HYATT HOTELS CORP, 10-Q filed on 10/31/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 26, 2018
Document Information    
Entity Registrant Name Hyatt Hotels Corp  
Entity Central Index Key 0001468174  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Trading Symbol h  
Emerging Growth Company false  
Entity Small Business false  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   42,768,452
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   67,119,482
v3.10.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Jul. 31, 2018
May 16, 2018
Feb. 14, 2018
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
REVENUES:              
Total revenues       $ 1,074 $ 1,070 $ 3,316 $ 3,345
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:              
Depreciation and amortization       81 88 243 261
Other direct costs       8 3 23 20
Selling, general, and administrative       82 89 260 278
Direct and selling, general, and administrative expenses       1,012 1,011 3,068 3,130
Net gains and interest income from marketable securities held to fund rabbi trusts       10 11 19 35
Equity earnings (losses) from unconsolidated hospitality ventures       (6) 1 (17) (1)
Interest expense       (19) (20) (57) (61)
Gains on sales of real estate       239 0 769 60
Asset impairments       (21) 0 (21) 0
Other income (loss), net       (9) (16) (22) 32
INCOME BEFORE INCOME TAXES       256 35 919 280
PROVISION FOR INCOME TAXES       (19) (16) (194) (103)
NET INCOME       237 19 725 177
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS       0 (1) 0 (1)
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION       $ 237 $ 18 $ 725 $ 176
EARNINGS PER SHARE—Basic              
Net income (in dollars per share)       $ 2.12 $ 0.15 $ 6.31 $ 1.40
Net income attributable to Hyatt Hotels Corporation (in dollars per share)       2.12 0.14 6.31 1.39
EARNINGS PER SHARE—Diluted              
Net income (in dollars per share)       2.09 0.15 6.21 1.39
Net income attributable to Hyatt Hotels Corporation (in dollars per share)       2.09 0.14 6.21 1.38
CASH DIVIDENDS DECLARED PER SHARE (in dollars per share) $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0 $ 0.45 $ 0
Owned and leased hotels              
REVENUES:              
Total revenues       $ 450 $ 516 $ 1,450 $ 1,661
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:              
Owned and leased hotels       354 406 1,095 1,258
Costs incurred on behalf of managed and franchised properties       354 406 1,095 1,258
Management, franchise, and other fees              
REVENUES:              
Total revenues       133 123 407 367
Amortization of management and franchise agreement assets constituting payments to customers              
REVENUES:              
Total revenues       (5) (4) (15) (13)
Net management, franchise, and other fees              
REVENUES:              
Total revenues       128 119 392 354
Other revenues              
REVENUES:              
Total revenues       7 6 27 28
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties              
REVENUES:              
Total revenues       489 429 1,447 1,302
Costs incurred on behalf of managed and franchised properties              
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:              
Owned and leased hotels       487 425 1,447 1,313
Costs incurred on behalf of managed and franchised properties       $ 487 $ 425 $ 1,447 $ 1,313
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income $ 237 $ 19 $ 725 $ 177
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments, net of tax (benefit) of $- and $(1) for the three and nine months ended September 30, 2018 and $- for the three and nine months ended September 30, 2017 71 11 48 71
Unrealized gains on available-for-sale debt securities, net of tax expense of $- for the three and nine months ended September 30, 2018 and September 30, 2017, and unrealized (losses) gains on available-for-sale equity securities, net of tax (benefit) expense of $(7) and $21 for the three and nine months ended September 30, 2017 0 (12) 0 33
Unrealized gains on derivative activity, net of tax expense of $1 for the three and nine months ended September 30, 2018 and $- for the three and nine months ended September 30, 2017 3 1 3 1
Other comprehensive income 74 0 51 105
COMPREHENSIVE INCOME 311 19 776 282
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 (1) 0 (1)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 311 $ 18 $ 776 $ 281
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - Parentheticals - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Foreign currency translation adjustments, net of tax (benefit) $ 0 $ 0 $ (1) $ 0
Unrealized gains on available-for-sale debt securities tax 0 0 0 0
Unrealized gains on available-for-sale equity securities tax   (7)   21
Unrealized gains on derivative activity, net of tax expense $ 1 $ 0 $ 1 $ 0
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 1,014 $ 503
Restricted cash 23 [1] 234
Short-term investments 217 49
Receivables, net of allowances of $25 and $21 at September 30, 2018 and December 31, 2017, respectively 436 350
Inventories 13 14
Prepaids and other assets 140 153
Prepaid income taxes 56 24
Assets held for sale 44 0
Total current assets 1,943 1,327
Investments 225 212
Property and equipment, net 3,570 4,034
Financing receivables, net of allowances 14 19
Goodwill 132 150
Intangibles, net 296 305
Deferred tax assets 149 141
Other assets 1,395 1,384
TOTAL ASSETS 7,724 7,572
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 127 136
Accrued expenses and other current liabilities 296 352
Current contract liabilities 332 348
Accrued compensation and benefits 130 145
Liabilities held for sale 1 0
Total current liabilities 897 992
Long-term debt 1,622 1,440
Long-term contract liabilities 433 424
Other long-term liabilities 837 863
Total liabilities 3,789 3,719
Commitments and contingencies
Redeemable noncontrolling interest in preferred shares of a subsidiary 0 10
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at September 30, 2018 and December 31, 2017 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 43,625,629 issued and outstanding at September 30, 2018, and Class B common stock, $0.01 par value per share, 400,064,055 shares authorized, 67,119,482 shares issued and outstanding at September 30, 2018. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 48,231,149 issued and outstanding at December 31, 2017, and Class B common stock, $0.01 par value per share, 402,748,249 shares authorized, 7 1 1
Additional paid-in capital 339 967
Retained earnings 3,791 3,054
Accumulated other comprehensive loss (202) (185)
Total stockholders’ equity 3,929 3,837
Noncontrolling interests in consolidated subsidiaries 6 6
Total equity 3,935 3,843
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY $ 7,724 $ 7,572
[1] Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, captive insurance subsidiary requirements, debt service on bonds, escrow deposits, and other arrangements.
v3.10.0.1
Condensed Consolidated Balance Sheet - Parentheticals - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Allowance for doubtful accounts receivable, current $ 25 $ 21
Preferred stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares outstanding (in shares) 0 0
Common stock, shares, issued (in shares) 0  
Common Class A    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares, outstanding (in shares) 43,625,629 48,231,149
Common stock, shares, issued (in shares) 43,625,629 48,231,149
Common Class B    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 400,064,055 402,748,249
Common stock, shares, outstanding (in shares) 67,119,482 70,753,837
Common stock, shares, issued (in shares) 67,119,482 70,753,837
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 725 $ 177
Adjustments to reconcile net income to net cash provided by operating activities:    
Gains on sales of real estate (769) (60)
Depreciation and amortization 243 261
Deferred income taxes (7) (9)
Impairment of assets 43 0
Equity losses from unconsolidated hospitality ventures 17 1
Amortization of management and franchise agreement assets constituting payments to customers 15 13
Realized losses 2 41
Distributions from unconsolidated hospitality ventures 10 26
Working capital changes and other (147) (22)
Net cash provided by operating activities 132 428
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (572) (365)
Proceeds from marketable securities and short-term investments 426 364
Contributions to equity method and other investments (52) (67)
Return of equity method and other investments 24 200
Acquisitions, net of cash acquired (263) (259)
Capital expenditures (195) (212)
Proceeds from sales of real estate, net of cash disposed 1,334 296
Other investing activities 10 (11)
Net cash provided by (used in) investing activities 712 (54)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from debt, net of issuance costs of $4 and $-, respectively 416 620
Repayments of debt (230) (391)
Repurchases of common stock (654) (555)
Proceeds from redeemable noncontrolling interest in preferred shares in a subsidiary 0 9
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary (10) 0
Dividends paid (52) 0
Other financing activities (13) (7)
Net cash used in financing activities (543) (324)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3 0
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 304 50
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 752 573
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 1,056 $ 623
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Statement of Cash Flows [Abstract]    
Issuance costs $ 4 $ 0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash and cash equivalents 1,014 383
Restricted cash [1] 23 224
Restricted cash included in other assets [1] 19 16
Total cash, cash equivalents, and restricted cash 1,056 623
Cash paid during the period for interest 72 77
Cash paid during the period for income taxes 267 125
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method investments 53 4
Non-cash issuance of financing receivables 45 0
Change in accrued capital expenditures 7 19
Non-cash management and franchise agreement assets constituting payments to customers $ 0 $ 3
[1] Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, captive insurance subsidiary requirements, debt service on bonds, escrow deposits, and other arrangements.
v3.10.0.1
Organization
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness-related businesses. We develop, own, operate, manage, franchise, license, or provide services to a portfolio of properties consisting of full service hotels, select service hotels, resorts, and other properties, including branded spas and fitness studios, and timeshare, fractional, and other forms of residential or vacation properties. At September 30, 2018, (i) we operated or franchised 347 full service hotels, comprising 133,402 rooms throughout the world, (ii) we operated or franchised 407 select service hotels, comprising 57,576 rooms, of which 358 hotels are located in the United States, and (iii) our portfolio included 6 franchised all-inclusive Hyatt-branded resorts, comprising 2,401 rooms, and 3 destination wellness resorts, comprising 399 rooms. At September 30, 2018, our portfolio of properties operated in 59 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and which operate under other tradenames or marks owned by such hotel or licensed by third parties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries and (ii) the term "portfolio of properties" refers to hotels and other properties, including branded spas and fitness studios and residential vacation ownership units, that we develop, own, operate, manage, franchise, license, or provide services to, including under our Park Hyatt, Miraval, Grand Hyatt, Hyatt Regency, Hyatt, Andaz, Hyatt Centric, The Unbound Collection by Hyatt, Hyatt Place, Hyatt House, Hyatt Ziva, Hyatt Zilara, exhale, and Hyatt Residence Club brands.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the "2017 Form 10-K").
We have eliminated all intercompany accounts and transactions in our condensed consolidated financial statements. We consolidate entities under our control, including entities where we are deemed to be the primary beneficiary.
Management believes the accompanying condensed consolidated financial statements reflect all adjustments, which are all of a normal recurring nature, considered necessary for a fair presentation of the interim periods.
v3.10.0.1
Recently Issued Accounting Pronouncements
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Recently Issued Accounting Pronouncements
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Summary of Significant Accounting Policies
Our significant accounting policies are detailed in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 2 to our Consolidated Financial Statements" within the 2017 Form 10-K. Upon adoption of Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606) and Accounting Standards Update No. 2016-01 ("ASU 2016-01"), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, our accounting policies have been revised as follows:
Revenue Recognition—Our revenues are primarily derived from the following products and services and are generally recognized when control of the product or service has transferred to the customer:
Owned and leased hotels revenues:
Owned and leased hotels revenues are derived from room rentals and services provided at our owned and leased properties and are recognized over time as rooms are occupied and when services are rendered. We present revenues net of sales, occupancy, and other taxes. Taxes collected on behalf of and remitted to governmental taxing authorities are excluded from the transaction price of the underlying products and services. In relation to the loyalty program, a portion of our owned and leased hotels revenues is deferred upon initial stay as points are earned by program members at an owned or leased hotel, and revenues are recognized upon redemption at an owned or leased hotel.
Management, franchise, and other fees:
Management fees primarily consist of a base fee, which is generally calculated as a percentage of gross revenues, and an incentive fee, which is generally computed based on a hotel profitability measure. Management fees are recognized over time as services are performed. Additionally, included within our management fees are royalty fees that we recognize as owners derive value from access to Hyatt's intellectual property ("IP"), including our brand names. Incentive fees may be subject to minimum profitability thresholds, and we recognize incentive fee revenues over time as services are rendered only to the extent that a significant reversal is not probable.
Franchise fees consist of an initial fee and ongoing royalty fees computed as a percentage of gross room revenues and, as applicable, food and beverage revenues. Royalty fees are recognized over time as franchisees derive value from the license to Hyatt's IP. Initial fees are deferred and recognized over the expected customer life, which is typically the initial term of the franchise agreement.
Management, franchise, and other fees include license fee revenues associated with the licensing of the Hyatt brand names through our co-branded credit card program. License fee revenues are recognized over time as the licensee derives value from access to Hyatt's brand names.
Net management, franchise, and other fees are reduced by the amortization of management and franchise agreement assets constituting payments to customers ("Contra revenue"). Consideration provided to customers is recognized in other assets and amortized over the expected customer life, which is typically the initial term of the management or franchise agreement.
Other revenues:
Other revenues include revenues from the sale of promotional awards through our co-branded credit card and spa and fitness revenues from exhale. We recognize the revenue from our co-branded credit card upon the fulfillment or expiration of a card member's promotional awards. Revenue is recognized net of expenses incurred to fulfill the promotional award as we are deemed the agent in the transaction. Spa and fitness revenues are recognized at the point in time the products or services are provided to the customer.
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties:
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties represent the reimbursement of costs incurred on behalf of the owners of properties. These costs relate primarily to payroll costs at managed properties where we are the employer, as well as costs associated with reservations, sales, marketing, technology (collectively, "system-wide services"), and the loyalty program operated on behalf of owners. Hyatt is reimbursed for costs incurred based on the terms of the contracts, and revenue is recognized as the underlying performance obligations are satisfied.
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.
Gains on Sales of Real Estate—Gains on sales of real estate are generally recognized when control of the property transfers to the buyer.
Equity Method Investments—We have investments in unconsolidated hospitality ventures accounted for under the equity method. These investments are an integral part of our business and are strategically and operationally important to our overall results. When we receive a distribution from an investment, we determine whether it is a return on our investment or a return of our investment based on the underlying nature of the distribution. We assess investments in unconsolidated hospitality ventures for impairment quarterly.
Debt and Equity Securities—Excluding equity securities classified as equity method investments, debt and equity securities consist of various investments:
Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our condensed consolidated balance sheets based on listed market prices or dealer quotations where available. Equity 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.
Debt securities consist of various types including preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds. Debt securities are classified as either trading, available-for-sale ("AFS"), or held-to-maturity ("HTM").
Trading securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Net gains and losses, both realized and unrealized, on trading securities are reflected in net gains and interest income from marketable securities held to fund rabbi trusts or other income (loss), net, depending on the nature of the investment, on our condensed consolidated statements of income.
AFS securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our condensed consolidated balance sheets. Realized gains and losses on debt securities are recognized in other income (loss), net on our condensed consolidated statements of income.
HTM securities—debt security investments which we have the ability to hold until maturity and are recorded at amortized cost.
AFS and HTM debt securities are assessed for impairment quarterly.
Loyalty Program—We administer the loyalty program for the benefit of Hyatt's portfolio of properties during the period of their participation in the loyalty program. The loyalty program is primarily funded through contributions based on eligible revenues from loyalty program members, and the funds are used for the redemption of member awards and payment of operating expenses.
The costs of operating the loyalty program, including the estimated cost of award redemption, are charged to the participating properties based on members' qualified expenditures. The revenues received from the properties are deferred, and revenues are recognized as loyalty points are redeemed, net of redemption expense, through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. Operating costs are expensed as incurred through costs incurred on behalf of managed and franchised properties.
We actuarially determine the amount to recognize as revenue based on statistical formulas that estimate the timing of future point redemptions based on historical experience, including an estimate of breakage for points that will not be redeemed, and an estimate of the points that will eventually be redeemed. Any revenues in excess of the anticipated future redemptions are used to fund the operational expenses of the program.
The loyalty program is funded by payments from the properties and returns on marketable securities. The program invests amounts received from the properties in marketable securities which are included in other current and noncurrent assets (see Note 4). The current and noncurrent deferred revenue liabilities of the loyalty program are classified as contract liabilities (see Note 3).
Adopted Accounting Standards
Revenue from Contracts with Customers—In May 2014, the Financial Accounting Standards Board ("FASB") released ASU 2014-09. ASU 2014-09 supersedes the requirements in Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for contracts with customers. Subsequently, the FASB issued several related ASUs which further clarified the application of the standard including ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year making it effective for interim and fiscal years beginning after December 14, 2017.
We adopted ASU 2014-09, and all related ASUs, utilizing the full retrospective transition method on January 1, 2018, which required us to adjust each prior reporting period presented. The adoption of ASU 2014-09 impacts the timing of the recognition of gains on sales of real estate subject to a long-term management agreement, and the associated impact to deferred tax assets (see Note 11), the classification of Contra revenue, and the timing of revenue recognition related to incentive fees. However, we do not expect the new standard to have a significant impact on incentive fee revenue on a full-year basis. The adoption of ASU 2014-09 also impacts the timing of revenue recognition related to the loyalty program and as a result of the change, we recognized 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 condensed consolidated statements of income.
On January 1, 2018, we adopted the provisions of ASU 2016-01 on a modified retrospective basis through a cumulative-effect adjustment to our opening condensed consolidated balance sheet. Upon adoption, $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 condensed consolidated statements of cash flows. We adopted the provisions of ASU 2016-18 on January 1, 2018 on a retrospective basis. Upon adoption of ASU 2016-18, restricted cash of $249 million, including $15 million which is recognized within other assets on our condensed consolidated balance sheet at December 31, 2017, is included within the beginning balance of cash, cash equivalents, and restricted cash on our condensed consolidated statements of cash flows for the nine months ended September 30, 2018. The table below summarizes the changes on our condensed consolidated statements of cash flows for the nine months ended September 30, 2017:
 
Nine Months Ended September 30,
 
2017
Operating activities
$
(11
)
Investing activities
163

Financing activities
(3
)
Cash, cash equivalents, and restricted cash - beginning of year
91

Cash, cash equivalents, and restricted cash - end of period
$
240


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 condensed consolidated financial statements upon adoption.

The impact of the changes made to our condensed consolidated financial statements as a result of the adoption of ASU 2014-09, ASU 2016-01, and ASU 2016-16 were as follows:
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
 
As Reported
 
Effect of the adoption of
ASU 2014-09
 
As Adjusted
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
$
518

 
$
(2
)
 
$
516

 
$
1,667

 
$
(6
)
 
$
1,661

Management, franchise, and other fees
122

 
1

 
123

 
374

 
(7
)
 
367

Amortization of management and franchise agreement assets constituting payments to customers

 
(4
)
 
(4
)
 

 
(13
)
 
(13
)
Net management, franchise, and other fees
122

 
(3
)
 
119

 
374

 
(20
)
 
354

Other revenues
16

 
(10
)
 
6

 
53

 
(25
)
 
28

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties
463

 
(34
)
 
429

 
1,407

 
(105
)
 
1,302

Total revenues
1,119

 
(49
)
 
1,070

 
3,501

 
(156
)
 
3,345

DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
Owned and leased hotels
409

 
(3
)
 
406

 
1,266

 
(8
)
 
1,258

Depreciation and amortization
92

 
(4
)
 
88

 
274

 
(13
)
 
261

Other direct costs
9

 
(6
)
 
3

 
34

 
(14
)
 
20

Selling, general, and administrative
89

 

 
89

 
278

 

 
278

Costs incurred on behalf of managed and franchised properties
463

 
(38
)
 
425

 
1,407

 
(94
)
 
1,313

Direct and selling, general, and administrative expenses
1,062

 
(51
)
 
1,011

 
3,259

 
(129
)
 
3,130

Net gains and interest income from marketable securities held to fund rabbi trusts
12

 
(1
)
 
11

 
37

 
(2
)
 
35

Equity earnings (losses) from unconsolidated hospitality ventures
1

 

 
1

 
(1
)
 

 
(1
)
Interest expense
(20
)
 

 
(20
)
 
(61
)
 

 
(61
)
Gains on sales of real estate

 

 

 
34

 
26

 
60

Other income (loss), net
(19
)
 
3

 
(16
)
 
23

 
9

 
32

INCOME BEFORE INCOME TAXES
31

 
4

 
35

 
274

 
6

 
280

PROVISION FOR INCOME TAXES
(14
)
 
(2
)
 
(16
)
 
(100
)
 
(3
)
 
(103
)
NET INCOME
17

 
2

 
19

 
174

 
3

 
177

NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1
)
 

 
(1
)
 
(1
)
 

 
(1
)
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
16

 
$
2

 
$
18

 
$
173

 
$
3

 
$
176

EARNINGS PER SHARE—Basic
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.14

 
$
0.01

 
$
0.15

 
$
1.38

 
$
0.02

 
$
1.40

Net income attributable to Hyatt Hotels Corporation
$
0.13

 
$
0.01

 
$
0.14

 
$
1.37

 
$
0.02

 
$
1.39

EARNINGS PER SHARE—Diluted
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.14

 
$
0.01

 
$
0.15

 
$
1.37

 
$
0.02

 
$
1.39

Net income attributable to Hyatt Hotels Corporation
$
0.13

 
$
0.01

 
$
0.14

 
$
1.36

 
$
0.02

 
$
1.38


 
December 31, 2017
 
January 1, 2018
 

As Reported
 
Effect of the adoption of
ASU 2014-09
 

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

 
$
1

 
$
212

 
$
(27
)
 
$
185

Intangibles, net
683

 
(378
)
 
305

 

 
305

Deferred tax assets
242

 
(101
)
 
141

 
1

 
142

Other assets
1,006

 
378

 
1,384

 
22

 
1,406

TOTAL ASSETS
7,672

 
(100
)
 
7,572

 
(4
)
 
7,568

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
 
 
 
 

Accounts payable
$
175

 
$
(39
)
 
$
136

 
$

 
$
136

Accrued expenses and other current liabilities
635

 
(283
)
 
352

 

 
352

Current contract liabilities

 
348

 
348

 

 
348

Long-term contract liabilities

 
424

 
424

 

 
424

Other long-term liabilities
1,725

 
(862
)
 
863

 

 
863

Total liabilities
4,131

 
(412
)
 
3,719

 

 
3,719

Retained earnings
2,742

 
312

 
3,054

 
64

 
3,118

Accumulated other comprehensive loss
(185
)
 

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

 
312

 
3,843

 
(4
)
 
3,839

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

 
(100
)
 
7,572

 
(4
)
 
7,568


The adoption of ASU 2014-09 resulted in an $11 million reclassification from investing into operating activities during the nine months ended September 30, 2017 related to cash outflows representing payments to customers. There were no impacts to cash provided by or used in financing activities on our condensed consolidated statements of cash flows.
Future Adoption of Accounting Standards
Leases—In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability 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. We continue to evaluate the impact of adopting ASU 2016-02 and expect this ASU may have a material effect to our condensed consolidated financial statements.
Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. 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 are currently evaluating the impact of adopting ASU 2018-15.
v3.10.0.1
Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers
REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
We provide products and services to our customers including third-party hotel owners, guests at owned and leased hotels and spa and fitness centers, and a third-party partner through our co-branded credit card program. The products and services offered are comprised of the following performance obligations:
Management and Franchise Agreements:
License to Hyatt's IP, including the Hyatt brand names—We receive variable consideration from third-party hotel owners in exchange for providing access to our IP, including the Hyatt brand names. The license represents a license of symbolic IP and in exchange for providing the license, Hyatt receives sales-based royalty fees. Royalty fees are generally determined based on a percentage of gross revenues for managed hotels and are generally included in the hotel management fee. Royalty fees for franchised hotels are based on a percentage of gross room revenues and, as applicable, food and beverage revenues. Fees generally are payable on a monthly basis as the third-party hotel owners derive value from access to our IP. Royalty fees are recognized over time through management, franchise, and other fees as services are rendered. Under our franchise agreements, we also receive initial fees from third-party hotel owners. The initial fees do not represent a distinct performance obligation and, therefore, are combined with the royalty fees and recognized through management, franchise, and other fees over the expected customer life.
System-wide services—We provide sales, reservations, technology, and marketing 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 with respect to the promise to provide system-wide services. 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 on a monthly basis based upon an annual estimate of costs to be incurred and is 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 with respect to system-wide services. 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—We provide hotel management agreement services, which form a single performance obligation that qualifies as a series, under the terms of our management agreements. In exchange for providing these services, we receive variable consideration in the form of management fees, which are comprised of base and incentive fees. Incentive fees are typically subject to the achievement of certain profitability targets, and therefore, we apply judgment in determining the amount of incentive fees recognized each period. Incentive fees revenue is recognized to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. We rely on internal financial forecasts and historical trends to estimate the amount of incentive fees revenue recognized and the probability that incentive fees will reverse in the future. Generally, base management fees are due and payable on a monthly basis as services are provided, and incentive fees are due and payable based on the terms of the agreement, but at a minimum, incentive fees are billed and collected annually. Revenue is recognized over time through management, franchise, and other fees.
Under the terms of certain management agreements, primarily within the United States, we are the employer of hotel employees. When we are the employer, we are reimbursed for costs incurred related to the employee management services with no added margin, and the reimbursements are recognized over time as services are rendered within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. In jurisdictions in which we are the employer, we have discretion over how employee management services are provided and, therefore, we are the principal and revenues are recognized on a gross basis.
Loyalty program administration—We administer the loyalty program for the benefit of the Hyatt portfolio of properties. Under the program, members earn loyalty points that can be redeemed for future products and services. Points earned by loyalty program members represent a material right to free or discounted goods or services in the future.
The loyalty program has one performance obligation that consists of marketing and managing the program and arranging for award redemptions by members. The costs of operating the loyalty program are charged to the properties through an assessment fee based on members’ qualified expenditures. The assessment fee is billed and collected monthly, and the revenue received by the program is deferred until a member redeems points. Upon redemption of points at managed and franchised properties, we recognize the previously deferred revenue through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties, net of redemption expense paid to managed and franchised hotels. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent with respect to this performance obligation for managed and franchised hotels, and we are the principal with respect to owned and leased hotels. When loyalty points are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues.
The revenue recognized each period includes an estimate of breakage for the loyalty points that will not be redeemed. Determining breakage involves significant judgment, and we engage third-party actuaries to estimate the ultimate redemption ratios used in the breakage calculations and the amount of revenue recognized upon redemption. Changes to the expected ultimate redemption assumptions are reflected in the current period.
Room rentals and other services provided at owned and leased hotels—We provide room rentals and other services to our guests, including but not limited to spa, laundry, and parking. These products and services each represent individual performance obligations and, in exchange for these services, we receive fixed amounts based on published rates or negotiated contracts. Payment is due in full at the time the services are rendered or the goods are provided. If a guest enters into a package including multiple goods or services, the fixed price is allocated to each distinct good or service based on the stand-alone selling price for each item. Revenue is recognized over time within owned and leased hotels revenues when we transfer control of the good or service to the customer. Room rental revenue is recognized on a daily basis as the guest occupies the room, and revenue related to other products and services is recognized when the product or service is provided to the guest.
Hotels commonly enter into arrangements with online travel agencies, trade associations, and other entities. As part of these arrangements, Hyatt may pay the other party a commission or rebate based on the revenue generated through that channel. The determination of whether to recognize revenues gross or net of rebates and commission is made based on the terms of each contract.
Spa and fitness services—Exhale spa and fitness studios provide guests with spa and fitness services as well as retail products in exchange for fixed consideration. Each spa and fitness service represents an individual performance obligation. Payment is due in full and revenue is recognized at the point in time the services are rendered or the products are delivered. If a guest purchases a spa or fitness package, the fixed price is allocated to each distinct product or service based on the published stand-alone selling price for each item, and revenues are recognized as the services are rendered.
Co-branded credit card—We have a co-branded credit card agreement with a third party and under the terms of the agreement, we have various performance obligations: granting a license to the Hyatt name, arranging for the fulfillment of points issued to cardholders through the loyalty program, and awarding cardholders with free room nights upon achievement of certain program milestones. The loyalty points and free room nights represent material rights that can be redeemed for free or discounted services in the future.
In exchange for the products and services provided, we receive fixed and variable consideration which is allocated between the performance obligations based upon the relative stand-alone selling prices. Significant judgment is involved in determining the relative stand-alone selling prices, and therefore, we engaged a third-party valuation specialist to assist us. We utilize a relief from royalty method to determine the revenue allocated to the license, which is recognized over time. We utilize observable transaction prices and adjusted market assumptions to determine the stand-alone selling price of a loyalty point, and we utilize a cost plus margin approach to determine the stand-alone selling price of the free room nights. The revenues allocated to loyalty program points and free night awards are deferred and recognized upon redemption, net of redemption expense, as we are deemed to be the agent in the transaction. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent for managed and franchised hotels, and we are the principal with respect to owned 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;
underlying revenues and operating profits of the hotels for the promise to provide management agreement services to the hotels;
award night redemptions for the administration of the loyalty program performance obligation; and  
cardholder spend for the license to the Hyatt name through our co-branded credit card, as it is indicative of the value our partner derives from the use of our name.
Within our management agreements, we have two performance obligations: providing a license to Hyatt's IP and providing management agreement services. Although these constitute two separate performance obligations, both obligations represent services that are satisfied over time, and Hyatt recognizes revenue using an output method based on the performance of the hotel. Therefore, we have not allocated the transaction price between these two performance obligations as the allocation would result in the same pattern of revenue recognition.

Disaggregated Revenues
The following tables present our revenues disaggregated by the nature of the product or service:
 
Three months ended September 30, 2018
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
276

$

$

$

$
5

$
(7
)
$
274

Food and beverage
133




2


135

Other
34




7


41

Owned and leased hotels
443




14

(7
)
450

 
 
 
 
 
 
 
 
Base management fees

48

11

9


(13
)
55

Incentive management fees

14

16

10


(7
)
33

Franchise fees

32

1




33

Other fees

1

2

2

2


7

License fees




5


5

Management, franchise, and other fees

95

30

21

7

(20
)
133

Contra revenue

(4
)

(1
)


(5
)
Net management, franchise, and other fees

91

30

20

7

(20
)
128

 
 
 
 
 
 
 
 
Other revenues




5

2

7

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

447

24

16

2


489

 
 
 
 
 
 
 
 
Total
$
443

$
538

$
54

$
36

$
28

$
(25
)
$
1,074

 
Nine months ended September 30, 2018
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
848

$

$

$

$
18

$
(26
)
$
840

Food and beverage
474




7


481

Other
106




23


129

Owned and leased hotels
1,428




48

(26
)
1,450

 
 
 
 
 
 
 
 
Base management fees

150

32

25


(40
)
167

Incentive management fees

47

50

29


(21
)
105

Franchise fees

94

2




96

Other fees

10

6

4

4


24

License fees




15


15

Management, franchise, and other fees

301

90

58

19

(61
)
407

Contra revenue

(10
)
(1
)
(4
)


(15
)
Net management, franchise, and other fees

291

89

54

19

(61
)
392

 
 
 
 
 
 
 
 
Other revenues




22

5

27

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

1,328

67

49

3


1,447

 
 
 
 
 
 
 
 
Total
$
1,428

$
1,619

$
156

$
103

$
92

$
(82
)
$
3,316

 
Three months ended September 30, 2017
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
312

$

$

$

$
6

$
(10
)
$
308

Food and beverage
152




3


155

Other
46




7


53

Owned and leased hotels
510




16

(10
)
516

 
 
 
 
 
 
 
 
Base management fees

47

10

8


(14
)
51

Incentive management fees

15

15

8


(7
)
31

Franchise fees

30





30

Other fees

2

2

1

1


6

License fees




5


5

Management, franchise, and other fees

94

27

17

6

(21
)
123

Contra revenue

(3
)

(1
)


(4
)
Net management, franchise, and other fees

91

27

16

6

(21
)
119

 
 
 
 
 
 
 
 
Other revenues




3

3

6

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

395

19

15



429

 
 
 
 
 
 
 
 
Total
$
510

$
486

$
46

$
31

$
25

$
(28
)
$
1,070

 
Nine months ended September 30, 2017
Disaggregated revenue stream
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
969

$

$

$

$
18

$
(29
)
$
958

Food and beverage
544




9


553

Other
128




22


150

Owned and leased hotels
1,641




49

(29
)
1,661

 
 
 
 
 
 
 
 
Base management fees

147

28

22


(47
)
150

Incentive management fees

46

44

24


(19
)
95

Franchise fees

84

2




86

Other fees

12

5

3

2


22

License fees




14


14

Management, franchise, and other fees

289

79

49

16

(66
)
367

Contra revenue

(9
)
(1
)
(3
)


(13
)
Net management, franchise, and other fees

280

78

46

16

(66
)
354

 
 
 
 
 
 
 
 
Other revenues
13




8

7

28

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

1,205

56

41



1,302

 
 
 
 
 
 
 
 
Total
$
1,654

$
1,485

$
134

$
87

$
73

$
(88
)
$
3,345


Contract Balances
Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. Under the terms of our management agreements, we earn incentive management fees based on a percentage of hotel profitability. The incentive fee may be contingent on the hotel achieving certain profitability targets. We recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable.
Our contract assets were $1 million and insignificant at September 30, 2018 and December 31, 2017, respectively. At September 30, 2018, the contract assets were included in receivables, net. As our profitability hurdles are generally calculated on a full-year basis, we expect our contract asset balance to be insignificant at year end.
Payments received in advance of performance under the contract are classified as contract liabilities and recognized as revenue as we perform under the contract.

September 30, 2018

December 31, 2017

$ Change

% Change
Current contract liabilities
$
332


$
348


$
(16
)

(4.6
)%
Long-term contract liabilities
433


424


9


2.4
 %
Total contract liabilities
$
765

 
$
772

 
$
(7
)
 
(0.8
)%
The contract liabilities balances above are comprised of the following:
 
September 30, 2018
 
December 31, 2017
Advanced deposits
$
55

 
$
59

Deferred revenue related to the loyalty program
584

 
561

Deferred revenue related to system-wide services
14

 
9

Initial fees received from franchise owners
33

 
27

Other deferred revenue
79

 
116

Total contract liabilities
$
765

 
$
772


Revenue recognized during the three months ended September 30, 2018 and September 30, 2017 included in the contract liability balance at the beginning of each year was $222 million and $216 million, respectively. Revenue recognized during the nine months ended September 30, 2018 and September 30, 2017 included in the contract liability balance at the beginning of each year was $663 million and $639 million, respectively. This revenue was primarily related to advanced deposits and the loyalty program, which is recognized net of redemption reimbursements paid to third parties.
Revenue Allocated to Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $110 million at September 30, 2018, of which we expect to recognize approximately 20% as revenue over the next 12 months and the remainder thereafter.
We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for the following:
Deferred revenue related to the loyalty program and revenue from base and incentive management fees as the revenue is allocated to a wholly unperformed performance obligation in a series;
Revenues related to royalty fees as they are considered sales-based royalty fees;
Revenues received for free nights granted through our co-branded credit card as the awards are required to be redeemed within 12 months; and
Revenues related to advanced bookings at owned and leased hotels as each stay has a duration of 12 months or less.
We elected to apply the practical expedient that permits the omission of prior-period information about revenue allocated to future performance obligations under ASU 2014-09.