HYATT HOTELS CORP, 10-Q filed on 10/31/2019
Quarterly Report
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Oct. 25, 2019
Document Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2019  
Entity File Number 001-34521  
Entity Registrant Name HYATT HOTELS CORP  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-1480589  
Entity Address, Address Line One 150 North Riverside Plaza  
Entity Address, Address Line Two 8th Floor  
Entity Address, City or Town Chicago  
Entity Address, State or Province IL  
Entity Address, Postal Zip Code 60606  
City Area Code 312  
Local Phone Number 750-1234  
Title of 12(b) Security Class A common stock  
Trading Symbol H  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001468174  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   36,582,951
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   66,163,274
v3.19.3
Condensed Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
REVENUES:        
Total revenues $ 1,215 $ 1,074 $ 3,745 $ 3,316
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:        
Depreciation and amortization 85 81 248 243
Other direct costs 28 8 103 23
Selling, general, and administrative 83 82 306 260
Direct and selling, general, and administrative expenses 1,175 1,012 3,598 3,068
Net gains and interest income from marketable securities held to fund rabbi trusts 0 10 41 19
Equity losses from unconsolidated hospitality ventures (5) (6) (2) (17)
Interest expense (19) (19) (58) (57)
Gains on sales of real estate 373 239 374 769
Asset impairments (9) (21) (13) (21)
Other income (loss), net 25 (9) 104 (22)
INCOME BEFORE INCOME TAXES 405 256 593 919
PROVISION FOR INCOME TAXES (109) (19) (148) (194)
NET INCOME 296 237 445 725
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0 0 0
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 296 $ 237 $ 445 $ 725
EARNINGS PER SHARE—Basic        
Net income (in dollars per share) $ 2.84 $ 2.12 $ 4.23 $ 6.31
Net income attributable to Hyatt Hotels Corporation (in dollars per share) 2.84 2.12 4.23 6.31
EARNINGS PER SHARE—Diluted        
Net income (in dollars per share) 2.80 2.09 4.17 6.21
Net income attributable to Hyatt Hotels Corporation (in dollars per share) $ 2.80 $ 2.09 $ 4.17 $ 6.21
Owned and leased hotels        
REVENUES:        
Total revenues $ 430 $ 450 $ 1,390 $ 1,450
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:        
Owned and leased hotels 346 354 1,070 1,095
Costs incurred on behalf of managed and franchised properties 346 354 1,070 1,095
Management, franchise, and other fees        
REVENUES:        
Total revenues 148 133 447 407
Amortization of management and franchise agreement assets constituting payments to customers        
REVENUES:        
Total revenues (5) (5) (16) (15)
Net management, franchise, and other fees        
REVENUES:        
Total revenues 143 128 431 392
Other revenues        
REVENUES:        
Total revenues 25 7 98 27
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties        
REVENUES:        
Total revenues 617 489 1,826 1,447
Costs incurred on behalf of managed and franchised properties        
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:        
Owned and leased hotels 633 487 1,871 1,447
Costs incurred on behalf of managed and franchised properties $ 633 $ 487 $ 1,871 $ 1,447
v3.19.3
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 296 $ 237 $ 445 $ 725
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments, net of tax benefit of $(1) for the three and nine months ended September 30, 2019 and $- and $(1) for the three and nine months ended September 30, 2018, respectively (27) 71 (27) 48
Unrealized gains (losses) on derivative activity, net of tax benefit of $(3) and $(7) for the three and nine months ended September 30, 2019, respectively, and net of tax expense of $1 for the three and nine months ended September 30, 2018 (9) 3 (21) 3
Other comprehensive income (loss) (36) 74 (48) 51
COMPREHENSIVE INCOME 260 311 397 776
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0 0 0
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 260 $ 311 $ 397 $ 776
v3.19.3
Condensed Consolidated Statements of Comprehensive Income - Parentheticals - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Foreign currency translation adjustments, net of tax (benefit) $ (1) $ 0 $ (1) $ (1)
Unrealized gains on derivative activity, net of tax expense $ (3) $ 1 $ (7) $ 1
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 660 $ 570
Restricted cash 140 [1] 33
Short-term investments 63 116
Receivables, net of allowances of $30 and $26 at September 30, 2019 and December 31, 2018, respectively 434 427
Inventories 12 14
Prepaids and other assets 129 149
Prepaid income taxes 21 36
Assets held for sale 17 0
Total current assets 1,476 1,345
Equity method investments 229 233
Property and equipment, net 3,519 3,608
Financing receivables, net of allowances 19 13
Operating lease right-of-use assets 488  
Goodwill 322 283
Intangibles, net 453 628
Deferred tax assets 147 180
Other assets 1,476 1,353
TOTAL ASSETS 8,129 7,643
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 144 151
Accrued expenses and other current liabilities 315 361
Current contract liabilities 404 388
Accrued compensation and benefits 137 150
Current operating lease liabilities 33  
Total current liabilities 1,044 1,061
Long-term debt 1,612 1,623
Long-term contract liabilities 471 442
Long-term operating lease liabilities 395  
Other long-term liabilities 846 840
Total liabilities 4,368 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 September 30, 2019 and December 31, 2018 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 36,811,374 issued and outstanding at September 30, 2019, and Class B common stock, $0.01 par value per share, 398,432,856 shares authorized, 66,438,444 shares issued and outstanding at September 30, 2019. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,507,817 issued and outstanding at December 31, 2018, and Class B common stock, $0.01 par value per share, 399,110,240 shares authorized, 6 1 1
Additional paid-in capital 0 50
Retained earnings 4,003 3,819
Accumulated other comprehensive loss (248) (200)
Total stockholders' equity 3,756 3,670
Noncontrolling interests in consolidated subsidiaries 5 7
Total equity 3,761 3,677
TOTAL LIABILITIES AND EQUITY $ 8,129 $ 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.
v3.19.3
Condensed Consolidated Balance Sheet - Parentheticals - USD ($)
$ in Millions
Sep. 30, 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) 36,811,374 39,507,817
Common stock, shares, issued (in shares) 36,811,374 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) 398,432,856 399,110,240
Common stock, shares, outstanding (in shares) 66,438,444 67,115,828
Common stock, shares, issued (in shares) 66,438,444 67,115,828
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Statement of Cash Flows [Abstract]    
Net income $ 445 $ 725
Adjustments to reconcile net income to net cash provided by operating activities:    
Gains on sales of real estate (374) (769)
Depreciation and amortization 248 243
Release of contingent consideration liability (29) 0
Amortization of share awards 32 28
Deferred income taxes 32 (7)
Asset impairments 13 43
Equity losses from unconsolidated hospitality ventures 2 17
Amortization of management and franchise agreement assets constituting payments to customers 16 15
Distributions from unconsolidated hospitality ventures 10 10
Working capital changes and other (121) (173)
Net cash provided by operating activities 274 132
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (196) (572)
Proceeds from marketable securities and short-term investments 255 426
Contributions to equity method and other investments (39) (52)
Return of equity method and other investments 26 24
Acquisitions, net of cash acquired (18) (263)
Capital expenditures (244) (195)
Proceeds from sales of real estate, net of cash disposed 461 1,334
Proceeds from financing receivables 46 0
Other investing activities 7 10
Net cash provided by investing activities 298 712
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from long-term debt, net of issuance costs $- and $4, respectively 180 416
Debt issuance cost 0 4
Repayments of debt (187) (230)
Repurchases of common stock (280) (654)
Contingent consideration paid (24) 0
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary 0 (10)
Dividends paid (60) (52)
Other financing activities (9) (13)
Net cash used in financing activities (380) (543)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6 3
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 198 304
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 622 752
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD 820 1,056
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Total cash, cash equivalents, and restricted cash 622 752
Cash paid during the period for interest 78 72
Cash paid during the period for income taxes 52 267
Cash paid for amounts included in the measurement of operating lease liabilities 38  
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method investments 8 53
Non-cash issuance of financing receivables 1 45
Change in accrued capital expenditures 11 $ 7
Non-cash right-of-use assets obtained in exchange for operating lease liabilities $ 8  
v3.19.3
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, 2017 3,839 1 967 3,118 (253) 6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 776          
Cash dividends (52)          
Balance, end of period at Sep. 30, 2018 3,935 1 339 3,791 (202) 6
Balance, beginning of period at Mar. 31, 2018 4,194 1 906 3,511 (230) 6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 31     77 (46)  
Repurchase of common stock (513)   (513)      
Directors compensation 2   2      
Employee stock plan issuance 1   1      
Share-based payment activity 3   3      
Cash dividends (17)     (17)    
Balance, end of period at Jun. 30, 2018 3,701 1 399 3,571 (276) 6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 311     237 74  
Repurchase of common stock (66)   (66) 0    
Employee stock plan issuance 1   1      
Share-based payment activity 5   5      
Cash dividends (17)     (17)    
Balance, end of period at Sep. 30, 2018 3,935 1 339 3,791 (202) 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
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 397          
Cash dividends (60)          
Balance, end of period at Sep. 30, 2019 3,761 1 0 4,003 (248) 5
Balance, beginning of period at Mar. 31, 2019 3,628 1 0 3,831 (210) 6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 84     86 (2)  
Noncontrolling interests (1)         (1)
Repurchase of common stock (45)   (1) (44)    
Directors compensation 1   1      
Employee stock plan issuance 1   1      
Share-based payment activity (1)   (1)      
Cash dividends (20)     (20)    
Balance, end of period at Jun. 30, 2019 3,647 1 0 3,853 (212) 5
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Total comprehensive income 260     296 (36)  
Repurchase of common stock (133)   (7) (126)    
Employee stock plan issuance 2   2      
Share-based payment activity 5   5      
Cash dividends (20)     (20)    
Balance, end of period at Sep. 30, 2019 $ 3,761 $ 1 $ 0 $ 4,003 $ (248) $ 5
v3.19.3
Condensed Consolidated Statements of Changes in Stockholders' Equity - Parenthetical - $ / shares
3 Months Ended
Sep. 09, 2019
Jun. 10, 2019
Mar. 11, 2019
Sep. 20, 2018
Jun. 28, 2018
Mar. 29, 2018
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Statement of Stockholders' Equity [Abstract]                        
Cash dividend (in dollars per share) $ 0.19 $ 0.19 $ 0.19 $ 0.15 $ 0.15 $ 0.15 $ 0.19 $ 0.19 $ 0.19 $ 0.15 $ 0.15 $ 0.15
v3.19.3
Organization
9 Months Ended
Sep. 30, 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 September 30, 2019, (i) we operated or franchised 434 full service hotels, comprising 151,995 rooms throughout the world, (ii) we operated or franchised 453 select service hotels, comprising 64,500 rooms, of which 390 hotels are located in the United States, and (iii) our portfolio included 6 franchised all-inclusive Hyatt-branded resorts, comprising 2,403 rooms, and 3 destination wellness resorts, comprising 410 rooms. At September 30, 2019, our portfolio of properties operated in 63 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 Hotels, Hyatt Centric, Caption by Hyatt, Joie de Vivre, Hyatt House, Hyatt Place, tommie, Hyatt Residence Club and Exhale 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.
v3.19.3
Recently Issued Accounting Pronouncements
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Recently Issued Accounting Pronouncements RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Standards
Leases—In February 2016, the Financial Accounting Standards Board ("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 ("ROU") asset 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 utilizing the optional transition method, 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 do not separate 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) we exclude all leases that are twelve months or less from the ROU assets and lease liabilities.
For leases 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 on or 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 sheet at January 1, 2019. Upon adoption, we reclassified $103 million of intangibles, net related to below market leases 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, the adoption of 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 allowances for credit losses 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.
While we continue to evaluate the impact of adopting ASU 2016-13, we do not expect a material impact upon adoption related to receivables at our owned and leased properties, AFS debt securities, and debt repayment guarantees. We are continuing to evaluate other potential impacts on our condensed consolidated financial statements, including the impact on our remaining receivables, held-to-maturity ("HTM") debt securities, and financing receivables.
v3.19.3
Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 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 September 30, 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
$
259

$

$

$

$
4

$
(11
)
$
252

Food and beverage
131




3


134

Other
35




9


44

Owned and leased hotels
425




16

(11
)
430

 
 
 
 
 
 
 
 
Base management fees

55

11

10


(12
)
64

Incentive management fees

13

17

9


(6
)
33

Franchise fees

36

1




37

Other fees

2

3

2

1


8

License fees




6


6

Management, franchise, and other fees

106

32

21

7

(18
)
148

Amortization of management and franchise agreement assets constituting payments to customers

(4
)

(1
)


(5
)
Net management, franchise, and other fees

102

32

20

7

(18
)
143

 
 
 
 
 
 
 
 
Other revenues

16



9


25

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

565

30

20

2


617

 
 
 
 
 
 
 
 
Total
$
425

$
683

$
62

$
40

$
34

$
(29
)
$
1,215

 
Nine Months Ended September 30, 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
$
804

$

$

$

$
17

$
(27
)
$
794

Food and beverage
452




9


461

Other
108




27


135

Owned and leased hotels
1,364




53

(27
)
1,390

 
 
 
 
 
 
 
 
Base management fees

173

33

27


(38
)
195

Incentive management fees

46

51

26


(17
)
106

Franchise fees

104

3




107

Other fees

3

9

5

4


21

License fees




18


18

Management, franchise, and other fees

326

96

58

22

(55
)
447

Amortization of management and franchise agreement assets constituting payments to customers

(11
)
(1
)
(4
)


(16
)
Net management, franchise, and other fees

315

95

54

22

(55
)
431

 
 
 
 
 
 
 
 
Other revenues

71



26

1

98

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

1,688

80

54

4


1,826

 
 
 
 
 
 
 
 
Total
$
1,364

$
2,074

$
175

$
108

$
105

$
(81
)
$
3,745


 
Three Months Ended September 30, 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
$
276

$

$

$

$
5

$
(7
)
$
274

Food and beverage
133




2


135

Other
34




7


41

Owned and leased hotels
443




14

(7
)
450

 
 
 
 
 
 
 
 
Base management fees

48

11

9


(13
)
55

Incentive management fees

14

16

10


(7
)
33

Franchise fees

32

1




33

Other fees

1

2

2

2


7

License fees




5


5

Management, franchise, and other fees

95

30

21

7

(20
)
133

Amortization of management and franchise agreement assets constituting payments to customers

(4
)

(1
)


(5
)
Net management, franchise, and other fees

91

30

20

7

(20
)
128

 
 
 
 
 
 
 
 
Other revenues




5

2

7

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

447

24

16

2


489

 
 
 
 
 
 
 
 
Total
$
443

$
538

$
54

$
36

$
28

$
(25
)
$
1,074

 
Nine Months Ended September 30, 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
$
848

$

$

$

$
18

$
(26
)
$
840

Food and beverage
474




7


481

Other
106




23


129

Owned and leased hotels
1,428




48

(26
)
1,450

 
 
 
 
 
 
 
 
Base management fees

150

32

25


(40
)
167

Incentive management fees

47

50

29


(21
)
105

Franchise fees

94

2




96

Other fees

10

6

4

4


24

License fees




15


15

Management, franchise, and other fees

301

90

58

19

(61
)
407

Amortization of management and franchise agreement assets constituting payments to customers

(10
)
(1
)
(4
)


(15
)
Net management, franchise, and other fees

291

89

54

19

(61
)
392

 
 
 
 
 
 
 
 
Other revenues




22

5

27

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

1,328

67

49

3


1,447

 
 
 
 
 
 
 
 
Total
$
1,428

$
1,619

$
156

$
103

$
92

$
(82
)
$
3,316

Contract Balances
Our contract assets were $2 million and insignificant at September 30, 2019 and December 31, 2018, respectively. At September 30, 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.
Contract liabilities are comprised of the following:
 
September 30, 2019
 
December 31, 2018
Deferred revenue related to the loyalty program
$
657

 
$
596

Advanced deposits
77

 
81

Initial fees received from franchise owners
39

 
35

Deferred revenue related to system-wide services
11

 
7

Other deferred revenue
91

 
111

Total contract liabilities
$
875

 
$
830



The following table summarizes the activity in our contract liabilities:
 
2019
 
2018
Beginning balance, January 1
$
830

 
$
772

Cash received and other
490

 
433

Revenue recognized
(459
)
 
(441
)
Ending balance, June 30
$
861

 
$
764

Cash received and other
265

 
223

Revenue recognized
(251
)
 
(222
)
Ending balance, September 30
$
875

 
$
765

Revenue recognized during the three months ended September 30, 2019 and September 30, 2018 included in the contract liabilities balance at the beginning of each year was $80 million and $81 million, respectively. Revenue recognized during the nine months ended September 30, 2019 and September 30, 2018 included in the contract liabilities balance at the beginning of each year was $318 million and $299 million, respectively. This revenue primarily relates to the loyalty program, which is recognized net of redemption reimbursements paid to third parties, and advanced deposits.
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 $130 million at September 30, 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.
v3.19.3
Debt and Equity Securities
9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
Debt and Equity Securities DEBT AND EQUITY SECURITIES
Equity Method Investments
Equity method investments were $229 million and $233 million at September 30, 2019 and December 31, 2018, respectively.
During the nine months ended September 30, 2019, we recognized $8 million of gains in equity 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 three and nine months ended September 30, 2019, we received $2 million and $25 million of sales proceeds, respectively.
During the three and nine months ended September 30, 2019, we recognized $6 million and $7 million of impairment charges, respectively, primarily related to one unconsolidated hospitality venture in equity 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 nine months ended September 30, 2018, we recognized $1 million and $11 million of net gains, respectively, in equity 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 three and nine months ended September 30, 2018, we received $7 million and $17 million of sales proceeds, respectively.
During the nine months ended September 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 $4 million. During the nine months ended September 30, 2018, we recognized $16 million of impairment charges related to these investments in equity 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.
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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Total revenues
$
130

 
$
135

 
$
371

 
$
399

Gross operating profit
51

 
53

 
139

 
141

Income (loss) from continuing operations
9

 
(12
)
 
(2
)
 
(15
)
Net income (loss)
9

 
(12
)
 
(2
)
 
(15
)
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:
 
September 30, 2019
 
December 31, 2018
Loyalty program (Note 9)
$
453

 
$
397

Deferred compensation plans held in rabbi trusts (Note 9 and Note 11)
419

 
367

Captive insurance companies
136

 
133

Total marketable securities held to fund operating programs
$
1,008

 
$
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
(205
)
 
(174
)
Marketable securities held to fund operating programs included in other assets
$
803

 
$
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 September 30,
 
Nine Months Ended September 30,
2019
 
2018
 
2019
 
2018
Loyalty program (Note 19)
$
5

 
$
1

 
$
24

 
$
(2
)
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 September 30,
 
Nine Months Ended September 30,
2019
 
2018
 
2019
 
2018
Unrealized gains (losses)
$
(2
)
 
$
5

 
$
35

 
$
7

Realized gains
2

 
5

 
6

 
12

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

 
$
10

 
$
41

 
$
19


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:
 
September 30, 2019
 
December 31, 2018
Interest-bearing money market funds
$
202

 
$
14

Common shares of Playa N.V. (Note 9)
95

 
87

Time deposits
37

 
100

Total marketable securities held for investment purposes
$
334

 
$
201

Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(239
)
 
(114
)
Marketable securities held for investment purposes included in other assets
$
95

 
$
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 $1 million of unrealized gains and $14 million of unrealized losses for the three months ended September 30, 2019 and September 30, 2018, respectively, and $8 million of unrealized gains and $14 million of unrealized losses for the nine months ended September 30, 2019 and September 30, 2018, respectively, recognized in other income (loss), net on our condensed consolidated statements of income (see Note 19). We did not sell any shares of common stock during the nine months ended September 30, 2019.
Other Investments
HTM Debt Securities—At September 30, 2019 and December 31, 2018, we held $56 million and $49 million, respectively, of investments in 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 models 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 September 30, 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.
Due to ongoing operating cash flow shortfalls in the business underlying an equity security during the nine months ended September 30, 2018, we recognized a $22 million impairment charge for our full investment balance in other income (loss), net on our condensed consolidated statements of income (see Note 19) as the carrying
value was in excess of the fair value. The fair value was determined to be a Level Three fair value measure. During the three months ended September 30, 2018, the entity in which we held our investment disposed of its assets.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
September 30, 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
$
308

 
$
308

 
$

 
$

 
$

Mutual funds
419

 

 

 

 
419

Common shares
95

 

 

 

 
95

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
49

 

 
41

 

 
8

U.S. government obligations
195

 

 

 
34

 
161

U.S. government agencies
58

 

 
2

 
7

 
49

Corporate debt securities
155

 

 
20

 
21

 
114

Mortgage-backed securities
23

 

 

 
4

 
19

Asset-backed securities
38

 

 

 
7

 
31

Municipal and provincial notes and bonds
2

 

 

 

 
2

Total
$
1,342

 
$
308

 
$
63

 
$
73

 
$
898

 
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 and nine months ended September 30, 2019 and September 30, 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.
v3.19.3
Financing Receivables
9 Months Ended
Sep. 30, 2019
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Financing Receivables FINANCING RECEIVABLES

September 30, 2019

December 31, 2018
Unsecured financing to hotel owners
$
119


$
159

Less: current portion of financing receivables, included in receivables, net


(45
)
Less: allowance for losses
(100
)

(101
)
Total long-term financing receivables, net of allowances
$
19


$
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
3

 
3

  Other adjustments

 
(2
)
  Write-offs
(4
)
 

Allowance at June 30
$
100

 
$
109

  Provisions
1

 
2

  Other adjustments
(1
)
 

  Write-offs

 
(12
)
Allowance at September 30
$
100

 
$
99


Credit Monitoring—Our unsecured financing receivables were as follows:
 
September 30, 2019