HYATT HOTELS CORP, 10-K filed on 2/14/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Jan. 31, 2019
Jun. 29, 2018
Document Information      
Entity Registrant Name Hyatt Hotels Corp    
Entity Central Index Key 0001468174    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Trading Symbol h    
Emerging Growth Company false    
Entity Small Business false    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Shell Company false    
Entity Public Float     $ 3,316.5
Common Class A      
Document Information      
Entity Common Stock, Shares Outstanding   38,870,443  
Common Class B      
Document Information      
Entity Common Stock, Shares Outstanding   67,115,828  
v3.10.0.1
Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
REVENUES:                      
Revenue $ 1,138 $ 1,074 $ 1,133 $ 1,109 $ 1,117 $ 1,070 $ 1,149 $ 1,126 $ 4,454 $ 4,462 $ 4,265
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:                      
Depreciation and amortization                 327 348 326
Other direct costs                 48 31 17
Selling, general, and administrative                 320 377 315
Direct and selling, general, and administrative expenses 1,054 1,012 1,026 1,030 1,072 1,011 1,048 1,071 4,122 4,202 3,997
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts                 (11) 45 17
Equity earnings from unconsolidated hospitality ventures                 8 219 67
Interest expense                 (76) (80) (76)
Gains (losses) on sales of real estate                 772 236 (6)
Asset impairments                 (25) 0 0
Other income (loss), net                 (49) 42 12
INCOME BEFORE INCOME TAXES                 951 722 282
PROVISION FOR INCOME TAXES                 (182) (332) (76)
NET INCOME 44 237 77 411 213 19 103 55 769 390 206
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS                 0 (1) 0
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 44 $ 237 $ 77 $ 411 $ 213 $ 18 $ 103 $ 55 $ 769 $ 389 $ 206
EARNINGS PER SHARE—Basic                      
Net Income - basic (in dollars per share) $ 0.41 $ 2.12 $ 0.67 $ 3.47 $ 1.78 $ 0.15 $ 0.82 $ 0.43 $ 6.79 $ 3.13 $ 1.55
Net income attributable to Hyatt Hotels Corporation - Basic (in dollars per share)                 6.79 3.12 1.55
EARNINGS PER SHARE—Diluted                      
Net Income - diluted (in dollars per share) $ 0.40 $ 2.09 $ 0.66 $ 3.40 $ 1.75 $ 0.15 $ 0.81 $ 0.42 6.68 3.09 1.53
Net income attributable to Hyatt Hotels Corporation - Diluted (in dollars per share)                 $ 6.68 $ 3.08 $ 1.53
Owned and leased hotels                      
REVENUES:                      
Revenue                 $ 1,918 $ 2,184 $ 2,097
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:                      
Costs incurred on behalf of managed and franchised properties                 1,446 1,664 1,597
Management, franchise, and other fees                      
REVENUES:                      
Revenue                 552 498 441
Amortization of management and franchise agreement assets constituting payments to customers                      
REVENUES:                      
Revenue                 (20) (18) (16)
Net management, franchise, and other fees                      
REVENUES:                      
Revenue                 532 480 425
Other revenues                      
REVENUES:                      
Revenue                 48 36 12
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties                      
REVENUES:                      
Revenue                 1,956 1,762 1,731
Costs incurred on behalf of managed and franchised properties                      
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:                      
Costs incurred on behalf of managed and franchised properties                 $ 1,981 $ 1,782 $ 1,742
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 769 $ 390 $ 206
Other comprehensive income (loss), net of taxes:      
Foreign currency translation adjustments, net of tax (benefit) expense of $(1), $1, and $- for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively 52 56 (42)
Unrecognized pension cost, net of tax expense of $1, $-, and $- for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively 2 0 0
Unrealized gains (losses) on available-for-sale debt securities, net of tax expense of $- for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively, and unrealized gains (losses) on available-for-sale equity securities, net of tax expense (benefit) of $23 and $(4) for the years ended December 31, 2017 and December 31, 2016, respectively 0 35 (6)
Unrealized gains (losses) on derivative activity, net of tax expense of $-, $-, and $1 for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively (1)    
Unrealized gains (losses) on derivative activity, net of tax expense of $-, $-, and $1 for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively   1 1
Other comprehensive income (loss) 53 92 (47)
COMPREHENSIVE INCOME 822 482 159
COMPREHENSIVE INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 (1) 0
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 822 $ 481 $ 159
v3.10.0.1
Consolidated Statements of Comprehensive Income Parenthetical - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Foreign currency translation adjustments, net of tax (benefit) expense $ (1) $ 1 $ 0
Unrecognized pension costs, net of tax expense (benefit) 1 0 0
Unrealized gains on available-for-sale debt securities tax 0 0 0
Unrealized gains on available-for-sale equity securities tax   23 (4)
Unrealized gains on derivative activity, net of tax expense $ 0    
Unrealized gains on derivative activity, net of tax expense   $ 0 $ 1
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 570 $ 503
Restricted cash 33 234
Short-term investments 116 49
Receivables, net of allowances of $26 and $21 at December 31, 2018 and December 31, 2017, respectively 427 350
Inventories 14 14
Prepaids and other assets 149 153
Prepaid income taxes 36 24
Total current assets 1,345 1,327
Investments 233 212
Property and equipment, net 3,608 4,034
Financing receivables, net of allowances 13 19
Goodwill 283 150
Intangibles, net 628 305
Deferred tax assets 180 141
Other assets 1,353 1,384
TOTAL ASSETS 7,643 7,572
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 151 136
Accrued expenses and other current liabilities 361 352
Current contract liabilities 388 348
Accrued compensation and benefits 150 145
Total current liabilities 1,061 992
Long-term debt 1,623 1,440
Long-term contract liabilities 442 424
Other long-term liabilities 840 863
Total liabilities 3,966 3,719
Commitments and contingencies (see Note 15)
Redeemable noncontrolling interest in preferred shares of a subsidiary 0 10
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of December 31, 2018 and December 31, 2017 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,507,817 issued and outstanding at December 31, 2018, and Class B common stock, $0.01 par value per share, 399,110,240 shares authorized, 67,115,828 shares issued and outstanding at December 31, 2018. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 48,231,149 issued and outstanding at December 31, 2017, and Class B common stock, $0.01 par value per share, 402,748,249 shares authorized, 70, 1 1
Additional paid-in capital 50 967
Retained earnings 3,819 3,054
Accumulated other comprehensive loss (200) (185)
Total stockholders' equity 3,670 3,837
Noncontrolling interests in consolidated subsidiaries 7 6
Total equity 3,677 3,843
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY $ 7,643 $ 7,572
v3.10.0.1
Consolidated Balance Sheet Parentheticals - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Allowance for doubtful accounts receivable, current $ 26 $ 21
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) 0 0
Common stock, shares, issued (in shares) 0  
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) 39,507,817 48,231,149
Common stock, shares, issued (in shares) 39,507,817 48,231,149
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) 399,110,240 402,748,249
Common stock, shares, outstanding (in shares) 67,115,828 70,753,837
Common stock, shares, issued (in shares) 67,115,828 70,753,837
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 769 $ 390 $ 206
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 327 348 326
Amortization of share awards 28 32 26
Deferred income taxes (33) 56 (12)
Impairment of assets 47 0 0
Equity earnings from unconsolidated hospitality ventures (8) (219) (67)
Amortization of management and franchise agreement assets constituting payments to customers 20 18 16
Gains (losses) on sales of real estate 772 236 (6)
Realized losses, net 3    
Realized losses, net   41 4
Distributions from unconsolidated hospitality ventures 17 29 35
Other 22 3 (42)
Increase (decrease) in cash attributable to changes in assets and liabilities      
Receivables, net 14 (37) (14)
Inventories 0 12 2
Prepaid income taxes (5) 14 21
Accounts payable, accrued expenses, and other current liabilities (80) 102 7
Accrued compensation and benefits 6 22 7
Other long-term liabilities 51 53 34
Other, net (65) (41) (93)
Net cash provided by operating activities 341 587 462
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of marketable securities and short-term investments (665) (469) (464)
Proceeds from marketable securities and short-term investments 624 480 457
Contributions to equity method and other investments (60) (89) (107)
Return of equity method and other investments 51 425 132
Acquisitions, net of cash acquired (678) (259) (492)
Capital expenditures (297) (298) (211)
Issuance of financing receivables (2) 0 (38)
Proceeds from financing receivables 0 0 38
Proceeds from sales of real estate, net of cash disposed 1,382 663 289
Pre-condemnation proceeds 7 15 0
Other investing activities 12 (11) 24
Net cash provided by (used in) investing activities 374 457 (372)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from debt, net of issuance costs of $4, $-, and $4, respectively 416 670 620
Repayments of debt (231) (782) (438)
Repurchase of common stock (946) (743) (272)
Proceeds from redeemable noncontrolling interest in preferred shares in a subsidiary 0 9 0
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary (10) 0 0
Dividends paid (68) 0 0
Other financing activities (11) (12) (6)
Net cash used in financing activities (850) (858) (96)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5 (7) 12
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (130) 179 6
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 752 573 567
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 622 $ 752 $ 573
v3.10.0.1
Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Cash Flows [Abstract]      
Debt issuance cost $ 4 $ 0 $ 4
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Cash and cash equivalents 570 503 482
Restricted cash 33 234 76
Restricted cash included in other assets 19 15 15
Total cash, cash equivalents, and restricted cash 622 752 573
Cash paid during the period for interest 73 80 75
Cash paid during the period for income taxes 292 175 95
Non-cash investing and financing activities are as follows:      
Non-cash contributions to equity method investments (see Note 4, Note 15) 61 5 13
Non-cash issuance of financing receivables (see Note 6, Note 7) 45 0 0
Change in accrued capital expenditures 13 9 2
Non-cash management and franchise agreement assets constituting payments to customers 0 3 47
Contingent liability (see Note 7) $ 57 $ 0 $ 0
v3.10.0.1
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Millions
Total
Common Stock Amount
Additional Paid-in Capital
Retained Earnings
[1]
Accumulated Other Comprehensive Loss
Noncontrolling Interests in Consolidated Subsidiaries
Balance, beginning of period at Dec. 31, 2015 $ 4,165 $ 1 $ 1,931 $ 2,459 $ (230) $ 4
Total comprehensive income 159     206 (47)  
Contributions from noncontrolling interests 1         1
Repurchase of common stock (272)   (272)      
Directors compensation 2   2      
Employee stock plan issuance 3   3      
Share-based payment activity 22   22      
Balance, end of period at Dec. 31, 2016 4,080 1 1,686 2,665 (277) 5
Total comprehensive income 481     389 92  
Contributions from noncontrolling interests 1         1
Repurchase of common stock (743)   (743)      
Directors compensation 2   2      
Employee stock plan issuance 4   4      
Share-based payment activity 18   18      
Balance, end of period at Dec. 31, 2017 3,843 1 967 3,054 (185) 6
BALANCE—January 1, 2018         (253)  
Total comprehensive income 822     769 53  
Contributions from noncontrolling interests 1         1
Repurchase of common stock (946)   (946)      
Directors compensation 2   2      
Employee stock plan issuance 5   5      
Share-based payment activity 22   22      
Cash dividends (see Note 16) (68)     (68)    
Balance, end of period at Dec. 31, 2018 $ 3,677 $ 1 $ 50 $ 3,819 $ (200) $ 7
[1] Includes cumulative adjustments of $312 million , $172 million, and $170 million for the years ended December 31, 2017, December 31, 2016 and at January 1, 2016, respectively as a result of the adoption of ASU 2014-09 as of January 1, 2016 (see Note 2).
v3.10.0.1
Consolidated Statements of Changes in Stockholders' Equity Parenthetical - USD ($)
$ in Millions
Jan. 01, 2018
Dec. 31, 2017
Dec. 31, 2016
Jan. 01, 2016
Effect of the adoption of ASU 2016-01 and ASU 2016-16 (see Note 2) $ (4)      
Retained Earnings        
Effect of the adoption of ASU 2016-01 and ASU 2016-16 (see Note 2) [1] $ 64      
Retained Earnings | Accounting Standards Update 2014-09        
Effect of the adoption of ASU 2016-01 and ASU 2016-16 (see Note 2)   $ 312 $ 172 $ 170
[1] Includes cumulative adjustments of $312 million , $172 million, and $170 million for the years ended December 31, 2017, December 31, 2016 and at January 1, 2016, respectively as a result of the adoption of ASU 2014-09 as of January 1, 2016 (see Note 2).
v3.10.0.1
Organization
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness related businesses. We develop, own, operate, manage, franchise, license, or provide services to a portfolio of properties consisting of full service hotels, select service hotels, resorts, and other properties, including branded spas and fitness studios, and timeshare, fractional, and other forms of residential, vacation, and condominium ownership units. At December 31, 2018, (i) we operated or franchised 419 full service hotels, comprising 148,176 rooms throughout the world, (ii) we operated or franchised 424 select service hotels, comprising 60,031 rooms, of which 368 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 wellness resorts, comprising 410 rooms. At December 31, 2018, our portfolio of properties operated in 60 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and which operate under other tradenames or marks owned by such hotel or licensed by third parties.
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
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 products and services provided to our customers and are generally recognized when control of the product or service has transferred to the customer. Our customers include third-party hotel owners, guests at owned and leased hotels and spa and fitness centers, and a third-party partner through our co-branded credit card program. A summary of our revenue streams is as follows:
Owned and leased hotels revenues—Owned and leased hotels revenues are derived from room rentals and services provided at our owned and leased hotels. We present revenues net of sales, occupancy, and other taxes. Taxes collected on behalf of and remitted to governmental taxing authorities are excluded from the transaction price of the underlying products and services.
Management, franchise, and other fees—Management fees primarily consist of a base fee, which is generally calculated as a percentage of gross revenues, and an incentive fee, which is generally computed based on a hotel profitability measure. Included within the aforementioned management fees are royalty fees that we earn in exchange for providing access to Hyatt's intellectual property ("IP"). Franchise fees consist of an initial fee and ongoing royalty fees computed as a percentage of gross room revenues and, as applicable, food and beverage revenues. Other fees include license fee revenues associated with the licensing of the Hyatt brand names through our co-branded credit card program.
Net management, franchise, and other fees—Management, franchise, and other fees are reduced by the amortization of management and franchise agreement assets constituting payments to customers. Consideration provided to customers is recognized in other assets and amortized over the expected customer life, which is typically the initial term of the management or franchise agreement.
Other revenues—Other revenues include revenues from the sale of promotional awards through our co-branded credit cards and spa and fitness revenues from Exhale.
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties—Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties represent the reimbursement of costs incurred on behalf of the owners of properties. These costs relate primarily to payroll costs at managed properties where we are the employer, cost associated with sales, reservations, technology, and marketing services (collectively, "system-wide services"), and the cost of the loyalty program operated on behalf of owners.
The products and services we offer to our customers are comprised of the following performance obligations:
Management and franchise agreements
License to Hyatt's IP, including the Hyatt brand names—We receive variable consideration from third-party hotel owners in exchange for providing access to our IP, including the Hyatt brand names. The license represents a license of symbolic IP and in exchange for providing the license, Hyatt receives sales-based royalty fees. Fees are generally payable on a monthly basis as the third-party hotel owners derive value from access to our IP. Royalty fees are recognized over time as services are rendered. Under our franchise agreements, we also receive initial fees from third-party hotel owners. The initial fees do not represent a distinct performance obligation and, therefore, are combined with the royalty fees and deferred and recognized through management, franchise, and other fees over the expected customer life, which is typically the initial term of the franchise agreement.
System-wide services—We provide system-wide services on behalf of owners of managed and franchised properties. The promise to provide system-wide services is not a distinct performance obligation because it is attendant to the license of our IP. Therefore, the promise to provide system-wide services is combined with the license of our IP to form a single performance obligation. We have two accounting models depending on the terms of the agreements:
Cost reimbursement model—Third-party hotel owners are required to reimburse us for all costs incurred to operate the system-wide programs with no added margin. The reimbursements are recognized over time within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal. Expenses incurred related to the system-wide programs are recognized within costs incurred on behalf of managed and franchised properties. The reimbursement of system-wide services is billed monthly based upon an annual estimate of costs to be incurred and recognized as revenue commensurate with incurring the cost. To the extent that actual costs vary from estimated costs, a true-up billing or refund is issued to the hotels. Any amounts collected and not yet recognized as revenues are deferred and classified as contract liabilities. Any costs incurred in excess of revenues collected are classified as receivables.
Fund model—Third-party hotel owners are invoiced a system-wide assessment fee primarily based on a percentage of hotel revenues on a monthly basis. We recognize the revenues over time as services are provided through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal. Expenses related to the system-wide programs are recognized as incurred through costs incurred on behalf of managed and franchised properties. Over time, we manage the system-wide programs to break-even, but the timing of the revenue received from the owners may not align with the timing of the expenses to operate the programs. Therefore, the difference between the revenues and expenses may impact our net income.
Hotel management agreement services—Under the terms of our management agreements, we provide hotel management agreement services, which form a single performance obligation that qualifies as a series. In exchange, we receive variable consideration in the form of management fees, which are comprised of base and incentive fees. Incentive fees are typically subject to the achievement of certain profitability targets, and therefore, we apply judgment in determining the amount of incentive fees recognized each period. Incentive fees revenue is recognized to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. We rely on internal financial forecasts and historical trends to estimate the amount of incentive fees revenue recognized and the probability that incentive fees will reverse in the future. Generally, base management fees are due and payable on a monthly basis as services are provided, and incentive fees are due and payable based on the terms of the agreement, but at a minimum, incentive fees are billed and collected annually. Revenue is recognized over time as services are rendered.
Under the terms of certain management agreements, primarily within the United States, we are the employer of hotel employees. When we are the employer, we are reimbursed for costs incurred related to the employee management services with no added margin, and the reimbursements are recognized over time as services are rendered within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. In jurisdictions in which we are the employer, we have discretion over how employee management services are provided and, therefore, we are the principal and revenues are recognized on a gross basis.
Loyalty program administration—We administer the loyalty program for the benefit of Hyatt's portfolio of properties during the period of their participation in the loyalty program. Under the program, members earn loyalty points that can be redeemed for future products and services. Points earned by loyalty program members represent a material right to free or discounted goods or services in the future.
The loyalty program has one performance obligation that consists of marketing and managing the program and arranging for award redemptions by members. The costs of administering the loyalty program are charged to the properties through an assessment fee based on members' qualified expenditures. The assessment fee is billed and collected monthly, and the revenue received by the program is deferred until a member redeems points. Upon redemption of points at managed and franchised properties, we recognize the previously deferred revenue through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties, net of redemption expense paid to managed and franchised hotels. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent with respect to this performance obligation for managed and franchised hotels, and we are the principal with respect to owned and leased hotels. In relation to the loyalty program, a portion of our owned and leased hotels revenues is deferred upon initial stay as points are earned by program members at owned or leased hotels, and revenues are recognized upon redemption at owned or leased hotels.
We actuarially determine the amount to recognize as revenue based on statistical formulas that estimate the timing of future point redemptions based on historical experience. The revenue recognized each period includes an estimate of the loyalty points that will eventually be redeemed and includes an estimate of breakage for the loyalty points that will not be redeemed. Determining breakage involves significant judgment, and we engage third-party actuaries to estimate the ultimate redemption ratios used in the breakage calculations and the amount of revenue recognized upon redemption. Changes to the expected ultimate redemption assumptions are reflected in the current period. Any revenues in excess of the anticipated future redemptions are used to fund the other operational expenses of the program.
Room rentals and other services provided at owned and leased hotels
We provide room rentals and other services to our guests, including but not limited to spa, laundry, and parking. These products and services each represent individual performance obligations and, in exchange for these services, we receive fixed amounts based on published rates or negotiated contracts. Payment is due in full at the time the services are rendered or the goods are provided. If a guest enters into a package including multiple goods or services, the fixed price is allocated to each distinct good or service based on the stand-alone selling price for each item. Revenue is recognized over time when we transfer control of the good or service to the customer. Room rental revenue is recognized on a daily basis as the guest occupies the room, and revenue related to other products and services is recognized when the product or service is provided to the guest.
Hotels commonly enter into arrangements with online travel agencies, trade associations, and other entities. As part of these arrangements, Hyatt may pay the other party a commission or rebate based on the revenue generated through that channel. The determination of whether to recognize revenues gross or net of rebates and commission is made based on the terms of each contract.
Spa and fitness services
Exhale spa and fitness studios provide guests with spa and fitness services as well as retail products in exchange for fixed consideration. Each spa and fitness service represents an individual performance obligation. Payment is due in full and revenue is recognized at the point in time the services are rendered or the products are provided to the customer. If a guest purchases a spa or fitness package, the fixed price is allocated to each distinct product or service based on the published stand-alone selling price for each item.
Co-branded credit cards
We have a co-branded credit card agreement with a third party and under the terms of the agreement, we have various performance obligations: granting a license to the Hyatt name, arranging for the fulfillment of points issued to cardholders through the loyalty program, and awarding cardholders with free room nights upon achievement of certain program milestones. The loyalty points and free room nights represent material rights that can be redeemed for free or discounted services in the future.
In exchange for the products and services provided, we receive fixed and variable consideration which is allocated between the performance obligations based upon the relative stand-alone selling prices. Significant judgment is involved in determining the relative stand-alone selling prices, and therefore, we engaged a third-party valuation specialist to assist us. We utilize a relief from royalty method to determine the revenue allocated to the license, which is recognized over time as the licensee derives value from access to Hyatt's brand names. We utilize observable transaction prices and adjusted market assumptions to determine the stand-alone selling price of a loyalty point, and we utilize a cost plus margin approach to determine the stand-alone selling price of the free room nights. The revenues allocated to loyalty program points and free night awards are deferred and recognized upon redemption or expiration of a card member's promotional awards, net of redemption expense, as we are deemed to be the agent in the transaction. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent for managed and franchised hotels, and we are the principal with respect to owned and leased hotels. When loyalty points and free nights are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues.
We satisfy the following performance obligations over time: the license of Hyatt's symbolic IP, hotel management agreement services, administration of the loyalty program, and the license to our brand name through our co-branded credit card agreement. Each of these performance obligations is considered a sales-based royalty or a series of distinct services, and although the activities to fulfill each of these promises may vary from day to day, the nature of each promise is the same and the customer benefits from the services every day.
For each performance obligation satisfied over time, we recognize revenue using an output method based on the value transferred to the customer. Revenue is recognized based on the transaction price and the observable outputs related to each performance obligation. We deem the following to be a faithful depiction of our progress in satisfying these performance obligations:
revenues and operating profits earned by the hotels during the reporting period for access to Hyatt's IP, as it is indicative of the value third-party owners derive;
revenues and operating profits of the hotels for the promise to provide management agreement services to the hotels;
award night redemptions for the administration of the loyalty program performance obligation; and
cardholder spend for the license to the Hyatt name through our co-branded credit cards, as it is indicative of the value our partner derives from the use of our name.
Within our management agreements, we have two performance obligations: providing a license to Hyatt's IP and providing management agreement services. Although these constitute two separate performance obligations, both obligations represent services that are satisfied over time, and Hyatt recognizes revenue using an output method based on the performance of the hotel. Therefore, we have not allocated the transaction price between these two performance obligations as the allocation would result in the same pattern of revenue recognition.
Revenue is adjusted for the effects of a significant financing component when the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.
We have applied the practical expedient that permits the omission of prior-period information about revenue allocated to future performance obligations.
Contract Balances—Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. Due to certain profitability hurdles in our management agreements, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable. Contract assets are included in receivables, net on our consolidated balance sheets. Payments received in advance of performance under the contract are classified as current or long-term contract liabilities on our consolidated balance sheets and are recognized as revenue as we perform under the contract.
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 $33 million and $234 million at December 31, 2018 and December 31, 2017, respectively, which includes:
$16 million and $12 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 10); in addition, we have $12 million and $11 million, respectively, recorded in other assets;
$9 million related to our captive insurance subsidiary for minimum capital and surplus requirements in accordance with local insurance regulations (see Note 15); and
$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);
The remaining restricted cash balances of $8 million and $6 million at December 31, 2018 and December 31, 2017, respectively, relate to escrow deposits and other arrangements. These amounts are invested in interest-bearing accounts.
Equity Method Investments—We have investments in unconsolidated hospitality ventures accounted for under the equity method. These investments are an integral part of our business and are strategically and operationally important to our overall results. When we receive a distribution from an investment, we determine whether it is a return on our investment or a return of our investment based on the underlying nature of the distribution. We assess investments in unconsolidated hospitality ventures for impairment quarterly. 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 on our consolidated statements of income. For additional information about equity method investments, see Note 4.
Debt and Equity Securities—Excluding equity securities classified as equity method investments, debt and equity securities consist of various investments:
Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our consolidated balance sheets based on listed market prices or dealer quotations where available. Equity securities without a readily determinable fair value are recognized at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Net gains and losses, both realized and unrealized, on equity securities are recognized in other income (loss), net on our consolidated statements of income.
Debt securities include preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds. Debt securities are classified as either trading, available-for-sale ("AFS"), or held-to-maturity ("HTM").
Trading securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Net gains and losses, both realized and unrealized, on trading securities are recognized in net gains (losses) and interest income from marketable securities held to fund rabbi trusts or other income (loss), net, depending on the nature of the investment, on our consolidated statements of income.
AFS securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our consolidated balance sheets. Realized gains and losses on debt 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 for debt securities, 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 recognized 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 recognized on our consolidated statements of income. For additional information about debt and equity 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 receivables 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 recognized 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 recognized in 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.
Property and Equipment and Definite-Lived Intangible Assets—Property and equipment is stated at cost, including interest incurred during development and construction periods, less accumulated depreciation. Definite-lived intangible assets are recorded at the acquisition-date fair value, less accumulated 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 intangible assets are as follows:
Management and franchise agreement intangibles
Expected customer life, which is generally the initial term of the 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 intangible assets 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 recognized in asset impairments on our consolidated statements of income.
We evaluate the carrying value of our property and equipment and definite-lived intangible assets 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 intangible assets, see Notes 5 and 8, respectively.
Acquisitions—We evaluate the facts and circumstances of each acquisition to determine whether the transaction should be accounted for as an asset acquisition or a business combination.
Under the supervision of management, independent third-party valuation specialists estimate the fair value of the assets or businesses acquired using various recognized valuation methods including the income approach, cost approach, relief from royalty approach, and 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, royalty rates, current market conditions, likelihood of contract renewals, and comparable transactions. In a business combination, the fair value is allocated to tangible assets and liabilities and identifiable intangible assets, with any remaining value assigned to goodwill, if applicable. In an asset acquisition, any difference between the consideration paid and the fair value of the assets acquired is allocated across the identified assets based on the relative fair value. 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.
The results of operations of properties or businesses have been included in our consolidated statements of income since their respective dates of acquisition. Assets acquired and liabilities assumed in acquisitions are recorded on our consolidated balance sheets at the respective acquisition dates based upon their estimated fair values (see Note 7). In business combinations, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when we receive final information, including appraisals and other analyses.
Acquisition-related costs incurred in conjunction with a business combination are recognized in other income (loss), net on our consolidated statements of income. In an asset acquisition, these costs are included in the total consideration paid and allocated to the acquired assets.
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 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 recognize an impairment charge in asset impairments on our consolidated statements of income based on the amount by which the reporting unit's carrying value exceeded its fair value, limited to the carrying amount of goodwill. For additional information about goodwill, see Note 8.
Indefinite-Lived Intangible Assets—We have certain brand and other indefinite-lived 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 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 recognize an impairment charge in asset impairments on 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 and 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, other assets, 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 15.
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 14.
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 debt and equity 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 10; and the fair value of our guarantee liabilities is discussed in Note 15. We recognize transfers in and transfers out of the levels of the fair value hierarchy as of the end of each quarterly reporting period.
Stock-Based Compensation—As part of our LTIP, we award SARs, RSUs, 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 recognize 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 recognize compensation expense over the requisite service period of the individual grant and recognize the effect of forfeitures as they occur.

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 17.
Loyalty Program—The loyalty program is funded through contributions from Hyatt's participating properties based on eligible revenues from loyalty program members and returns on marketable securities. The funds are used for the redemption of member awards and payment of operating expenses. Operating costs are expensed as incurred through costs incurred on behalf of managed and franchised properties.
The program invests amounts received from the properties in marketable securities which are included in other current and noncurrent assets (see Note 4). Deferred revenues related to the loyalty program are classified as current and long-term contract liabilities on our consolidated balance sheets (see Note 3). The costs of administering the loyalty program, including the estimated cost of award redemption, are charged to the participating properties based on members' qualified expenditures.
Adopted Accounting Standards
Revenue from Contracts with Customers—In May 2014, the Financial Accounting Standards Board ("FASB") released ASU 2014-09. ASU 2014-09 supersedes the requirements in Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for contracts with customers. Subsequently, the FASB issued several related ASUs which further clarified the application of the standard including ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year making it effective for interim and fiscal years beginning after December 14, 2017.
We adopted ASU 2014-09, and all related ASUs, utilizing the full retrospective transition method on January 1, 2018, which required us to adjust each prior reporting period presented. The adoption of ASU 2014-09 impacted the timing of the recognition of gains on sales of real estate subject to a long-term management agreement, and the associated impact to deferred tax assets, the classification of Contra revenue, and the timing of revenue recognition related to incentive fees. However, the new standard did not have a significant impact on incentive fee revenue on a full-year basis. The adoption of ASU 2014-09 also impacted the timing of revenue recognition related to the loyalty program and as a result of the change, we recognized a $116 million increase to the contract liability related to the loyalty program at January 1, 2018. Upon adoption of ASU 2014-09, we recognized a cumulative effect of a change in accounting principle through retained earnings, including a $523 million reclassification related to deferred gains at January 1, 2018. We also reclassified certain management and franchise agreement assets from intangibles, net to other assets and certain current and long-term liabilities to current and long-term contract liabilities.
Financial Instruments - Recognition, Measurement, Presentation, and Disclosure—In January 2016, the FASB released ASU 2016-01. ASU 2016-01 revised the accounting for equity investments, excluding those accounted for under the equity method, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 superseded the guidance to classify equity securities with readily determinable fair values into different categories (i.e., trading versus AFS) and requires all equity securities to be measured at fair value on a recurring basis unless an equity security does not have a readily determinable fair value. Equity securities without a readily determinable fair value are remeasured at fair value only in periods in which an observable price change is available or upon identification of an impairment. All changes in fair value are recognized in net income on our consolidated statements of income.
On January 1, 2018, we adopted the provisions of ASU 2016-01 on a modified retrospective basis through a cumulative-effect adjustment to our opening consolidated balance sheet. Upon adoption, $68 million of unrealized gains, net of tax, were reclassified from accumulated other comprehensive loss to opening retained earnings.
Accounting for Income Taxes - Intra-Entity Asset Transfers—In October 2016, the FASB released Accounting Standards Update No. 2016-16 ("ASU 2016-16"), Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted ASU 2016-16 on January 1, 2018 on a modified retrospective basis resulting in a $4 million decrease to retained earnings.
Statement of Cash Flows - Restricted Cash—In November 2016, the FASB released Accounting Standards Update No. 2016-18 ("ASU 2016-18"), Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires amounts generally described as restricted cash to be included within cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the consolidated statements of cash flows. We adopted the provisions of ASU 2016-18 on January 1, 2018 on a retrospective basis. Upon the adoption of ASU 2016-18, restricted cash of $249 million, $91 million, and $110 million, including $15 million, $15 million, and $14 million recorded within other assets on our consolidated balance sheets, is included within the beginning balance of cash, cash equivalents, and restricted cash on our consolidated statements of cash flows for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively. The table below summarizes the changes on our consolidated statements of cash flows for the years ended December 31, 2017 and December 31, 2016:
 
Years Ended December 31,
 
2017
 
2016
Operating activities
$
(9
)
 
$
4

Investing activities
167

 
(23
)
Financing activities

 

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

 
110

Cash, cash equivalents, and restricted cash—end of period
$
249

 
$
91

Business Combinations - Definition of a Business—In January 2017, the FASB released Accounting Standards Update No. 2017-01 ("ASU 2017-01"), Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. Generally, our acquisitions and dispositions of individual hotels were previously accounted for as business combinations, however, upon adoption of ASU 2017-01, there is an increased likelihood that certain acquisitions and dispositions of individual hotels will be accounted for as asset transactions. We adopted ASU 2017-01 on January 1, 2018 on a prospective basis and evaluate the impact of the standard on acquisitions and dispositions based on the relevant facts and circumstances.
Derivatives and Hedging - Accounting for Hedging Activities—In August 2017, the FASB released Accounting Standards Update No. 2017-12 ("ASU 2017-12"), Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 improves the financial reporting of hedging relationships to better portray the economic results by making improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU 2017-12 is effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted ASU 2017-12 on April 1, 2018 on a modified retrospective basis, which did not impact our consolidated financial statements upon adoption.
The impact of the changes made to our consolidated financial statements as a result of the adoption of ASU 2014-09, ASU 2016-01, and ASU 2016-16 were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
$
2,192

 
$
(8
)
 
$
2,184

 
$
2,108

 
$
(11
)
 
$
2,097

Management, franchise, and other fees
505

 
(7
)
 
498

 
448

 
(7
)
 
441

Amortization of management and franchise agreement assets constituting payments to customers

 
(18
)
 
(18
)
 

 
(16
)
 
(16
)
Net management, franchise, and other fees
505

 
(25
)
 
480

 
448

 
(23
)
 
425

Other revenues
70

 
(34
)
 
36

 
40

 
(28
)
 
12

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties
1,918

 
(156
)
 
1,762

 
1,833

 
(102
)
 
1,731

Total revenues
4,685

 
(223
)
 
4,462

 
4,429

 
(164
)
 
4,265

DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
1,674

 
(10
)
 
1,664

 
1,610

 
(13
)
 
1,597

Depreciation and amortization
366

 
(18
)
 
348

 
342

 
(16
)
 
326

Other direct costs
46

 
(15
)
 
31

 
30

 
(13
)
 
17

Selling, general, and administrative
379

 
(2
)
 
377

 
315

 

 
315

Costs incurred on behalf of managed and franchised properties
1,918

 
(136
)
 
1,782

 
1,833

 
(91
)
 
1,742

Direct and selling, general, and administrative expenses
4,383

 
(181
)
 
4,202

 
4,130

 
(133
)
 
3,997

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts
47

 
(2
)
 
45

 
19

 
(2
)
 
17

Equity earnings (losses) from unconsolidated hospitality ventures
220

 
(1
)
 
219

 
68

 
(1
)
 
67

Interest expense
(80
)
 

 
(80
)
 
(76
)
 

 
(76
)
Gains (losses) on sales of real estate
51

 
185

 
236

 
(23
)
 
17

 
(6
)
Other income (loss), net
33

 
9

 
42

 
2

 
10

 
12

INCOME BEFORE INCOME TAXES
573

 
149

 
722

 
289

 
(7
)
 
282

PROVISION FOR INCOME TAXES
(323
)
 
(9
)
 
(332
)
 
(85
)
 
9

 
(76
)
NET INCOME
250

 
140

 
390

 
204

 
2

 
206

NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1
)
 

 
(1
)
 

 

 

NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
249

 
$
140

 
$
389

 
$
204

 
$
2

 
$
206

EARNINGS PER SHARE—Basic
 
 
 
 
 
 
 
 
 
 
 
Net income
$
2.00

 
$
1.13

 
$
3.13

 
$
1.53

 
$
0.02

 
$
1.55

Net income attributable to Hyatt Hotels Corporation
$
1.99

 
$
1.13

 
$
3.12

 
$
1.53

 
$
0.02

 
$
1.55

EARNINGS PER SHARE—Diluted
 
 
 
 
 
 
 
 
 
 
 
Net income
$
1.98

 
$
1.11

 
$
3.09

 
$
1.52

 
$
0.01

 
$
1.53

Net income attributable to Hyatt Hotels Corporation
$
1.97

 
$
1.11

 
$
3.08

 
$
1.52

 
$
0.01

 
$
1.53


 
December 31, 2017
 
January 1, 2018
 

As Reported
 
Effect of the adoption of
ASU 2014-09
 

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

 
$
1

 
$
212

 
$
(27
)
 
$
185

Intangibles, net
683

 
(378
)
 
305

 

 
305

Deferred tax assets
242

 
(101
)
 
141

 
1

 
142

Other assets
1,006

 
378

 
1,384

 
22

 
1,406

TOTAL ASSETS
7,672

 
(100
)
 
7,572

 
(4
)
 
7,568

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
175

 
$
(39
)
 
$
136

 
$

 
$
136

Accrued expenses and other current liabilities
635

 
(283
)
 
352

 

 
352

Current contract liabilities

 
348

 
348

 

 
348

Long-term contract liabilities

 
424

 
424

 

 
424

Other long-term liabilities
1,725

 
(862
)
 
863

 

 
863

Total liabilities
4,131

 
(412
)
 
3,719

 

 
3,719

Retained earnings
2,742

 
312

 
3,054

 
64

 
3,118

Accumulated other comprehensive loss
(185
)
 

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

 
312

 
3,843

 
(4
)
 
3,839

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

 
(100
)
 
7,572

 
(4
)
 
7,568


As a result of the adoption of ASU 2014-09, our deferred tax asset related to deferred gains on sales of real estate was no longer required. The reversal of this deferred tax asset was recognized through opening equity resulting in a $52 million reduction in deferred tax expense on our full-year 2017 adjusted financial statements originally recognized as a result of the 2017 Tax Act.
The adoption of ASU 2014-09 resulted in a $24 million and a $31 million reclassification from investing into operating activities during the years ended December 31, 2017 and December 31, 2016, respectively, related to cash outflows representing payments to customers. There were no impacts to cash provided by or used in financing activities on our consolidated statements of cash flows.
Future Adoption of Accounting Standards
Leases—In February 2016, the FASB released ASU 2016-02. ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability with certain practical expedients available. The accounting for lessors remains largely unchanged. In July 2018, the FASB released Accounting Standards Update No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, providing entities with an additional optional transition method. The provisions of ASU 2016-02, and all related ASUs, are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted.
The real estate leases for a majority of our owned and leased hotels include contingent lease payments, which will be excluded from the impact of ASU 2016-02. We expect to adopt ASU 2016-02 utilizing the optional transition approach allowed under ASU 2018-11 and applying the package of practical expedients beginning January 1, 2019. This option allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, our reporting for periods prior to January 1, 2019 will continue to be reported in accordance with Leases (Topic 840).
We are still assessing the potential impact that ASU 2016-02 will have on our financial statements and disclosures, but we anticipate recognizing right-of-use lease assets in the range of $450 million to $550 million and related lease liabilities in the range of $380 million to $480 million for operating leases. As a result of adoption, we will reclassify from assets and liabilities approximately $70 million, net to our right-of-use lease assets which has been factored into the range above.
We do not believe the standard will materially affect our consolidated statements of income or consolidated statements of cash flows. The standard will have no impact on our debt covenant compliance under our current agreements.
Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss model, which requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to AFS debt securities to be recognized through an allowance for credit losses. The provisions of ASU 2016-13 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-13.
Fair Value Measurement—In August 2018, the FASB released Accounting Standards Update No. 2018-13 ("ASU 2018-13"), Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements. The provisions of ASU 2018-13 are to be applied using a prospective or retrospective approach, depending on the amendment, and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2018-13.
Intangibles - Goodwill and Other - Internal-Use Software—In August 2018, the FASB released Accounting Standards Update No. 2018-15 ("ASU 2018-15"), Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of ASU 2018-15 are to be applied using a prospective or retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We expect to early adopt ASU 2018-15 on January 1, 2019 on a prospective basis.
v3.10.0.1
Debt and Equity Securities
12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Debt and Equity Securities
DEBT AND EQUITY SECURITIES
We make investments in debt and equity securities that we believe are strategically and operationally important to our business. These investments take the form of (i) equity method investments where we have the ability to significantly influence the operations of the entity, (ii) marketable securities held to fund operating programs and for investment purposes, and (iii) other types of investments.
Equity Method Investments
 
December 31, 2018
 
December 31, 2017
Equity method investments
$
233

 
$
185


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, 2018
 
December 31, 2017
Hyatt of Baja, S. de R.L. de C.V.
50.0
%
 
$
46

 
$

HP Boston Partners, LLC
50.0
%
 
29

 
4

Hotel am Belvedere Holding GmbH & Co KG
50.0
%
 
25

 
15

San Jose Hotel Partners, LLC
40.0
%
 
18

 
16

Four One Five, LLC
44.7
%
 
17

 
16

Hotel Hoyo Uno, S. de R.L. de C.V.
40.0
%
 
16

 
15

Juniper Hotels Private Limited
50.0
%
 
15

 
26

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

 
13

Portland Hotel Properties, LLC
40.0
%
 
13

 
5

HH Nashville JV Holdings, LLC
50.0
%
 
12

 
12

Glendale Hotel Properties, LLC
50.0
%
 
11

 
11

Other
 
 
18

 
52

Total equity method investments
 
 
$
233

 
$
185



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,
2018
 
2017
 
2016
Total revenues
$
513

 
$
832

 
$
1,229

Gross operating profit
182

 
289

 
398

Income (loss) from continuing operations
(16
)
 
54

 
160

Net income (loss)
(16
)
 
54

 
160

 
December 31, 2018
 
December 31, 2017
Current assets
$
228

 
$
215

Noncurrent assets
1,345

 
1,308

Total assets
$
1,573

 
$
1,523

 
 
 
 
Current liabilities
$
141

 
$
156

Noncurrent liabilities
1,148

 
1,224

Total liabilities
$
1,289

 
$
1,380


During the year ended December 31, 2018, we had the following activity:
We recognized $40 million of net gains in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments primarily within our owned and leased hotels segment and received $43 million of related sales proceeds.
We completed an asset acquisition of our partner's interest in certain unconsolidated hospitality ventures in Brazil for a net purchase price of approximately $4 million. We recognized $16 million of impairment charges related to these investments in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income as the carrying value was in excess of fair value. The fair value was determined to be a Level Three fair value measure, and the impairment was deemed other-than-temporary.
During the year ended December 31, 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 approximately $217 million of net proceeds. We recognized a $217 million gain in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income.
We recognized $6 million of gains in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment and received $12 million of related sales proceeds.
During the year ended December 31, 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 recognized a $14 million gain in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income (see Note 7).
We recognized $10 million of gains in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment and received $19 million of related sales proceeds.
During the years ended December 31, 2018, December 31, 2017, and December 31, 2016, we recognized $16 million, $3 million, and $9 million, respectively, of impairment charges in equity earnings from unconsolidated hospitality ventures on our consolidated statements of income.
Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. Additionally, we periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.
Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value and included on our consolidated balance sheets, were as follows:
 
December 31, 2018
 
December 31, 2017
Loyalty program (Note 2)
$
397

 
$
403

Deferred compensation plans held in rabbi trusts (Note 9 and Note 13)
367

 
402

Captive insurance companies
133

 
111

Total marketable securities held to fund operating programs
$
897

 
$
916

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
(174
)
 
(156
)
Marketable securities held to fund operating programs included in other assets
$
723

 
$
760


Net realized and unrealized gains and interest income from marketable securities held to fund the loyalty program are recognized in other income (loss), net on our consolidated statements of income:
 
Years Ended December 31,
2018
 
2017
 
2016
Loyalty program (Note 21)
$
4

 
$
9

 
$
10


Net realized and unrealized gains (losses) and interest income from marketable securities held to fund rabbi trusts are recognized in net gains (losses) and interest income from marketable securities held to fund rabbi trusts on our consolidated statements of income:
 
Years Ended December 31,
 
2018
 
2017
 
2016
Unrealized gains (losses), net
$
(45
)
 
$
20

 
$

Realized gains, net
34

 
25

 
17

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts
$
(11
)
 
$
45

 
$
17


Our captive insurance companies hold marketable securities which are classified as AFS debt securities and are invested in U.S. government agencies, time deposits, and corporate debt securities. We classify these investments as current or long-term, based on their contractual maturity dates, which range from 2019 through 2023.
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, 2018
 
December 31, 2017
Time deposits
$
100

 
$
37

Common shares
87

 
131

Interest-bearing money market funds
14

 
26

Total marketable securities held for investment purposes
$
201

 
$
194

Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(114
)
 
(63
)
Marketable securities held for investment purposes included in other assets
$
87

 
$
131


During 2013, we invested in the common shares of Playa, and we accounted for our common share investment as an equity method investment. In March 2017, Playa completed a business combination, and Playa Hotels & Resorts N.V. ("Playa N.V") is now publicly traded on the NASDAQ. Our investment is accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in $44 million of unrealized losses recognized in other income (loss), net on our consolidated statements of income for the year ended December 31, 2018 (see Note 21). We did not sell any shares of common stock during the year ended December 31, 2018.
Other Investments
Preferred shares—During 2013, we also invested $271 million in Playa for convertible redeemable preferred shares which were classified as an AFS debt security. Our preferred shares plus accrued and unpaid paid-in-kind dividends were redeemed in full for $290 million during 2017. The fair value of the preferred shares was: 
 
2017
Fair value at January 1
$
290

Gross unrealized losses
(54
)
Realized losses (1) (Note 21)
(40
)
Interest income (Note 21)
94

Cash redemption
(290
)
Fair value at December 31
$

(1) 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.

HTM Debt Securities—At December 31, 2018 and December 31, 2017, we held $49 million and $47 million, respectively, of investments in HTM debt securities, which are investments in third-party entities that own certain of our hotels and are recorded within other assets 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.
Equity Securities Without a Readily Determinable Fair Value—At December 31, 2018 and December 31, 2017, we had $9 million and $27 million, respectively, of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity. At December 31, 2017, the securities were included in investments on our consolidated balance sheets. As a result of the adoption of ASU 2016-01 on January 1, 2018, we have reclassified these investments to other assets on our consolidated balance sheet at December 31, 2018.
Due to ongoing operating cash flow shortfalls in the business underlying an equity security during the year ended December 31, 2018, we recognized a $22 million impairment charge of our full investment balance in other income (loss), net on our consolidated statements of income (see Note 21) as we deemed that the carrying value was in excess of the fair value. The fair value was determined to be a Level Three fair value measure. During the year ended December 31, 2018, the entity in which we hold our investment disposed of its assets.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
December 31, 2018
 
Cash and cash equivalents
 
Short-term investments
 
Prepaids and other assets
 
Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
 
 
 
 
 
 
 
 
 
Interest-bearing money market funds
$
88

 
$
88

 
$

 
$

 
$

Mutual funds
367

 

 

 

 
367

Common shares
87

 

 

 

 
87

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
113

 

 
104

 

 
9

U.S. government obligations
169

 

 

 
37

 
132

U.S. government agencies
52

 

 
2

 
7

 
43

Corporate debt securities
151

 

 
10

 
25

 
116

Mortgage-backed securities
23

 

 

 
5

 
18

Asset-backed securities
46

 

 

 
10

 
36

Municipal and provincial notes and bonds
2

 

 

 

 
2

Total
$
1,098

 
$
88

 
$
116

 
$
84

 
$
810


 
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