

 
Three Months Ended March 31, 2018
 
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
$
297

$

$

$

$
7

$
(9
)
$
295

Food and beverage
172




2


174

Other
38




8


46

Owned and leased hotels
507




17

(9
)
515

 
 
 
 
 
 
 
 
Base management fees

49

11

7


(14
)
53

Incentive management fees

13

17

10


(6
)
34

Franchise fees

28





28

Other fees

8

2

1

1


12

License fees




5


5

Management, franchise, and other fees

98

30

18

6

(20
)
132

Amortization of management and franchise agreement assets constituting payments to customers

(3
)
(1
)
(1
)


(5
)
Net management, franchise, and other fees

95

29

17

6

(20
)
127

 
 
 
 
 
 
 
 
Other revenues




9

2

11

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

420

20

16



456

 
 
 
 
 
 
 
 
Total
$
507

$
515

$
49

$
33

$
32

$
(27
)
$
1,109

Contract Balances
Our contract assets were $3 million and insignificant at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, 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.
Our contract liabilities were as follows:

March 31, 2019

December 31, 2018

$ Change

% Change
Current contract liabilities
$
395


$
388


$
7


1.6
%
Long-term contract liabilities
454


442


12


2.7
%
Total contract liabilities
$
849

 
$
830

 
$
19

 
2.2
%

Contract liabilities are comprised of the following:
 
March 31, 2019
 
December 31, 2018
Deferred revenue related to the loyalty program
$
621

 
$
596

Advanced deposits
73

 
81

Initial fees received from franchise owners
35

 
35

Deferred revenue related to system-wide services
8

 
7

Other deferred revenue
112

 
111

Total contract liabilities
$
849

 
$
830


Revenue recognized during the three months ended March 31, 2019 and March 31, 2018, included in the contract liabilities balance at the beginning of each year was $228 million and $224 million, respectively. This revenue primarily relates to advanced deposits and 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 $125 million at March 31, 2019, of which we expect to recognize approximately 20% as 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;
Revenues received for free nights granted through our co-branded credit cards as the awards are required to be redeemed within 12 months; and
Revenues related to advanced bookings at owned and leased hotels as each stay has a duration of 12 months or less.
v3.19.1
Debt and Equity Securities
3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Debt and Equity Securities
DEBT AND EQUITY SECURITIES
Equity Method Investments
Equity method investments were $230 million and $233 million at March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2018, we recognized an $8 million gain in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income resulting from the sale of our ownership interest in an equity method investment within our owned and leased hotels segment and received $9 million of proceeds.
During the three months ended March 31, 2018, we recognized $16 million of impairment charges as a result of the buyout of our partner's interest in unconsolidated hospitality ventures in Brazil, which was initiated in the first quarter of 2018 and closed subsequent to March 31, 2018. The pending acquisition indicated a carrying value in excess of fair value which was determined to be a Level Three fair value measure and was deemed other-than-temporary. We recognized the impairment charges in equity 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 March 31,
 
2019
 
2018
Total revenues
$
116

 
$
132

Gross operating profit
39

 
39

Loss from continuing operations
(10
)
 
(19
)
Net loss
(10
)
 
(19
)
Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. Additionally, we periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.
Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:
 
March 31, 2019
 
December 31, 2018
Loyalty program (Note 9)
$
422

 
$
397

Deferred compensation plans held in rabbi trusts (Note 9 and Note 11)
413

 
367

Captive insurance companies
152

 
133

Total marketable securities held to fund operating programs
$
987

 
$
897

Less: current portion of marketable securities held to fund operating programs included in cash and cash equivalents, short-term investments, and prepaids and other assets
(219
)
 
(174
)
Marketable securities held to fund operating programs included in other assets
$
768

 
$
723


Net realized and unrealized gains (losses) and interest income from marketable securities held to fund the loyalty program are recognized in other income (loss), net on our condensed consolidated statements of income:
 
Three Months Ended March 31,
2019
 
2018
Loyalty program (Note 19)
$
9

 
$
(4
)
Net realized and unrealized gains (losses) and interest income from marketable securities held to fund rabbi trusts are recognized in net gains and interest income from marketable securities held to fund rabbi trusts on our condensed consolidated statements of income:


Three Months Ended March 31,
2019
 
2018
Unrealized gains (losses)
$
28

 
$
(1
)
Realized gains
2

 
4

Net gains and interest income from marketable securities held to fund rabbi trusts
$
30

 
$
3


Our captive insurance companies hold marketable securities which are classified as AFS debt securities and are invested in U.S. government agencies, time deposits, and corporate debt securities. We classify these investments as current or long-term, based on their contractual maturity dates, which range from 2019 through 2024.
Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:
 
March 31, 2019
 
December 31, 2018
Common shares of Playa N.V.
$
93

 
$
87

Interest-bearing money market funds
42

 
14

Time deposits
37

 
100

Total marketable securities held for investment purposes
$
172

 
$
201

Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(79
)
 
(114
)
Marketable securities held for investment purposes included in other assets
$
93

 
$
87


We hold common shares of Playa Hotels & Resorts N.V. ("Playa N.V.") which are accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in $6 million of unrealized gains and $7 million of unrealized losses recognized in other income (loss), net on our condensed consolidated statements of income for the three months ended March 31, 2019 and March 31, 2018, respectively (see Note 19). We did not sell any shares of common stock during the three months ended March 31, 2019.
Other Investments
Held-to-Maturity Debt Securities—At March 31, 2019 and December 31, 2018, we held $52 million and $49 million, respectively, of investments in held-to-maturity ("HTM") debt securities, which are investments in third-party entities that own certain of our hotels and are recorded within other assets on our condensed consolidated balance sheets. The securities are mandatorily redeemable between 2020 and 2025. The amortized cost of our investments approximates fair value. We estimated the fair value of our investments using internally developed discounted cash flow models based on current market inputs for similar types of arrangements. Based upon the lack of available market data, our investments are classified as Level Three within the fair value hierarchy. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.
Equity Securities Without a Readily Determinable Fair Value—At March 31, 2019 and December 31, 2018, we held $9 million of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity. These investments are recorded within other assets on our condensed consolidated balance sheets.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
March 31, 2019
 
Cash and cash equivalents
 
Short-term investments
 
Prepaids and other assets
 
Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
 
 
 
 
 
 
 
 
 
Interest-bearing money market funds
$
149

 
$
149

 
$

 
$

 
$

Mutual funds
413

 

 

 

 
413

Common shares
93

 

 

 

 
93

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
51

 

 
41

 

 
10

U.S. government obligations
177

 

 

 
42

 
135

U.S. government agencies
51

 

 
2

 
8

 
41

Corporate debt securities
154

 

 
11

 
28

 
115

Mortgage-backed securities
24

 

 

 
6

 
18

Asset-backed securities
45

 

 

 
11

 
34

Municipal and provincial notes and bonds
2

 

 

 

 
2

Total
$
1,159

 
$
149

 
$
54

 
$
95

 
$
861

 
December 31, 2018
 
Cash and cash equivalents
 
Short-term investments
 
Prepaids and other assets
 
Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
 
 
 
 
 
 
 
 
 
Interest-bearing money market funds
$
88

 
$
88

 
$

 
$

 
$

Mutual funds
367

 

 

 

 
367

Common shares
87

 

 

 

 
87

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
113

 

 
104

 

 
9

U.S. government obligations
169

 

 

 
37

 
132

U.S. government agencies
52

 

 
2

 
7

 
43

Corporate debt securities
151

 

 
10

 
25

 
116

Mortgage-backed securities
23

 

 

 
5

 
18

Asset-backed securities
46

 

 

 
10

 
36

Municipal and provincial notes and bonds
2

 

 

 

 
2

Total
$
1,098

 
$
88

 
$
116

 
$
84

 
$
810


During the three months ended March 31, 2019 and March 31, 2018, there were no transfers between levels of the fair value hierarchy. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
v3.19.1
Financing Receivables
3 Months Ended
Mar. 31, 2019
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Financing Receivables
FINANCING RECEIVABLES

March 31, 2019

December 31, 2018
Unsecured financing to hotel owners
$
167


$
159

Less: current portion of financing receivables, included in receivables, net
(47
)

(45
)
Less: allowance for losses
(103
)

(101
)
Total long-term financing receivables, net of allowances
$
17


$
13


Allowance for Losses and Impairments—The following table summarizes the activity in our unsecured financing receivables allowance:
 
2019
 
2018
Allowance at January 1
$
101

 
$
108

  Provisions
2

 
2

  Other adjustments

 
(1
)
Allowance at March 31
$
103

 
$
109


Credit Monitoring—Our unsecured financing receivables were as follows:
 
March 31, 2019
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
64

 
$

 
$
64

 
$

Impaired loans (1)
50

 
(50
)
 

 
50

Total loans
114

 
(50
)
 
64

 
50

Other financing arrangements
53

 
(53
)
 

 
53

Total unsecured financing receivables
$
167

 
$
(103
)
 
$
64

 
$
103

(1) The unpaid principal balance was $37 million and the average recorded loan balance was $50 million at March 31, 2019.
 
December 31, 2018
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
58

 
$

 
$
58

 
$

Impaired loans (2)
50

 
(50
)
 

 
50

Total loans
108

 
(50
)
 
58

 
50

  Other financing arrangements
51

 
(51
)
 

 
51

Total unsecured financing receivables
$
159

 
$
(101
)
 
$
58

 
$
101

(2) The unpaid principal balance was $36 million and the average recorded loan balance was $54 million at December 31, 2018.
Fair Value—We estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be approximately $64 million and $59 million at March 31, 2019 and December 31, 2018, respectively.
v3.19.1
Acquisitions and Dispositions
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisitions and Dispositions
ACQUISITIONS AND DISPOSITIONS
Acquisitions
Land—During the three months ended March 31, 2019, we acquired $15 million of land through an asset acquisition from an unrelated third party.
Two Roads Hospitality LLC—During the year ended December 31, 2018, we acquired all of the outstanding equity interests of Two Roads Hospitality LLC ("Two Roads") in a business combination for a purchase price of $405 million. The transaction also included potential additional consideration including (i) up to $96 million if the sellers completed specific actions with respect to certain of the acquired management agreements within 120 days from the date of acquisition and (ii) up to $8 million in the event of the execution of certain potential new management agreements related to the development of certain potential new deals previously identified and generated by the sellers or affiliates of the sellers within one year of the closing of the transaction. One of the sellers is indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman.
We closed on the transaction on November 30, 2018 and paid cash of $415 million, net of $37 million cash acquired. Cash paid at closing is inclusive of a $36 million payment of the aforementioned additional consideration and a $4 million receipt of other purchase price adjustments. Related to the $68 million of potential additional consideration, we recorded a $57 million contingent liability in accrued expenses and other current liabilities on our condensed consolidated balance sheet at December 31, 2018, which represented our estimate of the remaining expected consideration to be paid.
Net assets acquired were determined as follows:
Cash paid, net of cash acquired
$
415

Cash acquired
37

Contingent consideration liability
57

Net assets acquired at December 31, 2018
$
509

Post-acquisition working capital adjustments
(2
)
Net assets acquired at March 31, 2019
$
507


As it relates to the $57 million contingent consideration liability recorded at December 31, 2018, the following occurred during the three months ended March 31, 2019:
The sellers completed the aforementioned specific actions with regards to certain management agreements. As a result, Hyatt owes $23 million of additional consideration to the sellers, which is primarily recorded in accounts payable on our condensed consolidated balance sheet at March 31, 2019.
For those management agreements where the specific actions were not completed, we released $25 million of the contingent liability to other income (loss), net on our condensed consolidated statements of income (see Note 19).
For certain other management agreements, we extended the terms beyond the initial 120 day period and retained $9 million of the contingent liability at March 31, 2019.
The acquisition includes management and license agreements for operating and pipeline hotels primarily across North America and Asia under five hospitality brands. Our condensed consolidated balance sheets at March 31, 2019 and December 31, 2018 reflect preliminary estimates of the fair value of the assets acquired and liabilities assumed. The fair values are based on information that was available as of the date of acquisition and are estimated using discounted future cash flow models and relief from royalty method, which include revenue projections based on the expected contract terms and long-term growth rates, which are classified as Level Three in the fair value hierarchy.
At March 31, 2019, the estimated fair values of assets and liabilities were revised as we refined our analysis of contract terms and renewal assumptions which affected the underlying cash flows in the valuation. This primarily resulted in a $33 million reduction in indefinite-lived intangibles with an offsetting increase in goodwill on our condensed consolidated balance sheet at March 31, 2019. We continue to evaluate the underlying inputs and assumptions used in our valuation and accordingly, these estimates are subject to change during the one year measurement period.
The following table summarizes the preliminary fair value of the identifiable net assets acquired at March 31, 2019:
Cash
$
37

Receivables
20

Other current assets
2

Equity method investment
2

Property and equipment
2

Indefinite-lived intangibles (1)
97

Management agreement intangibles (2)
209

Goodwill (3)
191

Other assets (4)
26

Total assets
$
586

 
 
Advanced deposits
$
25

Other current liabilities
20

Other long-term liabilities (4)
34

Total liabilities
79

Total net assets acquired
$
507

(1) Includes intangibles attributable to the Destination, Alila, and Thompson brands.
(2) Amortized over useful lives of 1 to 19 years, with a weighted-average useful life of approximately 13 years.
(3) The goodwill, of which $154 million is tax deductible, is attributable to the growth opportunities Hyatt expects to realize by expanding into new markets and enhancing guest experiences through a distinctive collection of lifestyle brands and is recorded in the Americas management and franchising segment.
(4) Includes $14 million of prior year tax liabilities relating to certain foreign filing positions, including $5 million of interest and penalties. We recorded an offsetting indemnification asset which we expect to collect under contractual arrangements.
Dispositions
Grand Hyatt San Francisco, Andaz Maui at Wailea Resort, and Hyatt Regency Coconut Point Resort and Spa—During the three months ended March 31, 2018, we sold Grand Hyatt San Francisco, Andaz Maui at Wailea Resort together with adjacent land, and Hyatt Regency Coconut Point Resort and Spa to an unrelated third party as a portfolio for approximately $992 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. We entered into long-term management agreements for the properties upon sale. The sale resulted in a $529 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income during the three months ended March 31, 2018. The operating results and financial position of these hotels prior to the sale remain within our owned and leased hotels segment. Although we concluded the disposal of these properties does not qualify as discontinued operations, the disposal is considered to be material. Pre-tax net income attributable to the three properties was $15 million during the three months ended March 31, 2018.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary and are unavailable for our use until released. The proceeds are recorded as restricted cash on our condensed consolidated balance sheets and released (i) if they are utilized as part of a like-kind exchange agreement, (ii) if we do not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.
In conjunction with the sale of Hyatt Regency Coconut Point Resort and Spa during the three months ended March 31, 2018, proceeds of $221 million were held as restricted for use in a potential like-kind exchange. Subsequently, $198 million of these proceeds were utilized to acquire two properties in 2018 and the remaining $23 million were released.
v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
LEASES
Lessee—We primarily lease land, buildings, office space, spas and fitness centers, and equipment. We determine if an arrangement is an operating or finance lease at inception. For our hotel management agreements, we apply judgment in order to determine whether the contract is accounted for as a lease or as a management agreement based on the specific facts and circumstances of each agreement. In evaluating whether an agreement constitutes a lease, we review the contractual terms to determine which party obtains both the economic benefits and control of the assets. In arrangements where we control the assets and obtain the economic benefits, we account for the contract as a lease.
Certain of our leases include options to extend the lease term by 1 to 99 years. We include lease extension options in our operating ROU assets and lease liabilities when it is reasonably certain that we will exercise the options. The range of extension options included in our operating ROU assets and lease liabilities is approximately 1 to 20 years. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
As our leases do not provide an implicit borrowing rate, we estimate our IBR based on the present value of our lease payments and apply a portfolio approach.
Our operating leases may include the following terms: (i) fixed minimum lease payments, (ii) variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, (iii) lease payments equal to the greater of a minimum or variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, or (iv) lease payments adjusted for changes in an index or market value. Future lease payments that are contingent are not included in the measurement of the operating lease liability or in the future maturities table below.
Total rent expense related to short-term leases and finance leases was insignificant for the three months ended March 31, 2019. A summary of rent expense for operating leases is as follows:
 
Three Months Ended March 31,
 
2019
Minimum rentals
$
11

Contingent rentals
32

 Total operating lease expense
$
43


Supplemental balance sheet information related to finance leases is as follows:
 
March 31, 2019
Property and equipment, net (1)
$
10

Current maturities of long-term debt
2

Long-term debt
10

Total finance lease liabilities
$
12

(1) Finance lease assets are net of $14 million of accumulated amortization.

Weighted-average remaining lease terms and discount rates are as follows:
 
March 31, 2019
Weighted-average remaining lease term in years
 
Operating leases (1)
22

Finance leases
7

 
 
Weighted-average discount rate
 
Operating leases
3.8
%
Finance leases
1.1
%
(1) Certain of our hotel and land leases have nominal rent or contingent rental payments. As such, this results in a lower weighted-average remaining lease term.

The maturities of lease liabilities in accordance with Leases (Topic 842) in each of the next five years and thereafter at March 31, 2019 are as follows:
 
Operating leases
 
Finance leases
2019 (remaining)
$
40

 
$
2

2020
45

 
3

2021
43

 
2

2022
41

 
2

2023
38

 
2

Thereafter
444

 
5

Total minimum lease payments
$
651

 
$
16

Less: amount representing interest
(212
)
 
(4
)
Present value of minimum lease payments
$
439

 
$
12


The future minimum lease payments from our 2018 Form 10-K as filed in accordance with Leases (Topic 840) in each of the next five years and thereafter are as follows:
Years ending December 31,
Operating leases
 
Capital leases
2019
$
46

 
$
3

2020
42

 
3

2021
42

 
2

2022
38

 
2

2023
35

 
2

Thereafter
448

 
5

Total minimum lease payments
$
651

 
$
17

Less: amount representing interest
 
 
(5
)
Present value of minimum lease payments
 
 
$
12


Lessor—We lease retail space under operating leases at our owned hotel locations. Rental payments are primarily fixed with certain variable payments based on a contractual percentage of revenues. We recognized rental income within owned and leased hotels revenues on our condensed consolidated statements of income as follows:
 
Three Months Ended March 31,
2019
 
2018
Rental income
$
7

 
$
7


The future minimum lease receipts in accordance with Leases (Topic 842) scheduled to be received in each of the next five years and thereafter at March 31, 2019 are as follows:
 
 
2019 (remaining)
$
18

2020
18

2021
16

2022
15

2023
11

Thereafter
48

Total minimum lease receipts
$
126


The future minimum lease receipts from our 2018 Form 10-K as filed in accordance with Leases (Topic 840) scheduled to be received in each of the next five years and thereafter are as follows:
Years ending December 31,
 
2019
$
22

2020
18

2021
16

2022
15

2023
11

Thereafter
48

Total minimum lease receipts
$
130

Leases
LEASES
Lessee—We primarily lease land, buildings, office space, spas and fitness centers, and equipment. We determine if an arrangement is an operating or finance lease at inception. For our hotel management agreements, we apply judgment in order to determine whether the contract is accounted for as a lease or as a management agreement based on the specific facts and circumstances of each agreement. In evaluating whether an agreement constitutes a lease, we review the contractual terms to determine which party obtains both the economic benefits and control of the assets. In arrangements where we control the assets and obtain the economic benefits, we account for the contract as a lease.
Certain of our leases include options to extend the lease term by 1 to 99 years. We include lease extension options in our operating ROU assets and lease liabilities when it is reasonably certain that we will exercise the options. The range of extension options included in our operating ROU assets and lease liabilities is approximately 1 to 20 years. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
As our leases do not provide an implicit borrowing rate, we estimate our IBR based on the present value of our lease payments and apply a portfolio approach.
Our operating leases may include the following terms: (i) fixed minimum lease payments, (ii) variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, (iii) lease payments equal to the greater of a minimum or variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, or (iv) lease payments adjusted for changes in an index or market value. Future lease payments that are contingent are not included in the measurement of the operating lease liability or in the future maturities table below.
Total rent expense related to short-term leases and finance leases was insignificant for the three months ended March 31, 2019. A summary of rent expense for operating leases is as follows:
 
Three Months Ended March 31,
 
2019
Minimum rentals
$
11

Contingent rentals
32

 Total operating lease expense
$
43


Supplemental balance sheet information related to finance leases is as follows:
 
March 31, 2019
Property and equipment, net (1)
$
10

Current maturities of long-term debt
2

Long-term debt
10

Total finance lease liabilities
$
12

(1) Finance lease assets are net of $14 million of accumulated amortization.

Weighted-average remaining lease terms and discount rates are as follows:
 
March 31, 2019
Weighted-average remaining lease term in years
 
Operating leases (1)
22

Finance leases
7

 
 
Weighted-average discount rate
 
Operating leases
3.8
%
Finance leases
1.1
%
(1) Certain of our hotel and land leases have nominal rent or contingent rental payments. As such, this results in a lower weighted-average remaining lease term.

The maturities of lease liabilities in accordance with Leases (Topic 842) in each of the next five years and thereafter at March 31, 2019 are as follows:
 
Operating leases