HYATT HOTELS CORP, 10-K filed on 2/15/2018
Annual Report
Document and Entity Information Document (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Jun. 30, 2017
Jan. 31, 2018
Common Class A
Jan. 31, 2018
Common Class B
Document Information
 
 
 
 
Entity Registrant Name
Hyatt Hotels Corp 
 
 
 
Entity Central Index Key
0001468174 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Document Type
10-K 
 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
 
Document Fiscal Year Focus
2017 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Amendment Flag
false 
 
 
 
Trading Symbol
 
 
 
Entity Common Stock, Shares Outstanding
 
 
48,102,805 
70,618,737 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Public Float
 
$ 2,156.9 
 
 
Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
REVENUES:
 
 
 
Owned and leased hotels
$ 2,192 
$ 2,108 
$ 2,079 
Management and franchise fees
505 
448 
427 
Other revenues
70 
40 
36 
Other revenues from managed and franchised properties
1,918 
1,833 
1,786 
Total revenues
4,685 
4,429 
4,328 
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
Owned and leased hotels
1,674 
1,610 
1,562 
Depreciation and amortization
366 
342 
320 
Other direct costs
46 
30 
29 
Selling, general, and administrative
379 
315 
308 
Other costs from managed and franchised properties
1,918 
1,833 
1,786 
Direct and selling, general, and administrative expenses
4,383 
4,130 
4,005 
Net gains and interest income from marketable securities held to fund operating programs
47 
19 
Equity earnings (losses) from unconsolidated hospitality ventures
220 
68 
(64)
Interest expense
(80)
(76)
(68)
Gains (losses) on sales of real estate
51 
(23)
Asset impairments
(5)
Other income (loss), net
33 
(5)
INCOME BEFORE INCOME TAXES
573 
289 
194 
PROVISION FOR INCOME TAXES
(323)
(85)
(70)
NET INCOME
250 
204 
124 
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1)
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 249 
$ 204 
$ 124 
EARNINGS PER SHARE—Basic
 
 
 
Net Income - basic (in dollars per share)
$ 2.00 
$ 1.53 
$ 0.87 
Net income attributable to Hyatt Hotels Corporation - Basic (in dollars per share))
$ 1.99 
$ 1.53 
$ 0.87 
EARNINGS PER SHARE—Diluted
 
 
 
Net Income - diluted (in dollars per share)
$ 1.98 
$ 1.52 
$ 0.86 
Net income attributable to Hyatt Hotels Corporation - Diluted (in dollars per share)
$ 1.97 
$ 1.52 
$ 0.86 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 250 
$ 204 
$ 124 
Other Comprehensive Income (Loss), Net of Taxes, Portion Attributable to Parent [Abstract]
 
 
 
Foreign currency translation adjustments, net of tax expense (benefit) of $1, $-, and $(2) for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively
56 
(42)
(102)
Unrealized gains (losses) on available-for-sale securities, net of tax expense (benefit) of $23, $(4), and $21 for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively
35 
(6)
33 
Unrecognized pension cost, net of tax benefit of $- for each of the years ended December 31, 2017, December 31, 2016, and December 31, 2015
(2)
Unrealized gains on derivative activity, net of tax expense of $-, $1, and $1 for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively
Other comprehensive income (loss)
92 
(47)
(70)
COMPREHENSIVE INCOME
342 
157 
54 
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 341 
$ 157 
$ 54 
Consolidated Statements of Comprehensive Income Parentheticals (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Foreign currency translation adjustments, net of tax (benefit) expense
$ 1 
$ 0 
$ (2)
Unrealized gains (losses) on available-for-sale securities, net of tax (benefit) expense
23 
(4)
21 
Unrecognized pension cost, net of tax benefit
Unrealized gains on derivative activity, net of tax expense
$ 0 
$ 1 
$ 1 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
CURRENT ASSETS:
 
 
Cash and cash equivalents
$ 503 
$ 482 
Restricted cash
234 
76 
Short-term investments
49 
56 
Receivables, net of allowances of $21 and $18 at December 31, 2017 and December 31, 2016, respectively
350 
304 
Inventories
14 
28 
Prepaids and other assets
153 
153 
Prepaid income taxes
24 
40 
Total current assets
1,327 
1,139 
Investments
211 
186 
Property and equipment, net
4,034 
4,270 
Financing receivables, net of allowances
19 
19 
Goodwill
150 
125 
Intangibles, net
683 
599 
Deferred tax assets
242 
313 
Other assets
1,006 
1,098 
TOTAL ASSETS
7,672 
7,749 
CURRENT LIABILITIES:
 
 
Current maturities of long-term debt
11 
119 
Accounts payable
175 
162 
Accrued expenses and other current liabilities
635 
514 
Accrued compensation and benefits
145 
129 
Total current liabilities
966 
924 
Long-term debt
1,440 
1,445 
Other long-term liabilities
1,725 
1,472 
Total liabilities
4,131 
3,841 
Commitments and contingencies
   
   
Redeemable noncontrolling interest in preferred shares of a subsidiary
10 
EQUITY:
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of December 31, 2017 and December 31, 2016
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 48,231,149 issued and outstanding at December 31, 2017, and Class B common stock, $0.01 par value per share, 402,748,249 shares authorized, 70,753,837 shares issued and outstanding at December 31, 2017. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,952,061 issued and outstanding at December 31, 2016, and Class B common stock, $0.01 par value per share, 422,857,621 shares authorized, 90,
Additional paid-in capital
967 
1,686 
Retained earnings
2,742 
2,493 
Accumulated other comprehensive loss
(185)
(277)
Total stockholders’ equity
3,525 
3,903 
Noncontrolling interests in consolidated subsidiaries
Total equity
3,531 
3,908 
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
$ 7,672 
$ 7,749 
Consolidated Balance Sheet Parentheticals (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Allowance for doubtful accounts receivable, current
$ 21 
$ 18 
Preferred stock, par or stated 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)
Common Class A
 
 
Common stock, par or stated 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)
48,231,149 
39,952,061 
Common stock, shares, issued (in shares)
48,231,149 
39,952,061 
Common Class B
 
 
Common stock, par or stated value per share (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized (in shares)
402,748,249 
422,857,621 
Common stock, shares, outstanding (in shares)
70,753,837 
90,863,209 
Common stock, shares, issued (in shares)
70,753,837 
90,863,209 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$ 250 
$ 204 
$ 124 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
366 
342 
320 
Amortization of share awards
32 
26 
26 
Deferred income taxes
47 
(3)
(103)
Equity (earnings) losses from unconsolidated hospitality ventures
(220)
(68)
64 
(Gains) losses on sales of real estate
(51)
23 
(9)
Realized losses from marketable securities
40 
Distributions from unconsolidated hospitality ventures
29 
35 
36 
Other
(44)
55 
Increase (decrease) in cash attributable to changes in assets and liabilities
 
 
 
Restricted cash
13 
(4)
78 
Receivables, net
(37)
(14)
29 
Inventories
12 
Prepaid income taxes
14 
21 
(16)
Accounts payable, accrued expenses, and other current liabilities
95 
(7)
Accrued compensation and benefits
22 
Other long-term liabilities
24 
10 
Other, net
(17)
(61)
(66)
Net cash provided by operating activities
620 
489 
538 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of marketable securities and short-term investments
(469)
(464)
(530)
Proceeds from marketable securities and short-term investments
480 
457 
521 
Contributions to investments
(89)
(107)
(37)
Return of investments
425 
132 
19 
Acquisitions, net of cash acquired
(259)
(492)
(3)
Capital expenditures
(298)
(211)
(269)
Issuance of financing receivables
(38)
(8)
Proceeds from financing receivables
38 
28 
Proceeds from sales of real estate, net of cash disposed
663 
289 
88 
Sales proceeds transferred to escrow as restricted cash
(474)
Sales proceeds transferred from escrow to cash and cash equivalents
300 
29 
143 
Pre-condemnation proceeds
15 
Other investing activities
(28)
(13)
Net cash provided by (used in) investing activities
266 
(380)
(47)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from debt, net of issuance costs of $-, $4, and $-, respectively
670 
620 
12 
Repayments of debt
(782)
(438)
(5)
Repurchase of common stock
(743)
(272)
(715)
Proceeds from redeemable noncontrolling interest in preferred shares in a subsidiary
Other financing activities
(12)
(6)
(7)
Net cash used in financing activities
(858)
(96)
(715)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(7)
12 
(4)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
21 
25 
(228)
CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR
482 
457 
685 
CASH AND CASH EQUIVALENTS—END OF PERIOD
503 
482 
457 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for interest
80 
75 
69 
Cash paid during the period for income taxes
175 
95 
145 
Non-cash investing and financing activities are as follows:
 
 
 
Non-cash contributions to investments
13 
17 
Non-cash management and franchise agreement intangibles
47 
Change in accrued capital expenditures
$ 9 
$ 2 
$ 6 
Consolidated Statements of Cash Flows Parenthetical (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Cash Flows [Abstract]
 
 
 
Debt issuance cost
$ 0 
$ 4 
$ 0 
Consolidated Statement of Changes in Stockholders' Equity (USD $)
In Millions
Total
Common Stock Amount
Additional Paid-in Capital
Retained Earnings
Treasury Stock Amount
Accumulated Other Comprehensive Loss
Noncontrolling Interests in Consolidated Subsidiaries
Excludes accretion income on redeemable preferred shares
Excludes accretion income on redeemable preferred shares
Retained Earnings
Excludes accretion income on redeemable preferred shares
Accumulated Other Comprehensive Loss
Balance, beginning of period at Dec. 31, 2014
$ 4,631 
$ 2 
$ 2,621 
$ 2,165 
$ (1)
$ (160)
$ 4 
 
 
 
Total comprehensive income
54 
 
 
124 
 
(70)
 
 
 
Repurchase of common stock
(715)
(1)
(714)
 
 
 
 
 
 
 
Directors compensation
 
 
 
 
 
 
 
 
Employee stock plan issuance
 
 
 
 
 
 
 
 
Share-based payment activity
20 
 
19 
 
 
 
 
 
 
Balance, end of period at Dec. 31, 2015
3,995 
1,931 
2,289 
(230)
 
 
 
Total comprehensive income
157 
 
 
204 
 
(47)
 
 
 
 
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
Repurchase of common stock
(272)
 
(272)
 
 
 
 
 
 
 
Directors compensation
 
 
 
 
 
 
 
 
Employee stock plan issuance
 
 
 
 
 
 
 
 
Share-based payment activity
22 
 
22 
 
 
 
 
 
 
 
Balance, end of period at Dec. 31, 2016
3,908 
1,686 
2,493 
(277)
 
 
 
Total comprehensive income
342 
 
 
 
 
 
 
341 
249 
92 
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
Repurchase of common stock
(743)
 
(743)
 
 
 
 
 
 
 
Directors compensation
 
 
 
 
 
 
 
 
Employee stock plan issuance
 
 
 
 
 
 
 
 
Share-based payment activity
18 
 
18 
 
 
 
 
 
 
 
Balance, end of period at Dec. 31, 2017
$ 3,531 
$ 1 
$ 967 
$ 2,742 
$ 0 
$ (185)
$ 6 
 
 
 
Organization
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness related businesses. We develop, own, operate, manage, franchise, license, or provide services to a portfolio of properties consisting of full service hotels, select service hotels, resorts, and other properties, including branded spas and fitness studios, and timeshare, fractional, and other forms of residential or vacation properties. At December 31, 2017, (i) we operated or franchised 331 full service hotels, comprising 128,051 rooms throughout the world, (ii) we operated or franchised 388 select service hotels, comprising 54,862 rooms, of which 343 hotels are located in the United States, and (iii) our portfolio of properties included 6 franchised all inclusive Hyatt-branded resorts, comprising 2,401 rooms, and 3 destination wellness resorts, comprising 399 rooms. At December 31, 2017, our portfolio of properties operated in 58 countries around the world.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—Our consolidated financial statements present the results of operations, financial position, and cash flows of Hyatt Hotels Corporation and its majority owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates—We are required to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying Notes. Actual results could differ materially from such estimated amounts.
Revenue Recognition—Our revenues are primarily derived from the following sources and are generally recognized when services have been rendered:
Owned and leased hotels revenues are derived from room rentals and services provided at our owned and leased properties and are recognized when rooms are occupied and services have been rendered. Sales and occupancy taxes are recorded on a net basis in our consolidated statements of income.
Management and franchise fees earned from hotels managed and franchised worldwide:
Management fees primarily consist of a base fee, which is generally computed as a percentage of gross revenues, and an incentive fee, which is generally computed based on a hotel profitability measure. Base fee revenues are recognized when earned in accordance with the terms of the contract. We recognize incentive fees that would be due as if the contract were to terminate at that date, exclusive of any termination fees payable or receivable by us.
Realized gains from the sale of hotel real estate assets where we maintain substantial continuing involvement in the form of a long-term management contract are deferred and recognized as management fee revenue over the term of the underlying management contract.
Franchise fees consist of an initial application fee and continuing royalty fees calculated based on a percentage of gross room revenues and in certain circumstances, food and beverage revenues. Fees are recognized as they are earned and become due from the franchisee and when all material services have been substantially performed or satisfied by the franchisor.
Other revenues include revenues from our co-branded credit card and exhale. We recognize revenue from our co-branded credit card upon: (1) the sale of points to our third-party partner and (2) the fulfillment or expiration of a card member's promotional awards.
Other revenues from managed and franchised properties represent the reimbursement of costs incurred on behalf of the owners of hotel properties we manage and franchise. These costs relate primarily to payroll costs at managed properties where we are the employer, as well as reservations, sales, marketing, technology, and loyalty program costs at managed and franchised properties. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our net income.
Cash Equivalents—We consider all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.
Restricted Cash—We had restricted cash of $234 million and $76 million at December 31, 2017 and December 31, 2016, respectively, which includes:
$207 million at December 31, 2017 related to sale proceeds from the disposition of Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch pursuant to a like-kind exchange (see Note 7);
$12 million and $14 million, respectively, related to debt service on bonds acquired in connection with the acquisition of the entity that owned Grand Hyatt San Antonio (see Note 9); in addition, we have $11 million recorded in other assets in both periods;
$9 million related to our captive insurance subsidiary for minimum capital and surplus requirements in accordance with local insurance regulations (see Note 14); and
$40 million at December 31, 2016 related to sales proceeds from the 2014 dispositions of two Canadian hotels, as the Canadian tax regulations required a portion of the proceeds be classified as restricted until completion of regulatory review.
The remaining restricted cash balances of $6 million and $13 million at December 31, 2017 and December 31, 2016, respectively, relate to escrow deposits and other arrangements. These amounts are invested in interest-bearing accounts.
Investments—We have investments in unconsolidated hospitality ventures recorded under the equity and cost methods. These investments are an integral part of our business and are strategically and operationally important to our overall results. When we receive a distribution from an investment, we determine whether it is a return on our investment or a return of our investment based on the underlying nature of the distribution. We assess investments in unconsolidated hospitality ventures for impairment quarterly. When there is indication a loss in value has occurred, we evaluate the carrying value in comparison to the estimated fair value of the investment. Fair value is based upon internally developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future cash flows, the discount rate, and the capitalization rate assumptions. Our estimates of projected future cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. If the estimated fair value is less than carrying value, we use our judgment to determine if the decline in value is other than temporary. In determining this, we consider factors including, but not limited to, the length of time and extent of the decline, loss of value as a percentage of the cost, financial condition and near-term financial projections, our intent and ability to recover the lost value, and current economic conditions. Impairments deemed other than temporary are charged to equity earnings (losses) from unconsolidated hospitality ventures or other income (loss), net on our consolidated statements of income. For additional information about investments, see Note 3.
Marketable Securities—Our investments in marketable securities consist of various types of mutual funds, preferred shares, interest bearing money market funds, time deposits, common stock, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds and are classified as either trading, AFS, or HTM.
Trading securities—recorded at fair value based on listed market prices or dealer price quotations where available. Realized gains and losses on trading securities are reflected in net gains and interest income from marketable securities held to fund operating programs on our consolidated statements of income.
AFS securities—recorded at fair value as described in Note 4. Unrealized gains and losses on AFS securities are reported as part of accumulated other comprehensive loss on our consolidated balance sheets. Realized gains and losses on AFS securities are recognized in other income (loss), net on our consolidated statements of income.
HTM securities—debt security investments which we have the ability to hold until maturity and are recorded at amortized cost.
AFS and HTM securities are assessed for impairment quarterly. To determine if an impairment is other than temporary, we consider the duration and severity of the loss position, the strength of the underlying collateral, the term to maturity, credit rating, and our intent to sell. For debt securities that are deemed other than temporarily impaired and there is no intent to sell, impairments are separated into the amount related to the credit loss, which is typically recorded in other income (loss), net on our consolidated statements of income and the amount related to all other factors, which is recorded in accumulated other comprehensive loss on our consolidated balance sheets. For debt securities that are deemed other than temporarily impaired and there is intent to sell, impairments in their entirety are recorded on our consolidated statements of income. For additional information about marketable securities, see Note 4.
Foreign Currency—The functional currency of our consolidated entities located outside the United States of America is generally the local currency. The assets and liabilities of these entities are translated into U.S. dollars at year-end exchange rates, and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive loss on our consolidated balance sheets. Gains and losses from foreign currency transactions are included in earnings. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables of a long-term nature are generally included in accumulated other comprehensive loss. Gains and losses from foreign exchange rate movement related to intercompany receivables and payables that are not long-term are included in earnings.
Financing Receivables—Financing arrangements represent contractual rights to receive money either on demand or on fixed or determinable dates and are recognized on our consolidated balance sheets at amortized cost. We recognize interest income as earned and provide an allowance for cancellations and defaults. Our financing receivables are composed of individual unsecured loans and other types of unsecured financing arrangements provided to hotel owners. These financing receivables generally have stated maturities and interest rates, however, the repayment terms vary and may be dependent upon future cash flows of the hotel.
On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity. We determine our financing to hotel owners to be non-performing if interest or principal is greater than 90 days past due based on the contractual terms of the individual financing receivables, if an impairment charge is recorded for a loan, or if a provision is established for our other financing arrangements. If we consider a financing receivable to be non-performing, we place the financing receivable on non-accrual status.
We individually assess all loans within financing receivables for impairment quarterly. This assessment is based on an analysis of several factors including current economic conditions and industry trends, as well as the specific risk characteristics of these loans including capital structure, loan performance, market factors, and the underlying hotel performance. When it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the individual loan agreement or if projected future cash flows available for repayment of unsecured receivables indicate there is a collection risk, we measure the impairment based on the present value of projected future cash flows discounted at the loan’s effective interest rate. For impaired loans, we establish a specific loan loss reserve for the difference between the recorded investment in the loan and the estimated fair value.
In addition to loans, we include other types of financing arrangements in unsecured financing to hotel owners which we do not assess individually for impairment. We regularly evaluate our reserves for these other financing arrangements.
We write off financing to hotel owners when we determine the receivables are uncollectible and when all commercially reasonable means of recovering the receivable balances have been exhausted.
We recognize interest income when received for impaired loans and financing receivables on non-accrual status which is recorded to other income (loss), net in our consolidated statements of income. Accrual of interest income is resumed when the receivable becomes contractually current and collection doubts are removed. For additional information about financing receivables, see Note 6.
Accounts Receivable—Our accounts receivable primarily consist of trade receivables due from guests for services rendered at our owned and leased properties and from hotel owners with whom we have management and franchise agreements for services rendered and for reimbursements of costs incurred on behalf of managed and franchised properties. We record an accounts receivable reserve when losses are probable, based on an assessment of past collection activity and current business conditions.
Inventories—Inventories are comprised of operating supplies and equipment that have a period of consumption of two years or less, and food and beverage items at our owned and leased hotels which are generally valued at the lower of cost (first-in, first-out) or net realizable value. At December 31, 2016, inventories also included two luxury villas and the associated land at Andaz Maui at Wailea Resort which were carried at the lower of cost or net realizable value.
Property and Equipment and Definite-Lived Intangibles—Property and equipment and definite-lived intangibles are stated at cost, including interest incurred during development and construction periods, less accumulated depreciation and amortization. Depreciation and amortization are recognized over the estimated useful lives of the assets, primarily on the straight-line method.
Useful lives assigned to property and equipment are as follows:
Buildings and improvements
10-50 years
Leasehold improvements
The shorter of the lease term or useful life of asset
Furniture and equipment
3-20 years
Computers
3-7 years

Useful lives assigned to definite-lived intangibles are as follows:
Management and franchise agreement intangibles
Initial term of management or franchise agreement
Lease related intangibles
Lease term
Advanced booking intangibles
Period of the advanced bookings

We assess property and equipment and definite-lived intangibles for impairment quarterly. When events or circumstances indicate the carrying amount may not be recoverable, we evaluate the net book value of the assets for impairment by comparison to the projected undiscounted future cash flows of the assets. The principal factor used in the undiscounted cash flow analysis requiring judgment is the projected future operating cash flows, which are based on historical data, various internal estimates, and a variety of external resources, and are developed as part of our routine, long-term planning process.
If the projected undiscounted future cash flows are less than the net book value of the assets, the fair value is determined based upon internally developed discounted cash flows of the assets, third-party appraisals or broker valuations, and if appropriate, current estimated net sales proceeds from pending offers. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows, the discount rates, and the capitalization rate assumptions. The excess of the net book value over the estimated fair value is charged to asset impairments within our consolidated statements of income.
We evaluate the carrying value of our property and equipment and definite-lived intangibles based on our plans, at the time, for such assets and consider qualitative factors such as future development in the surrounding area, status of local competition, and any significant adverse changes in the business climate. Changes to our plans, including a decision to dispose of or change the intended use of an asset, may have a material impact on the carrying value of the asset.
For additional information about property and equipment and definite-lived intangibles, see Notes 5 and 8, respectively.
Acquisitions—Assets acquired and liabilities assumed in business combinations are recorded on our consolidated balance sheets at the respective acquisition dates based upon their estimated fair values, see Note 7. The results of operations of businesses acquired have been included in our consolidated statements of income since their respective dates of acquisition. In certain circumstances, the purchase price allocations are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when we receive final information, including appraisals and other analyses.
Under the supervision of management, independent third-party valuation specialists estimate the fair value of our properties or businesses acquired using various recognized valuation methods including the income approach, the cost approach, and the sales comparison approach, which are primarily based on Level Three assumptions. Assumptions utilized in determining the fair value under these approaches include, but are not limited to, historical financial results when applicable, projected cash flows, discount rates, capitalization rates, current market conditions, and comparable transactions. The fair value is then allocated to tangible and intangible assets with any remaining value assigned to goodwill, if applicable. Various assumptions are used when determining the value to allocate to each identifiable asset, including discount rates, capitalization rates, royalty rates, timing of future cash flows, and a variety of external sources. When we acquire the remaining ownership interest in or the property from an unconsolidated hospitality venture in a step acquisition, we estimate the fair value of our equity interest using the assumed cash proceeds we would receive from sale to a third party at a market sales price, which is determined using the aforementioned fair value methodologies and assumptions.
Goodwill—Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. As required, we evaluate goodwill for impairment annually, and do so during the fourth quarter of each year using balances at October 1 and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount.
We evaluate the fair value of the reporting unit either by performing a qualitative or quantitative assessment. In any given year, we can elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value is in excess of the carrying value, or we elect to bypass the qualitative assessment, we proceed to the quantitative assessment.
When determining fair value, we utilize internally developed discounted future cash flow models, third-party appraisals or broker valuations and, if appropriate, current estimated net sales proceeds from pending offers. Under the discounted cash flow approach, we utilize various assumptions requiring judgment, including projected future cash flows, discount rates, and capitalization rates. Our estimates of projected future cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we record an impairment charge based on the amount by which the reporting unit’s carrying value exceeded its fair value, limited to the carrying amount of goodwill. The identified loss is recorded to asset impairments within our consolidated statements of income. For additional information about goodwill, see Note 8.
Indefinite-Lived Intangible Assets—We have certain indefinite-lived brand intangibles that were acquired through various business combinations. At the time of each respective acquisition, fair value was estimated using a relief from royalty methodology.
As required, we evaluate indefinite-lived intangible assets for impairment annually, and do so during the fourth quarter of each year using balances at October 1 and at an interim date if indications of impairment exist. We use the relief from royalty method to estimate the fair value. When determining fair value, we utilize internally developed discounted future cash flow models, which include various assumptions requiring judgment, including projected future cash flows and market royalty rates. Our estimates of projected cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we record an impairment charge. The excess of the carrying value over the fair value is recorded to asset impairments within our consolidated statements of income. For additional information about indefinite-lived intangible assets, see Note 8.
Guarantees—We enter into performance guarantees related to certain hotels we manage. We also enter into debt repayment guarantees or other guarantees with respect to unconsolidated hospitality ventures, certain managed or franchised hotels, and other properties. We record a liability for the fair value of these guarantees at their inception date. In order to estimate the fair value, we use a Monte Carlo simulation to model the probability of possible outcomes. The valuation methodology requires that we make certain assumptions and judgments regarding: discount rates, volatility, hotel operating results, and hotel property sales prices. The fair value is not re-valued due to future changes in assumptions. The corresponding offset depends on the circumstances in which the guarantee was issued and is recorded to investments, intangibles, or expense. We amortize the liability for the fair value of a guarantee into income over the term of the guarantee using a systematic and rational, risk-based approach. Guarantees related to our managed or franchised hotels and other properties are amortized into income in other income (loss), net in our consolidated statements of income. Guarantees related to our unconsolidated hospitality ventures are amortized into equity earnings (losses) from unconsolidated hospitality ventures in our consolidated statements of income. On a quarterly basis, we evaluate the likelihood of funding under a guarantee. To the extent we determine an obligation to fund is both probable and estimable based upon performance during the period, we record a separate contingent liability in other income (loss), net or equity earnings (losses) from unconsolidated hospitality ventures. For additional information about guarantees, see Note 14.
Income Taxes—We account for income taxes to recognize the amount of taxes payable or refundable for the current year and the amount of deferred tax assets and liabilities resulting from the future tax consequences of differences between the financial statements and tax basis of the respective assets and liabilities. We recognize the financial statement effect of a tax position when, based on the technical merits of the uncertain tax position, it is more likely than not to be sustained on a review by taxing authorities. We review these estimates and make changes to recorded amounts of uncertain tax positions as facts and circumstances warrant. For additional information about income taxes, see Note 13.
Fair Value—We apply the provisions of fair value measurement to various financial instruments, which we measure at fair value on a recurring basis, and to various financial and nonfinancial assets and liabilities, which we measure at fair value on a nonrecurring basis. We disclose the fair value of our financial assets and liabilities based on observable market information where available, or on market participant assumptions. These assumptions are subjective in nature, involve matters of judgment, and, therefore, fair values cannot always be determined with precision. When determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability; and
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We typically utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the classification within the fair value hierarchy has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these items and their close proximity to maturity. The carrying value of restricted cash approximates fair value. The fair value of marketable securities is discussed in Note 4; the fair value of financing receivables is discussed in Note 6; the fair value of long-term debt is discussed in Note 9; and the fair value of our guarantee liabilities is discussed in Note 14.
Stock-Based Compensation—As part of our LTIP, we award SARs, RSUs, Performance Shares ("PSs"), and PSUs to certain employees and directors:
SARs—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life as determined in accordance with the LTIP. All SARs have a 10-year contractual term, are settled in shares of our Class A common stock, and are accounted for as equity instruments.
We record the compensation expense for SARs on a straight-line basis from the date of grant through the requisite service period. The exercise price of these SARs is the fair value of our common stock at the grant date, based on a valuation of the Company prior to the IPO, or the closing share price on the date of grant (as applicable). We recognize the effect of forfeitures for SARs as they occur.
RSUs—Each vested RSU will generally be settled by delivery of a single share of our Class A common stock and therefore is accounted for as an equity instrument. In certain situations, we also grant a limited number of cash-settled RSUs, which are recorded as a liability instrument. The cash-settled RSUs represent an insignificant portion of certain previous grants.
The value of the RSUs is based upon the fair value of our common stock at the grant date, based upon a valuation of the Company prior to IPO, or the closing stock price of our Class A common stock for the December 2009 award and all subsequent awards. Awards issued prior to our November 2009 IPO are deferred in nature and will be settled once all tranches of the award have fully vested or otherwise as provided in the relevant agreements, while all awards issued in December 2009 and later will be settled as each individual tranche vests under the relevant agreements. We record compensation expense over the requisite service period of the individual grant and record the effect of forfeitures as they occur.
PSs—The Company has granted PSs to certain executive officers. The number of PSs that will ultimately vest with no further restrictions on transfer depends upon the performance of the Company at the end of the applicable three-year performance period relative to the applicable performance target. The PSs vest in full if the maximum performance metric is achieved and are generally subject to continued employment through the applicable performance period. At the end of the performance period, the PSs that do not vest will be forfeited. The PSs will vest at the end of the performance period only if the performance threshold is met and continued service requirements are satisfied; there is no interim performance metric except in the case of certain change in control transactions. PSs will be settled in shares of our Class A common stock.
PSUs—The Company has granted PSUs to certain executive officers. PSUs vest and are settled in Class A common stock based upon the performance of the Company through the end of the applicable three-year performance period relative to the applicable performance target and are generally subject to continued employment through the applicable performance period. The PSUs will vest at the end of the performance period only if the performance threshold is met and continued service requirements are satisfied; there is no interim performance metric except in the case of certain change in control transactions.
For additional information about stock-based compensation, see Note 16.
Loyalty Program—We operate the World of Hyatt loyalty program for the benefit of the Hyatt portfolio of properties owned, operated, managed, franchised, or licensed by us during the period of their participation in the loyalty program. The loyalty program is primarily funded through contributions from eligible revenues from loyalty program members and we use these funds for the payment of operating expenses and redemption of member awards associated with the loyalty program.
We charge the cost of operating the loyalty program, including the estimated cost of award redemption, to the properties based on members’ qualified expenditures. Due to the requirement under the loyalty program that the properties reimburse us for the program’s operating costs, we recognize this revenue from properties through other revenues from managed and franchised properties at the time such costs are incurred and expensed. We defer revenue received from the properties equal to the actuarially determined estimate of our future redemption obligation. Upon the redemption of points, we recognize the previously deferred revenue through other revenues from managed and franchised properties and recognize the corresponding expense relating to the cost of the awards redeemed through other costs from managed and franchised properties. Revenue is recognized by the properties when the points are redeemed, and expenses are recognized when the points are earned by the members.
We actuarially determine the estimate of the future redemption obligation based on statistical formulas that project the timing of future point redemption based on historical experience, including an estimate of the breakage for points that will never be redeemed, and an estimate of the points that will eventually be redeemed. Actual expenditures for the program may differ from the actuarially determined liability.
The loyalty program is financed by payments from the properties and returns on marketable securities. We invest amounts received from the properties in marketable securities which are included in other current and noncurrent assets (see Note 4). The noncurrent liabilities of the loyalty program are included in other long-term liabilities (see Note 12). Assets and liabilities of the loyalty program are as follows:
 
December 31, 2017
 
December 31, 2016
Current assets
$
171

 
$
150

Noncurrent assets
298

 
296

Total assets
$
469

 
$
446

 
 
 
 
Current liabilities
$
171

 
$
150

Noncurrent liabilities
298

 
296

Total liabilities
$
469

 
$
446


The current liabilities include $152 million and $139 million recorded in accrued expenses and other current liabilities on our consolidated balance sheets at December 31, 2017 and December 31, 2016, respectively.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions of ASU 2016-09 were effective for interim periods and fiscal years beginning after December 15, 2016. We adopted ASU 2016-09 on January 1, 2017, which resulted in recognition of excess tax benefits from share-based payment transactions on our consolidated statements of income and within operating activities on our consolidated statements of cash flows, on a prospective basis. ASU 2016-09 did not materially impact our consolidated financial statements and prior periods have not been adjusted.
In January 2017, the FASB released Accounting Standards Update No. 2017-04 ("ASU 2017-04"), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the impairment test which requires entities to determine the implied fair value of goodwill to measure if any impairment charge is necessary. Instead, entities will record an impairment charge based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The provisions of ASU 2017-04 are to be applied on a prospective basis and are effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We adopted ASU 2017-04 during the year ended December 31, 2017 in conjunction with our annual goodwill impairment testing. ASU 2017-04 did not materially impact our consolidated financial statements and prior periods have not been adjusted.
Future Adoption of Accounting Standards
In May 2014, the FASB released Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for contracts with customers. Subsequently, the FASB issued several related ASUs which further clarify the application of the standard. In August 2015, the FASB released Accounting Standards Update No. 2015-14 ("ASU 2015-14"), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU 2015-14 delays the effective date of ASU 2014-09 by one year, making it effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted as of the original effective date under ASU 2014-09.
ASU 2014-09 requires entities to recognize revenue when a customer obtains control of a good or a service. Revenues are recognized in an amount that reflects the consideration expected to be received in return for the goods or services. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The standard permits the use of either the full retrospective or modified retrospective (cumulative effect) transition method. We expect to adopt ASU 2014-09, and all related ASUs, utilizing the full retrospective transition method on January 1, 2018.
While we continue to evaluate possible impacts on our consolidated financial statements, ASU 2014-09 and the related ASUs are currently expected to impact either the amount or timing of revenue recognition as follows:
Under existing guidance, gains on sales of real estate are deferred when we maintain substantial continuing involvement and are amortized into management and franchise fee revenues. Upon adoption of ASU 2014-09, gains on sales of real estate will be recognized when control of the property transfers to the buyer within gains (losses) on sales of real estate on our consolidated statements of income. As a result, we expect a reduction in management and franchise fee income in future periods, but in periods in which we dispose of a property, we expect to recognize the gain upon sale which would increase net income in the period of sale. Any remaining unamortized deferred gains at the date of adoption will be included as an adjustment to retained earnings. For the years ended December 31, 2017 and December 31, 2016, we recognized $25 million and $21 million, respectively, of management and franchise fee revenues related to the amortization of these deferred gains on our consolidated statements of income.
Under existing guidance, amortization of certain management and franchise agreement intangibles is recorded within depreciation and amortization on our consolidated statements of income. Upon adoption of ASU 2014-09, certain management and franchise agreement intangibles will meet the definition of consideration paid to a customer and therefore, the amortization will be recorded as contra-revenue within management and franchise fee revenues on our consolidated statements of income following the same timing and recognition pattern as existing guidance. For the years ended December 31, 2017 and December 31, 2016, we recognized $18 million and $16 million, respectively, of amortization expense related to management and franchise agreement intangibles that will meet the definition of consideration paid to a customer upon adoption of ASU 2014-09. As a result, we expect an equal and offsetting reduction in both revenues and amortization expense in future periods, such that there is no impact to net income.
Under existing guidance, incentive fees are recognized in the amount that would be due as if the contract were to terminate at that time. Under ASU 2014-09, variable consideration is included in the transaction price only if it is probable that a significant reversal in the cumulative amount of revenue recognized would not occur when the uncertainty associated with the variable consideration is subsequently resolved. This may result in a different pattern of quarterly recognition for incentive fees for certain contracts. We do not anticipate a material impact to incentive fee recognition on a full-year basis.
Under existing guidance, franchise application fees are recognized at a point in time. Upon adoption of ASU 2014-09, franchise application fees will be recognized over the initial term of the franchise agreement. We do not expect this change to materially impact our consolidated financial statements.
Under existing guidance, revenues include the reimbursement of costs incurred to operate our sales, reservations, technology, and marketing programs on behalf of the owners of managed and franchised properties and are recognized when costs are incurred with no added margins. Upon adoption of ASU 2014-09, we anticipate that the timing of revenue recognition may no longer align with the timing of expense recognition primarily in interim periods. However we do not anticipate a material impact to our consolidated statements of income on a full-year basis.
Under existing guidance, revenues related to loyalty program award redemptions are deferred and recognized on a gross basis upon redemption. Upon adoption of ASU 2014-09, we anticipate recognizing revenue related to the loyalty program upon redemption, net of any reward reimbursement paid to a third party. We are still evaluating additional quantitative impacts of the new standard on our consolidated statements of income.
We do not expect the standard to materially affect the amount or timing of revenue recognition for royalty fees from our franchised properties, base management fees from our managed properties, technical services fees, termination fees, or revenues from hotel guest transactions at our owned and leased properties.
In January 2016, the FASB released Accounting Standards Update No. 2016-01 ("ASU 2016-01"), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting for equity investments, excluding those accounted for under the equity method, and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 are effective for interim periods and fiscal years beginning after December 15, 2017. ASU 2016-01 supersedes the guidance to classify equity securities with readily determinable fair values into different categories (trading versus AFS). All equity securities will be measured at fair value on a recurring basis unless an equity security does not have a readily determinable fair value. Equity securities without a readily determinable fair value will be remeasured at fair value only in periods in which an observable price change is available or upon identification of an impairment. All changes in fair value will be recognized in net income on our consolidated statements of income. Upon adoption, the unrealized gains (losses), net of tax, on our AFS equity securities, specifically on our investment in Playa Hotels & Resorts N.V. ("Playa N.V.") (see Note 4), will be reclassified from accumulated other comprehensive loss to retained earnings. The reclassification is estimated to be approximately $70 million at January 1, 2018. Subsequent changes in fair value will be recognized in net income on our consolidated statements of income. We do not expect that other requirements of ASU 2016-01 will have a material impact on our consolidated financial statements.
In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. The leases for a majority of our hotels include contingent lease payments, which will be excluded from the impact of ASU 2016-02, see Note 10. We are currently evaluating the impact of adopting ASU 2016-02 and expect this ASU may have a material effect.
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 AFS debt securities to be recorded 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.
In October 2016, the FASB released Accounting Standards Update No. 2016-16 ("ASU 2016-16"), Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of ASU 2016-16 are effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted. ASU 2016-16 requires an entity to adopt the amendments on a modified retrospective basis, recognizing the effects in retained earnings at the beginning of the year of adoption. Upon adoption, we do not expect ASU 2016-16 to have a material impact on our consolidated financial statements.
In November 2016, the FASB released Accounting Standards Update No. 2016-18 ("ASU 2016-18"), Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). Currently, transfers between cash and cash equivalents and restricted cash are included within operating and investing activities on our consolidated statements of cash flows. ASU 2016-18 requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statements of cash flows. The provisions of ASU 2016-18 are effective for interim periods and fiscal years beginning after December 15, 2017, and are to be applied on a retrospective basis with early adoption permitted. Upon adoption, our restricted cash balances of $234 million and $76 million at December 31, 2017 and December 31, 2016, respectively, will be included in cash, cash equivalents, and restricted cash on our consolidated statements of cash flows.
In January 2017, the FASB released Accounting Standards Update No. 2017-01 ("ASU 2017-01"), Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Generally, our acquisitions of individual hotels are accounted for as business combinations, however, upon adoption of ASU 2017-01, there is an increased likelihood that certain acquisitions of individual hotels will be accounted for as asset acquisitions. The provisions of ASU 2017-01 are effective for interim periods and fiscal years beginning after December 15, 2017. This standard is effective on a prospective basis, and therefore does not affect the accounting treatment for any previous transactions. We will evaluate the other impacts of adopting ASU 2017-01 based on facts and circumstances prospectively as transactions occur.
Equity and Cost Method Investments
Equity and Cost Method Investments
EQUITY AND COST METHOD INVESTMENTS
 
December 31, 2017
 
December 31, 2016
Equity method investments
$
184

 
$
180

Cost method investments
27

 
6

Total investments
$
211

 
$
186


Of our total investment balance at December 31, 2017 and December 31, 2016, $190 million and $186 million, respectively, were recorded in our owned and leased hotels segment.
The carrying values and ownership percentages of our unconsolidated investments in hospitality ventures accounted for under the equity method were as follows:
 
Ownership interests
 
Investment balance
December 31, 2017
 
December 31, 2016
Juniper Hotels Private Limited
50.0
%
 
$
26

 
$
37

Macae Partners SARL
70.0
%
 
17

 
7

San Jose Hotel Partners, LLC
40.0
%
 
16

 
15

Four One Five, LLC
44.7
%
 
16

 
15

Hotel Am Belvedere GmbH & Co KG
50.0
%
 
15

 
12

Hotel Hoyo Uno, S. de R.L. de C.V.
40.0
%
 
15

 
13

Rio Preto Partners SARL
70.0
%
 
13

 
14

Desarrolladora Hotelera Acueducto, S. de R.L. de C.V.
50.0
%
 
13

 
13

HH Nashville JV Holdings, LLC
50.0
%
 
12

 
7

Glendale Hotel Properties, LLC
50.0
%
 
11

 

Playa Hotels & Resorts BV
%
 

 
23

Other
 
 
30

 
24

Total
 
 
$
184

 
$
180


The following tables present summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
 
Years Ended December 31,
2017
 
2016
 
2015
Total revenues
$
832

 
$
1,229

 
$
1,079

Gross operating profit
289

 
398

 
312

Income from continuing operations
54

 
160

 
33

Net income
54

 
160

 
33

 
December 31, 2017
 
December 31, 2016
Current assets
$
215

 
$
443

Noncurrent assets
1,308

 
2,701

Total assets
$
1,523

 
$
3,144

 
 
 
 
Current liabilities
$
156

 
$
385

Noncurrent liabilities
1,224

 
2,037

Total liabilities
$
1,380

 
$
2,422


During 2017, we had the following activity:
In conjunction with the sale of Avendra, an equity method investment within our Americas management and franchising segment, to Aramark, we received net proceeds of approximately $217 million. We recorded a gain of $217 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
We sold our ownership interest in an equity method investment within our owned and leased hotels segment for which we received proceeds of $8 million. We recorded a gain of $3 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
Two unconsolidated hospitality ventures, which are classified as equity method investments within our owned and leased hotels segment, sold two Hyatt Place hotels. We received proceeds of $4 million and recorded a gain of $3 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
During 2016, we had the following activity:
We purchased our partners' interests in Andaz Maui at Wailea Resort. The transaction was accounted for as a step acquisition, and we recorded a gain of $14 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income. See Note 7 for further discussion of our acquisition.
We sold our ownership interest in an equity method investment within our owned and leased hotels segment for which we received proceeds of $4 million. We recorded a gain of $3 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
Two unconsolidated hospitality ventures, which are classified as equity method investments within our owned and leased hotels segment, sold five Hyatt Place hotels, for which we received combined proceeds of $15 million. We recorded gains of $7 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
During 2015, we had the following activity:
Unconsolidated hospitality ventures, which are classified as equity method investments within our owned and leased hotels segment, sold two Hyatt Place hotels for which we received proceeds of $16 million. We recorded gains of $13 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
We sold an entity which held an interest in one of our foreign currency denominated equity method investments within our owned and leased hotels segment, for which we received proceeds of $3 million. In connection with the sale, we released $21 million of accumulated foreign currency translation losses to equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
During 2017, 2016, and 2015, we recorded $3 million, $9 million, and $0, respectively, in impairment charges in equity earnings (losses) from unconsolidated hospitality ventures. The impairment charges in 2017 relate to one unconsolidated hospitality venture which is accounted for as an equity method investment. The impairment charges in 2016 relate to four unconsolidated hospitality ventures which are accounted for as equity method investments.
Marketable Securities
Marketable Securities
MARKETABLE SECURITIES
We hold marketable securities 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 consolidated balance sheets, were as follows:
 
December 31, 2017
 
December 31, 2016
Loyalty program (Note 2)
$
403

 
$
394

Deferred compensation plans held in rabbi trusts (Note 11)
402

 
352

Captive insurance companies
111

 
65

Total marketable securities held to fund operating programs
$
916

 
$
811

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
(156
)
 
(109
)
Marketable securities held to fund operating programs included in other assets
$
760

 
$
702


Net gains and interest income from marketable securities held to fund operating programs on our consolidated statements of income included realized and unrealized gains and losses and interest income related to the following:
 
Years Ended December 31,
2017
 
2016
 
2015
Loyalty program
$
2

 
$
2

 
$
1

Deferred compensation plans held in rabbi trusts
45

 
17

 
3

Total net gains and interest income from marketable securities held to fund operating programs
$
47

 
$
19

 
$
4


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 2018 through 2022.
Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on our consolidated balance sheets, were as follows:
 
December 31, 2017
 
December 31, 2016
Interest bearing money market funds
$
26

 
$
106

Time deposits
37

 
45

Preferred shares

 
290

Common shares
131

 

Total marketable securities held for investment purposes
$
194

 
$
441

Less current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(63
)
 
(151
)
Marketable securities held for investment purposes included in other assets
$
131

 
$
290


Preferred shares—During the year ended December 31, 2013, we invested $271 million in Playa for convertible redeemable preferred shares which were classified as an AFS debt security. The fair value of the preferred shares was: 
 
2017
 
2016
Fair value at January 1
$
290

 
$
335

Gross unrealized gains

 
19

Gross unrealized losses
(54
)
 
(29
)
Realized losses
(40
)
 
(6
)
Interest income
94

 
12

Cash redemption
(290
)
 
(41
)
Fair value at December 31
$

 
$
290


In October 2016, Playa redeemed 3,458,530 of our preferred shares plus accrued and unpaid paid in kind ("PIK") dividends thereon for $41 million.
In March 2017, Playa completed a business combination with Pace Holdings Corporation ("Pace"), and our preferred shares plus accrued and unpaid PIK dividends were redeemed in full for $290 million. Upon redemption, we recorded $94 million of interest income and $40 million of realized losses in other income (loss), net on our consolidated statements of income. The realized losses were the result of a difference between the fair value of the initial investment and the contractual redemption price of $8.40 per share.
Prior to the redemption, the preferred shares were classified as a Level Three fair value measurement. At December 31, 2016, as a result of Playa's potential Pace business combination or potential future Playa IPO, we utilized a hybrid of the option-pricing model and the probability-weighted expected return method, to estimate the fair value of Playa's preferred shares. The hybrid model included various scenarios, such as the successful completion of the Pace business combination, potential future Playa IPO with assumptions around conversion and redemption, as well as a scenario using the option-pricing model. We assigned a probability to each scenario to arrive at the estimated fair value at December 31, 2016. Our scenarios included assumptions regarding (i) the successful completion of the Pace business combination, (ii) a potential range of IPO prices and size of the offering, and (iii) conversion of up to $50 million of our preferred shares into common shares of Playa. The option-pricing model scenario included assumptions regarding the expected term, risk-free interest rate over the expected term, volatility, dividend yield, and enterprise value. Financial forecasts were used in the computation of the enterprise value using the income approach, based on assumed revenue growth rates and operating margin levels. The risks associated with achieving these forecasts were assessed in selecting the appropriate weighted-average cost of capital.
The option-pricing scenarios included various assumptions as follows:
 
December 31, 2016
Expected term
1 year

Risk-free interest rate
0.85
%
Volatility
46.5
%
Dividend yield
12.0
%

Common shares—Prior to the Playa business combination, we accounted for our common share investment in Playa as an equity method investment. As a result of the Playa business combination, Playa N.V. is publicly traded on the NASDAQ and our ownership percentage was diluted to 11.57%. As we no longer have the ability to significantly influence Playa N.V., our investment was recharacterized as an AFS equity security in March 2017. 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 unrealized gains recorded in other comprehensive income of $112 million at December 31, 2017. In conjunction with the Playa business combination, we also received 1,738,806 of founders' warrants to purchase 579,602 additional shares of Playa N.V.'s common stock and 237,110 of earn-out warrants. During the year ended December 31, 2017, we completed a non-cash exchange of the founders' warrants for additional common shares in Playa N.V.
HTM Debt Securities—At December 31, 2017 and December 31, 2016, we had investments in HTM debt securities of $47 million and $27 million, respectively, which are investments in third-party entities that own certain of our hotels and are recorded within other assets in our consolidated balance sheets. The securities are mandatorily redeemable between 2020 and 2025. The amortized cost of our investments approximate 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.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
December 31, 2017
 
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
$
75

 
$
75

 
$

 
$

 
$

Mutual funds
402

 

 

 

 
402

Common Shares
131

 

 

 

 
131

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
50

 

 
39

 

 
11

U.S. government obligations
158

 

 

 
38

 
120

U.S. government agencies
47

 

 
2

 
7

 
38

Corporate debt securities
179

 

 
8

 
33

 
138

Mortgage-backed securities
25

 

 

 
6

 
19

Asset-backed securities
40

 

 

 
10

 
30

Municipal and provincial notes and bonds
3

 

 

 
1

 
2

Total
$
1,110

 
$
75

 
$
49

 
$
95

 
$
891


 
December 31, 2016
 
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
$
114

 
$
114

 
$

 
$

 
$

Mutual funds
352

 

 

 

 
352

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
59

 

 
46

 

 
13

U.S. government obligations
142

 

 

 
33

 
109

U.S. government agencies
53

 

 
9

 
8

 
36

Corporate debt securities
181

 

 
1

 
35

 
145

Mortgage-backed securities
22

 

 

 
5

 
17

Asset-backed securities
34

 

 

 
8

 
26

Municipal and provincial notes and bonds
5

 

 

 
1

 
4

Level Three - Significant Unobservable Inputs
 
 
 
 
 
 
 
 
 
Preferred shares
290

 

 

 

 
290

Total
$
1,252

 
$
114

 
$
56

 
$
90

 
$
992


During the years ended December 31, 2017 and December 31, 2016, there were no transfers between levels of the fair value hierarchy. Our policy is to recognize transfers in and transfers out as of the end of each quarterly reporting period. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
We invest a portion of our cash into short-term interest bearing money market funds that have a maturity of less than 90 days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies, and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis. The fair value of our mutual funds is classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Time deposits are recorded at par value, which approximates fair value, and are classified as Level Two. The remaining securities, other than our investment in preferred shares, are classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
Property and Equipment, Net
Property and Equipment, Net
PROPERTY AND EQUIPMENT, NET
 
December 31, 2017
 
December 31, 2016
Land
$
916

 
$
901

Buildings
3,880

 
4,125

Leasehold improvements
210

 
202

Furniture, equipment, and computers
1,204

 
1,316

Construction in progress
122

 
90

 
6,332

 
6,634

Accumulated depreciation
(2,298
)
 
(2,364
)
Total property and equipment, net
$
4,034

 
$
4,270


 
Years Ended December 31,
2017
 
2016
 
2015
Depreciation expense
$
335

 
$
315

 
$
289


The net book value of capital leased assets at December 31, 2017 and December 31, 2016 was $10 million and $12 million, respectively, which is net of accumulated depreciation of $12 million and $10 million, respectively.
Interest capitalized as a cost of property and equipment was $4 million, $3 million, and $6 million for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively.
Financing Receivables
Financing Receivables
FINANCING RECEIVABLES
 
December 31, 2017
 
December 31, 2016
Unsecured financing to hotel owners
$
127

 
$
119

Less allowance for losses
(108
)
 
(100
)
Financing receivables, net of allowances
$
19

 
$
19


During the year ended December 31, 2015, we settled all of our outstanding secured financing receivables to hotel owners, resulting in net cash proceeds of $26 million and a net recovery of $8 million, which was recognized in other income (loss), net on our consolidated statements of income during the year ended December 31, 2015.
Allowance for Losses and ImpairmentsThe following table summarizes the activity in our unsecured financing receivables allowance:
 
2017
 
2016
Allowance at January 1
$
100

 
$
98

   Provisions
6

 
10

   Write-offs

 
(8
)
Other adjustments
2

 

Allowance at December 31
$
108

 
$
100

Credit MonitoringOur unsecured financing receivables were as follows:
 
December 31, 2017
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
13

 
$

 
$
13

 
$

Impaired loans (1)
59

 
(59
)
 

 
59

Total loans
72

 
(59
)
 
13

 
59

Other financing arrangements
55

 
(49
)
 
6

 
49

Total unsecured financing receivables
$
127

 
$
(108
)
 
$
19

 
$
108

(1) The unpaid principal balance was $44 million and the average recorded loan balance was $58 million at December 31, 2017.
 
December 31, 2016
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
13

 
$

 
$
13

 
$

Impaired loans (2)
56

 
(56
)
 

 
56

Total loans
69

 
(56
)
 
13

 
56

Other financing arrangements
50

 
(44
)
 
6

 
44

Total unsecured financing receivables
$
119

 
$
(100
)
 
$
19

 
$
100


(2) The unpaid principal balance was $43 million and the average recorded loan balance was $57 million at December 31, 2016.
Fair ValueWe estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be approximately $20 million and $19 million at December 31, 2017 and December 31, 2016, respectively.
Acquisitions and Dispositions
Acquisitions and Dispositions
ACQUISITIONS AND DISPOSITIONS
Acquisitions
Exhale—During the year ended December 31, 2017, we acquired the equity of exhale from an unrelated third party for a purchase price of $16 million, net of $1 million cash acquired. Assets acquired and recorded within corporate and other primarily include a $9 million brand indefinite-lived intangible and $4 million of goodwill, of which $3 million is deductible for tax purposes.
Miraval—During the year ended December 31, 2017, we acquired Miraval from an unrelated third party. The transaction included the Miraval Life in Balance Spa brand, Miraval Arizona Resort & Spa in Tucson, Arizona, Travaasa Resort in Austin, Texas, and the option to acquire Cranwell Spa & Golf Resort ("Cranwell") in Lenox, Massachusetts. We subsequently exercised our option and acquired approximately 95% of Cranwell during the year ended December 31, 2017. Total cash consideration for Miraval was $237 million.
The following table summarizes the fair value of the identifiable net assets acquired in the acquisition of Miraval, which is recorded within corporate and other:
Current assets, net of cash acquired
$
1

Property and equipment
173

Indefinite-lived intangibles (1)
37

Management agreement intangibles (2)
14

Goodwill (3)
19

Other definite-lived intangibles (4)
7

Total assets
$
251

 
 
Current liabilities
$
12

Deferred tax liabilities
3

Total liabilities
15

Total net assets acquired attributable to Hyatt Hotels Corporation
236

Total net assets acquired attributable to noncontrolling interests
1

Total net assets acquired
$
237

 
 
(1) Includes an intangible attributable to the Miraval brand.
(2) Amortized over a useful life of 20 years.
(3) The goodwill, of which $8 million is deductible for tax purposes, is attributable to Miraval's reputation as a renowned provider of wellness and mindfulness experiences, the extension of the Hyatt brand beyond traditional hotel stays, and the establishment of deferred tax liabilities.
(4) Amortized over useful lives ranging from two to seven years.
In conjunction with the acquisition of Miraval, a consolidated hospitality venture for which we are a managing partner (the "Miraval Venture") issued $9 million of redeemable preferred shares to unrelated third-party investors. The preferred shares are non-voting, except as required by applicable law and certain contractual approval rights, and have liquidation preference over all other classes of securities within the Miraval Venture. The redeemable preferred shares earn a return of 12% and a redemption premium that increases over time depending on the length of time the redeemable preferred shares are outstanding. The shares are classified as a redeemable noncontrolling interest in preferred shares of a subsidiary, which are presented between liabilities and equity on our consolidated balance sheets and carried at the current redemption value.
Andaz Maui at Wailea Resort—We previously held an equity method investment with a 65.7% interest and had a $180 million investment in the entities that own Andaz Maui at Wailea Resort. During the year ended December 31, 2016, we purchased the remaining 34.3% for a net purchase price of approximately $136 million, net of $12 million of cash acquired. This transaction was accounted for as a step acquisition and we recorded a gain of $14 million in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income. The purchase of the remaining 34.3% interest was structured and identified as replacement property in a potential reverse like-kind exchange, but the allowable period to complete the exchange expired during 2017. In conjunction with the acquisition, the outstanding debt at the unconsolidated hospitality venture was repaid in full and we were released from our debt repayment guarantee obligation, see Note 14.
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed, which are recorded in our owned and leased hotels segment at the date of acquisition:
Cash and cash equivalents
$
12

Receivables
3

Inventories
13

Prepaids and other assets
1

Property and equipment
323

Total assets
$
352

 
 
Current liabilities
$
10

Total liabilities
10

Total net assets acquired
$
342


Land Held for Development—During the year ended December 31, 2016, we acquired land of $25 million from an unrelated third party with the intent to develop a hotel in Philadelphia.
Royal Palms Resort and Spa—During the year ended December 31, 2016, we acquired Royal Palms Resort and Spa in Phoenix, Arizona, from an unrelated third party for a net purchase price of approximately $86 million, net of $2 million of proration adjustments. Due to the iconic nature of the hotel, we retained the Royal Palms Resort and Spa name and added the hotel to The Unbound Collection by Hyatt. Of the $88 million purchase price, assets acquired and recorded in our owned and leased hotels segment consist of $75 million of property and equipment, a $9 million indefinite-lived brand intangible, and $1 million of advanced bookings intangibles. We also recorded $3 million of management agreement intangibles in our Americas management and franchising segment, which are being amortized over a useful life of 20 years.
The Confidante Miami Beach—During the year ended December 31, 2016, we acquired Thompson Miami Beach for a purchase price of approximately $238 million, from a seller indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman. Of the $238 million purchase price, assets acquired consist of $228 million of property and equipment, which was recorded in our owned and leased hotels segment, and $10 million of management agreement intangibles, which were recorded in our Americas management and franchising segment and are being amortized over a useful life of 20 years. We rebranded this hotel as The Confidante Miami Beach and added the hotel to The Unbound Collection by Hyatt.
Dispositions
Hyatt Regency Monterey Hotel & Spa on Del Monte Golf Course—During the year ended December 31, 2017, we sold Hyatt Regency Monterey Hotel & Spa on Del Monte Golf Course to an unrelated third party for $58 million, net of closing costs and proration adjustments, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $17 million, which was recognized in gains (losses) on sales of real estate on our consolidated statements of income during the year ended December 31, 2017. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and Royal Palms Resort and Spa—During the year ended December 31, 2017, we sold Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and Royal Palms Resort and Spa to an unrelated third party as a portfolio for $296 million, net of proration adjustments and closing costs, and entered into a long-term management agreement for each property upon sale. The sale resulted in a pre-tax gain of $160 million, which was deferred and is being recognized in management and franchise fees over the term of the management agreements within our Americas management and franchising segment. The operating results and financial position of these hotels prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Grand Cypress—During the year ended December 31, 2017, we sold Hyatt Regency Grand Cypress to an unrelated third party for $202 million, net of closing costs and proration adjustments, and entered into a long-term management agreement with the owner of the property. The sale resulted in a pre-tax gain of $26 million, which was deferred and is being recognized in management and franchise fees over the term of the management agreement within our Americas management and franchising segment. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Louisville—During the year ended December 31, 2017, we sold Hyatt Regency Louisville to an unrelated third party for $65 million, net of closing costs and proration adjustments, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $35 million, which was recognized in gains (losses) on sales of real estate on our consolidated statements of income during the year ended December 31, 2017. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Land Held for Development—During the year ended December 31, 2017, we sold land and construction in progress for $29 million to an unconsolidated hospitality venture in which we have a 50% ownership interest, with the intent to complete development of a hotel in Glendale, California.
Hyatt Regency Birmingham (U.K.)—During the year ended December 31, 2016, we sold the shares of the company that owns Hyatt Regency Birmingham (U.K.) to an unrelated third party for approximately $49 million, net of closing costs and proration adjustments, and entered into a long-term management agreement with the owner of the property. The sale resulted in a pre-tax gain of $17 million, which was deferred and is being recognized in management and franchise fees over the term of the management agreement, within our EAME/SW Asia management and franchising segment. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Andaz 5th Avenue—During the year ended December 31, 2016, we sold Andaz 5th Avenue to an unrelated third party for $240 million, net of $10 million of closing costs and proration adjustments, and entered into a long-term management agreement with the owner of the property. The sale resulted in a pre-tax loss of $23 million which was recognized in gains (losses) on sales of real estate on our consolidated statements of income during the year ended December 31, 2016. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Indianapolis—During the year ended December 31, 2015, we sold Hyatt Regency Indianapolis for $69 million, net of closing costs, to an unrelated third party, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $8 million, which was recognized in gains (losses) on sales of real estate on our consolidated statements of income during the year ended December 31, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Land Held for Development—During the year ended December 31, 2015, we sold land and construction in progress for $14 million to an unconsolidated hospitality venture in which Hyatt has a 40% ownership interest.
A Hyatt House Hotel—During the year ended December 31, 2015, we sold a select service property for $5 million, net of closing costs, to an unrelated third party resulting in a pre-tax gain of $1 million which was recognized in gains (losses) on sales of real estate on our consolidated statements of income during the year ended December 31, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain hotels. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary. The proceeds are recorded as restricted cash on our 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 Scottsdale Resort & Spa at Gainey Ranch during the year ended December 31, 2017, proceeds of $207 million were held as restricted for use in a potential like-kind exchange. In conjunction with the sales of Hyatt Regency Grand Cypress and Hyatt Regency Louisville during the year ended December 31, 2017, proceeds were initially held as restricted for use in a potential like-kind exchange. However, since suitable replacement properties were not identified within the specified 180 and 45 day periods, respectively, the proceeds from these sales were subsequently released.
The purchases of Royal Palms Resort and Spa and The Confidante Miami Beach during the year ended December 31, 2016 were initially structured and identified as replacement property in potential reverse like-kind exchange agreements, but the allowable periods to complete an exchange expired during the first quarter of 2017 and the fourth quarter of 2016, respectively.
In conjunction with the sale of five Hyatt Place properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary. Pursuant to the like-kind exchange agreements, the combined net proceeds of $51 million from the sales of these hotels were placed into an escrow account administered by a qualified intermediary. During the year ended December 31, 2015, the qualified intermediary released the net proceeds as the identified replacement property was not acquired to complete the exchange.
In conjunction with the sale of 38 select service properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary for 27 of the select service hotels. In the fourth quarter of 2014, we classified net proceeds of $403 million from the sale of these 27 properties as restricted cash. Of this total, the qualified intermediary utilized net proceeds of $311 million related to 21 of the select service hotels to acquire Park Hyatt New York. During the year ended December 31, 2015, the qualified intermediary utilized the remaining $92 million of net proceeds related to the other six hotels to complete a like-kind exchange in conjunction with the acquisition of Hyatt Regency Lost Pines Resort and Spa.
Goodwill and Intangible Assets, Net
Goodwill and Intangible Assets, Net
GOODWILL AND INTANGIBLE ASSETS, NET
 
Owned and Leased Hotels
 
Americas Management and Franchising
 
Corporate and Other
 
Total
Balance at January 1, 2016
 
 
 
 
 
 
 
Goodwill
$
191

 
$
33

 
$

 
$
224

Accumulated impairment losses
(95
)
 

 

 
(95
)
Goodwill, net
$
96

 
$
33

 
$

 
$
129

Activity during the year
 
 
 
 
 
 
 
Foreign exchange (1)
(4
)
 

 

 
(4
)
Balance at December 31, 2016
 
 
 
 
 
 
 
Goodwill
187

 
33

 

 
220

Accumulated impairment losses
(95
)
 

 

 
(95
)
Goodwill, net
$
92

 
$
33

 
$

 
$
125

Activity during the year
 
 
 
 
 
 
 
Additions

 

 
23

 
23

Foreign exchange (1)
2

 

 

 
2

Balance at December 31, 2017
 
 
 
 
 
 
 
Goodwill
189

 
33

 
23

 
245

Accumulated impairment losses
(95
)
 

 

 
(95
)
Goodwill, net
$
94

 
$
33

 
$
23

 
$
150


(1) Foreign exchange translation adjustments related to the goodwill associated with Hyatt Regency Mexico City.
 
December 31, 2017
 
Weighted average useful lives
 
December 31, 2016
Management and franchise agreement intangibles
$
653

 
24

 
$
589

Lease related intangibles
127

 
110

 
115

Brand and other indefinite-lived intangibles
53

 

 
16

Advanced booking intangibles
9

 
6

 
11

Other definite-lived intangibles
9

 
11

 
6

 
851

 
 
 
737

Accumulated amortization
(168
)
 
 
 
(138
)
Intangibles, net
$
683

 
 
 
$
599


 
Years Ended December 31,
 
2017
 
2016
 
2015
Amortization expense
$
31

 
$
27

 
$
31


We estimate amortization expense for definite-lived intangibles as follows:
Years Ending December 31,
 
2018
$
33

2019
32

2020
33

2021
32

2022
32


During the years ended December 31, 2017, December 31, 2016, and December 31, 2015, we did not record any impairment charges.
Debt
Debt
DEBT
 
December 31, 2017
 
December 31, 2016
$196 million senior unsecured notes maturing in 2019—6.875%
$
196

 
$
196

$250 million senior unsecured notes maturing in 2021—5.375%
250

 
250

$350 million senior unsecured notes maturing in 2023—3.375%
350

 
350

$400 million senior unsecured notes maturing in 2026—4.850%
400

 
400

Tax-Exempt Contract Revenue Empowerment Zone Bonds, Series 2005A
130

 
130

Contract Revenue Bonds, Senior Taxable Series 2005B
55

 
59

Floating average rate construction loan
70

 
79

Revolving credit facility

 
100

Other
1

 
1

Long-term debt before capital lease obligations
1,452

 
1,565

Capital lease obligations
13

 
15

Total long-term debt
1,465

 
1,580

Less current maturities
(11
)
 
(119
)
Less unamortized discounts and deferred financing fees
(14
)
 
(16
)
Total long-term debt, net of current maturities
$
1,440

 
$
1,445


Under existing agreements, maturities of debt for the next five years and thereafter are as follows:
Years Ending December 31,
 
2018
$
11

2019
207

2020
12

2021
262

2022
12

Thereafter
961

Total
$
1,465


Senior Notes—At December 31, 2017 and December 31, 2016, we had various series of senior unsecured notes, as further defined below, (the "Senior Notes"). Interest on the Senior Notes is payable semi-annually. We may redeem all or a portion of the Senior Notes at any time at 100% of the principal amount of the Senior Notes redeemed together with the accrued and unpaid interest, plus a make-whole amount, if any. The amount of any make-whole payment depends, in part, on the yield of U.S. Treasury securities with a comparable maturity to the Senior Notes at the date of redemption. A summary of the terms of the Senior Notes, by year of issuance, is as follows:
In 2009, we issued $250 million of 6.875% senior notes due 2019, at an issue price of 99.864% (the "2019 Notes"). Following a cash tender offer during the year ended December 31, 2013, $196 million aggregate principal amount of 2019 Notes remains outstanding.
In 2011, we issued $250 million of 5.375% senior notes due 2021, at an issue price of 99.846% (the "2021 Notes").
In 2013, we issued $350 million of 3.375% senior notes due 2023 at an issue price of 99.498% (the "2023 Notes").
In 2016, we issued $400 million of 4.850% senior notes due 2026, at an issue price of 99.920% (the "2026 Notes"). We received net proceeds of $396 million from the sale of the 2026 Notes, after deducting discounts and offering expenses of approximately $4 million. We used a portion of the net proceeds to pay for the redemption of the 2016 Notes (as described below), with the remaining proceeds intended to be used for general corporate purposes.
During the year ended December 31, 2016, we fully redeemed $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), which represented the aggregate principal amount outstanding. The redemption price, which was calculated in accordance with the terms of the 2016 Notes and included principal and accrued interest plus a make-whole premium, was $254 million. The make-whole premium was recorded within other income (loss), net on our consolidated statements of income, see Note 20.
Tax-Exempt Contract Revenue Empowerment Zone Bonds, Series 2005A and Contract Revenue Bonds, Senior Taxable Series 2005B—During the year ended December 31, 2013, we acquired our partner's interest in the entity that owned Grand Hyatt San Antonio, and as a result, we consolidated $198 million of bonds, net of the $9 million bond discount, which is being amortized over the life of the bonds. The construction was financed in part by The City of San Antonio, Texas Convention Center Hotel Finance Corporation ("Texas Corporation"), a non-profit local government corporation created by the City of San Antonio, Texas for the purpose of providing financing for a portion of the costs of constructing the hotel. On June 8, 2005, the Texas Corporation issued $130 million of original principal amount Tax-Exempt Contract Revenue Empowerment Zone Bonds, Series 2005A ("Series 2005A Bonds") and $78 million of original principal amount Contract Revenue Bonds, Senior Taxable Series 2005B ("Series 2005B Bonds"). The Series 2005A Bonds mature between 2034 and 2039, with interest ranging from 4.75% to 5.00% and the remaining Series 2005B Bonds mature between 2020 and 2028, with interest ranging from 5.1% to 5.31%. The loan payments are required to be funded solely from net operating revenues of Grand Hyatt San Antonio and in the event that net operating revenues are not sufficient to pay debt service, the Texas Corporation under certain circumstances will be required to provide certain tax revenue to pay debt service on the 2005 Series bonds. The indenture allows for optional early redemption of the Series 2005B bonds subject to make-whole payments at any time with consent from the Texas Corporation and beginning in 2015 for the Series 2005A Bonds. Interest is payable semi-annually.
Floating Average Rate Construction Loan —During the year ended December 31, 2012, we obtained a secured construction loan with Banco Nacional de Desenvolvimento Econômico e Social - BNDES ("BNDES") in order to develop Grand Hyatt Rio de Janeiro. The loan is split into four separate sub-loans with different interest rates for each such sub-loan. All four sub-loans mature in 2023, with options to extend the maturity up to 2031 for sub-loans (a) and (b), subject to the fulfillment of certain conditions. Borrowings under the four sub-loans bear interest at the following rates, depending on the applicable sub-loan (a) the variable rate published by BNDES plus 2.92%, (b) the Brazilian Long Term Interest Rate - TJLP plus 3.92%, (c) 2.5% and (d) the Brazilian Long Term Interest Rate - TJLP, with the interest rates referred to in sub-loans (a) and (b) subject to reduction upon the delivery of certain certifications. On sub-loans (b) and (d), when the TJLP rate exceeds 6%, the amount corresponding to the TJLP portion above 6% is required to be capitalized daily. At December 31, 2017, the weighted average interest rates for the sub-loans we have drawn upon is 7.93%. The outstanding balance of the sub-loan subject to the interest rate described in (a) above is subject to adjustment on a daily basis based on BNDES’s calculation of the weighted average of exchange rate variations related to foreign currency funds raised by BNDES in foreign currency. At December 31, 2017 and December 31, 2016, we had Brazilian Real ("BRL") 231 million, or $70 million, and BRL 258 million, or $79 million, outstanding, respectively.
Revolving Credit Facility—At January 6, 2014, we entered into a Second Amended and Restated Credit Agreement with a syndicate of lenders that amended and restated our prior revolving credit facility and provides for a $1.5 billion senior unsecured revolving credit facility that matures in January 2019 (see Note 21). Interest rates on outstanding borrowings are either LIBOR-based or based on an alternate base rate, with margins in each case based on our credit rating or, in certain circumstances, our credit rating and leverage ratio. During the year ended December 31, 2017, we had borrowings of $670 million and repayments of $770 million on our revolving credit facility, resulting in no outstanding balance and an available line of credit of $1.5 billion at December 31, 2017. At December 31, 2017, we had various letter of credit agreements that did not reduce our available capacity under the revolving credit facility. The weighted average interest rate on these borrowings was 2.18% at December 31, 2017. At December 31, 2016, we had $100 million outstanding.
The Company had $309 million and $230 million of letters of credit issued through additional banks at December 31, 2017 and December 31, 2016, respectively.
Senior Secured Term Loan—During the year ended December 31, 2016, we repaid the senior secured term loan of $64 million related to Hyatt Regency Lost Pines Resort and Spa.
Fair Value—We estimated the fair value of debt, excluding capital leases, which consists of our Senior Notes, bonds, and other long-term debt. Our Senior Notes and bonds are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. We estimated the fair value of other debt instruments using discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the lack of availability of market data, we have classified our revolving credit facility and other debt instruments as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.
 
December 31, 2017
 
Carrying value
 
Fair value
 
Quoted prices in active markets for identical assets (level one)
 
Significant other observable inputs (level two)
 
Significant unobservable inputs (level three)
Debt (1)
$
1,452

 
$
1,546

 
$

 
$
1,459

 
$
87

(1) Excludes capital lease obligations of $13 million and unamortized discounts and deferred financing fees of $14 million.
 
December 31, 2016
 
Carrying value
 
Fair value
 
Quoted prices in active markets for identical assets (level one)
 
Significant other observable inputs (level two)
 
Significant unobservable inputs (level three)
Debt (2)
$
1,565

 
$
1,642

 
$

 
$
1,450

 
$
192


(2) Excludes capital lease obligations of $15 million and unamortized discounts and deferred financing fees of $16 million.
Leases
Leases
LEASES
We lease hotels and equipment under a combination of operating and capital leases, which generally require us to pay taxes, maintenance, and insurance. Most of the leases contain renewal options, which enable us to retain use of the facilities in desirable operating areas.
The operating leases for the majority of our leased hotels require the calculation of rental payments to be based on a percentage of the operating profit of the hotel, as defined by contract. As a result, future lease payments related to these leases are contingent upon operating results and are not included in the table below.
Corporate Office Space—During the year ended December 31, 2017, we relocated our corporate headquarters in Chicago, Illinois under a lease that expires in 2034.
The future minimum lease payments for our corporate office space and leased hotels due in each of the next five years and thereafter are as follows:
Years Ending December 31,
Operating leases
 
Capital leases
2018
$
36

 
$
2

2019
42

 
2

2020
39

 
2

2021
36

 
2

2022
35

 
2

Thereafter
441

 
7

Total minimum lease payments
$
629

 
$
17

Less amount representing interest
 
 
4

Present value of minimum lease payments
 
 
$
13


A summary of rent expense from continuing operations for all operating leases is as follows:
 
Years Ended December 31,
2017
 
2016
 
2015
Minimum rentals
$
42

 
$
37

 
$
34

Contingent rentals
52

 
53

 
53

Total
$
94

 
$
90

 
$
87


We lease retail space at our owned hotel locations under operating leases. We recorded rental income of $27 million, $25 million, and $28 million within owned and leased hotels revenues on our consolidated statements of income for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively. The future minimum lease receipts scheduled to be received in each of the next five years and thereafter are as follows:
Years Ending December 31,
 
2018
$
23

2019
16

2020
15

2021
13

2022
13

Thereafter
59

Total minimum lease receipts
$
139

Employee Benefit Plans
Employee Benefit Plans
EMPLOYEE BENEFIT PLANS
Defined Benefit Plans—We sponsor supplemental executive retirement plans consisting of funded and unfunded defined benefit plans for certain former executives. Retirement benefits are based primarily on the former employees’ salary, as defined, and are payable upon satisfaction of certain service and age requirements as defined by the plans. The accumulated benefit obligation related to the unfunded U.S. plan was $21 million at December 31, 2017 and December 31, 2016, of which $20 million was classified as a long-term liability. At December 31, 2017, we expect benefits of $1 million to be paid annually over the next 10 years.
Defined Contribution Plans—We provide retirement benefits to certain eligible employees under the Retirement Savings Plan (a qualified plan under Internal Revenue Code Section 401(k)), the FRP, and other similar plans. For the years ended December 31, 2017, December 31, 2016, and December 31, 2015, we recorded expenses of $39 million, $36 million, and $35 million, respectively, related to the Retirement Savings Plan based on a percentage of eligible employee contributions on stipulated amounts. The majority of these contributions relate to hotel property level employees, which are reimbursable to us and are included in the other revenues from managed and franchised properties and other costs from managed and franchised properties on our consolidated statements of income.
Deferred Compensation Plans—We provide nonqualified deferred compensation for certain employees through the DCP. Contributions and investment elections are determined by the employees, and we provide contributions to certain eligible employees according to pre-established formulas. The DCP is fully funded through a rabbi trust, therefore changes in the underlying securities impact the deferred compensation liability, which is recorded in other long-term liabilities (see Note 12) and the corresponding marketable securities assets (see Note 4).
Employee Stock Purchase Program—We provide the Hyatt Hotels Corporation ESPP, which qualifies under Section 423 of the Internal Revenue Code. The ESPP provides eligible employees the opportunity to purchase shares of the Company’s common stock on a quarterly basis through payroll deductions at a price equal to 95% of the fair value on the last trading day of each quarter. Approximately 69,000 shares and 76,000 shares were issued under the ESPP during 2017 and 2016, respectively.
Other Long-Term Liabilities
Other Long-Term Liabilities
OTHER LONG-TERM LIABILITIES
 
December 31, 2017
 
December 31, 2016
Deferred gains on sales of hotel properties
$
523

 
$
363

Deferred compensation plans (see Note 11)
402

 
352

Loyalty program liability (see Note 2)
298

 
296

Other accrued income taxes (see Note 13)
107

 
100

Guarantee liabilities (see Note 14)
104

 
124

Deferred income taxes (see Note 13)
62

 
57

Other
229

 
180

Total
$
1,725