HYATT HOTELS CORP, 10-Q filed on 5/3/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 27, 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 Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Trading Symbol h  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   46,469,910
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   70,496,643
v3.8.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
REVENUES:    
Owned and leased hotels $ 515 $ 569
Management, franchise, and other fees 132 114
Amortization of management and franchise agreement assets constituting payments to customers (5) (4)
Net management, franchise, and other fees 127 110
Other revenues 11 17
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties 456 430
Total revenues 1,109 1,126
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Owned and leased hotels 384 424
Depreciation and amortization 83 87
Other direct costs 8 16
Selling, general, and administrative 95 99
Costs incurred on behalf of managed and franchised properties 460 445
Direct and selling, general, and administrative expenses 1,030 1,071
Net gains and interest income from marketable securities held to fund rabbi trusts 3 15
Equity losses from unconsolidated hospitality ventures (13) (3)
Interest expense (19) (21)
Gains on sales of real estate 529 0
Other income (loss), net (18) 43
INCOME BEFORE INCOME TAXES 561 89
PROVISION FOR INCOME TAXES (150) (34)
NET INCOME 411 55
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 411 $ 55
EARNINGS PER SHARE—Basic    
Net income—Basic (in dollars per share) $ 3.47 $ 0.43
Net income attributable to Hyatt Hotels Corporation—Basic (in dollars per share) 3.47 0.43
EARNINGS PER SHARE—Diluted    
Net income—Diluted (in dollars per share) 3.40 0.42
Net income attributable to Hyatt Hotels Corporation—Diluted (in dollars per share) 3.40 0.42
CASH DIVIDENDS DECLARED PER SHARE (in dollars per share) $ 0.15 $ 0
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income $ 411 $ 55
Other comprehensive income, net of taxes:    
Foreign currency translation adjustments, net of tax expense of $- for each of the three months ended March 31, 2018 and March 31, 2017 23 41
Unrealized gains on available-for-sale debt securities, net of tax expense of $- for each of the three months ended March 31, 2018 and March 31, 2017, and unrealized gains on available-for-sale equity securities, net of tax expense of $21 for the three months ended March 31, 2017 0 34
Other comprehensive income 23 75
COMPREHENSIVE INCOME 434 130
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 434 $ 130
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income Parentheticals - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Foreign currency translation adjustments, net of tax expense $ 0 $ 0
Unrealized gains on available-for-sale debt securities tax $ 0 0
Unrealized gains on available-for-sale equity securities tax   $ 21
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 1,160 $ 503
Restricted cash 450 [1] 234
Short-term investments 54 49
Receivables, net of allowances of $23 and $21 at March 31, 2018 and December 31, 2017, respectively 367 350
Inventories 13 14
Prepaids and other assets 136 153
Prepaid income taxes 16 24
Total current assets 2,196 1,327
Investments 174 212
Property and equipment, net 3,572 4,034
Financing receivables, net of allowances 18 19
Goodwill 154 150
Intangibles, net 305 305
Deferred tax assets 149 141
Other assets 1,419 1,384
TOTAL ASSETS 7,987 7,572
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 131 136
Accrued expenses and other current liabilities 466 352
Current contract liabilities 334 348
Accrued compensation and benefits 109 145
Total current liabilities 1,051 992
Long-term debt 1,439 1,440
Long-term contract liabilities 431 424
Other long-term liabilities 872 863
Total liabilities 3,793 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 March 31, 2018 and December 31, 2017 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 47,515,803 issued and outstanding at March 31, 2018, and Class B common stock, $0.01 par value per share, 402,613,149 shares authorized, 70,496,643 shares issued and outstanding at March 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, 70,753,83 1 1
Additional paid-in capital 906 967
Retained earnings 3,511 3,054
Accumulated other comprehensive loss (230) (185)
Total stockholders’ equity 4,188 3,837
Noncontrolling interests in consolidated subsidiaries 6 6
Total equity 4,194 3,843
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY $ 7,987 $ 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.
v3.8.0.1
Condensed Consolidated Balance Sheet Parentheticals - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Allowance for doubtful accounts receivable, current $ 23 $ 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 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) 47,515,803 48,231,149
Common stock, shares, issued (in shares) 47,515,803 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) 402,613,149 402,748,249
Common stock, shares, outstanding (in shares) 70,496,643 70,753,837
Common stock, shares, issued (in shares) 70,496,643 70,753,837
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 411 $ 55
Adjustments to reconcile net income to net cash provided by operating activities:    
Gains on sales of real estate (529) 0
Depreciation and amortization 83 87
Deferred income taxes (10) (16)
Equity losses from unconsolidated hospitality ventures 13 3
Realized losses 1 41
Working capital changes and other 85 (29)
Net cash provided by operating activities 54 141
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (97) (111)
Proceeds from marketable securities and short-term investments 104 119
Contributions to equity method and other investments (10) (8)
Return of equity method and other investments 12 200
Acquisitions, net of cash acquired 0 (245)
Capital expenditures (60) (50)
Proceeds from sales of real estate, net of cash disposed 992 0
Other investing activities (6) (1)
Net cash provided by (used in) investing activities 935 (96)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from debt 20 180
Repayments of debt (21) (3)
Repurchases of common stock (75) (348)
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 (18) 0
Other financing activities (5) (4)
Net cash used in financing activities (109) (166)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3) 1
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 877 (120)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 752 573
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 1,629 $ 453
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash and cash equivalents $ 1,160 $ 374
Restricted cash [1] 450 64
Restricted cash included in other assets [1] 19 15
Total cash, cash equivalents, and restricted cash 1,629 453
Cash paid during the period for interest 35 37
Cash paid during the period for income taxes 10 10
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method investments 4 0
Change in accrued capital expenditures $ 1 $ 17
[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.
v3.8.0.1
Organization
3 Months Ended
Mar. 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 or vacation properties. At March 31, 2018, (i) we operated or franchised 334 full service hotels, comprising 128,893 rooms throughout the world, (ii) we operated or franchised 394 select service hotels, comprising 55,937 rooms, of which 345 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 March 31, 2018, our portfolio of properties operated in 58 countries around the world.
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.
v3.8.0.1
Recently Issued Accounting Pronouncements
3 Months Ended
Mar. 31, 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 updated 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 revenue 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 computed 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, we recognize royalty fees as owners derive value from access to Hyatt’s intellectual property ("IP"). Incentive fees may be subject to minimum annual 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 calculated based on 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, including Hyatt's brand names. 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 fees revenue associated with the licensing of the Hyatt brand name through our co-branded credit card program. License fee revenue is 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 to be the agent in the transaction. Spa and fitness revenue is 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, "systemwide services"), and the loyalty program operated on behalf of owners of managed and franchised properties. Hyatt is reimbursed for costs incurred based on the terms of the contracts, and revenue is recognized as the underlying performance obligations are satisfied.
Gains on Sales of Real Estate—Gains on sales of real estate are generally recognized when control of the property transfers to the buyer and recognized through gains on sales of real estate in our condensed consolidated statements of income.
Equity Method Investments—We have investments in unconsolidated hospitality ventures recorded 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—Debt and equity securities consist of various investments, excluding equity securities classified as equity method 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 investments 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. 
Our investments in 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—recorded at fair value based on listed market prices or dealer price quotations where available. Net gains and losses 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—recorded 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 the Hyatt portfolio of properties owned, operated, managed, franchised, or licensed by us during the period of their participation in the loyalty program. The loyalty program is primarily funded through contributions from eligible revenues from loyalty program members, and the funds are used for the redemption of member awards associated with the loyalty program 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 revenue is 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 when points are redeemed, 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 revenue in excess of the anticipated future redemptions is used to fund the operational expenses of the program.
The loyalty program is financed 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 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 clarify the application of the standard including ASU 2015-14, 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 recorded an increase of $116 million to the contract liability related to the loyalty program as of 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 reclassification of $523 million 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, unrealized gains of $68 million, net of tax, were reclassified from accumulated other comprehensive loss to opening retained earnings. Changes in fair value are recognized in other income (loss), net on our condensed consolidated statements of income.
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 decrease of $4 million 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 consolidated balance sheet at December 31, 2017, is included within the beginning balance of cash and cash equivalents on our condensed consolidated statement of cash flows for the three months ending March 31, 2018. The table below summarizes the effect on our condensed consolidated statements of cash flows for the three months ended March 31, 2017:
 
Three Months Ended March 31,
Increase/(decrease)
2017
Operating activities
$
(6
)
Investing activities
(5
)
Financing activities
(1
)
Cash, cash equivalents, and restricted cash - beginning of year
91

Cash, cash equivalents, and restricted cash - end of period
$
79


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 disposals of assets or businesses. Generally, our acquisitions 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 of individual hotels will be accounted for as asset acquisitions. We do not expect ASU 2017-01 to have a significant impact on our accounting for the disposition of assets as we generally account for disposals as sales of assets. We adopted ASU 2017-01 on January 1, 2018 on a prospective basis, and we will evaluate the impact of the standard on future transactions based on the relevant facts and circumstances.
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 March 31, 2017
 
As Reported
 
Effect of the adoption of
ASU 2014-09

 
As Adjusted
REVENUES:
 
 
 
 
 
Owned and leased hotels
$
572

 
$
(3
)
 
$
569

Management, franchise, and other fees
122

 
(8
)
 
114

Amortization of management and franchise agreement assets constituting payments to customers

 
(4
)
 
(4
)
Net management, franchise, and other fees
122

 
(12
)
 
110

Other revenues
22

 
(5
)
 
17

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties
471

 
(41
)
 
430

Total revenues
1,187

 
(61
)
 
1,126

DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
 
 
Owned and leased hotels
427

 
(3
)
 
424

Depreciation and amortization
91

 
(4
)
 
87

Other direct costs
19

 
(3
)
 
16

Selling, general, and administrative
99

 

 
99

Costs incurred on behalf of managed and franchised properties
471

 
(26
)
 
445

Direct and selling, general, and administrative expenses
1,107

 
(36
)
 
1,071

Net gains and interest income from marketable securities held to fund rabbi trusts
15

 

 
15

Equity losses from unconsolidated hospitality ventures
(3
)
 

 
(3
)
Interest expense
(21
)
 

 
(21
)
Other income (loss), net
40

 
3

 
43

INCOME BEFORE INCOME TAXES
111

 
(22
)
 
89

PROVISION FOR INCOME TAXES
(41
)
 
7

 
(34
)
NET INCOME
70

 
(15
)
 
55

NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
70

 
$
(15
)
 
$
55

EARNINGS PER SHARE—Basic
 
 
 
 
 
Net income
$
0.54

 
$
(0.11
)
 
$
0.43

Net income attributable to Hyatt Hotels Corporation
$
0.54

 
$
(0.11
)
 
$
0.43

EARNINGS PER SHARE—Diluted
 
 
 
 
 
Net income
$
0.54

 
$
(0.12
)
 
$
0.42

Net income attributable to Hyatt Hotels Corporation
$
0.54

 
$
(0.12
)
 
$
0.42


 
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 a reclassification of $3 million from investing into operating activities 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; the accounting for lessors remains largely unchanged. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. The 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 are currently evaluating 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. ("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.
v3.8.0.1
Revenue Recognition Revenue Recognition
3 Months Ended
Mar. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
We provide products and services to our customers, which 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. The products and services offered by us 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 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 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 relate to 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, which is typically the initial term of the agreement.
Systemwide services—We provide sales, reservations, technology, and marketing services on behalf of owners of managed and franchised properties. The promise to provide systemwide services is not a distinct performance obligation because it is attendant to the license of our IP. Therefore, the promise to provide systemwide 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 agreement:
Cost reimbursement model—Third-party hotel owners are required to reimburse us for all costs incurred to operate the systemwide 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 systemwide services. Expenses incurred related to our sales, reservations, technology, and marketing programs are recognized within costs incurred on behalf of managed and franchised properties. The reimbursement of systemwide services is billed on a monthly basis based upon an annual estimate of costs to be incurred and are 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 recognized as contract liabilities. Any costs incurred in excess of revenues collected are recognized as receivables.
Fund model—Third-party hotel owners are invoiced a systemwide 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 systemwide services. Expenses related to the sales, reservations, technology, and marketing programs are recognized as incurred through costs incurred on behalf of managed and franchised properties. Over time, we manage the systemwide 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 and, 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 annual 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 a loyalty program for the benefit of the Hyatt portfolio of properties owned, managed, franchised, or licensed by us. 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, as we are an 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 with respect to this performance obligation for managed and franchised hotels, and we are the principal with respect to owned hotels. When loyalty points are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues on our condensed consolidated statements of income.
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 to estimate 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.
Due to the nature of our business, our fees are not significantly impacted by refunds or returns. Prepayments are refunded to hotel guests if the guest cancels within the specified time period, before any services are rendered. Refunds related to service are generally recognized as an adjustment to the transaction price at the time the hotel stay occurs or services are rendered.
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 that 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 utilized a relief from royalty method to determine the revenue allocated to the license, which is recognized over time. We utilized observable transaction prices and adjusted market assumptions to determine the stand-alone selling price of a loyalty point and we utilized 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 expenses, 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 hotels. When loyalty points and free nights are redeemed at owned and leased hotels, we recognize revenue through owned and leased hotels revenues on our condensed consolidated statements of income.
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 and brand names, as they are 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 our brand 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 March 31, 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
$
297

$

$

$

$
7

$
(9
)
$
295

Food and beverage
172




2


174

Other
38




8


46

Owned and leased hotels
507




17

(9
)
515

 
 
 
 
 
 
 
 
Base management fees

49

11

7


(14
)
53

Incentive management fees

13

17

10


(6
)
34

Franchise fees

28





28

Other fees

8

2

1

1


12

License fees




5


5

Management, franchise, and other fees

98

30

18

6

(20
)
132

Contra revenue

(3
)
(1
)
(1
)


(5
)
Net management, franchise, and other fees

95

29

17

6

(20
)
127

 
 
 
 
 
 
 
 
Other revenues




9

2

11

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

420

20

16



456

 
 
 
 
 
 
 
 
Total
$
507

$
515

$
49

$
33

$
32

$
(27
)
$
1,109

 
Three months ended March 31, 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
$
326

$

$

$

$
6

$
(9
)
$
323

Food and beverage
195




3


198

Other
41




7


48

Owned and leased hotels
562




16

(9
)
569









Base management fees

48

9

6


(16
)
47

Incentive management fees

12

14

9


(5
)
30

Franchise fees

25

1




26

Other fees

5

1

1



7

License fees




4


4

Management, franchise, and other fees

90

25

16

4

(21
)
114

Contra revenue

(3
)

(1
)


(4
)
Net management, franchise, and other fees

87

25

15

4

(21
)
110

 
 
 
 
 
 
 
 
Other revenues
13




2

2

17









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

401

17

12



430









Total
$
575

$
488

$
42

$
27

$
22

$
(28
)
$
1,126


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 annual 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 annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable.
Our contract assets were $21 million and insignificant at March 31, 2018 and December 31, 2017, respectively. At March 31, 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.
Contract liabilities consisted of the following at March 31, 2018 and December 31, 2017:

March 31, 2018

December 31, 2017

$ Change

% Change
Contract liabilities - current
$
334


$
348


$
(14
)

(4.1
)%
Contract liabilities - noncurrent
431


424


7


1.9
 %
Total contract liabilities
$
765

 
$
772

 
$
(7
)
 
(0.8
)%
At March 31, 2018 and December 31, 2017, the contract liabilities balances above include the following:
 
March 31, 2018
 
December 31, 2017
Advanced deposits
$
51

 
$
59

Deferred revenue related to the loyalty program
570

 
561

Deferred revenue related to systemwide services
11

 
9

Initial fees received from franchise owners
29

 
27

Other deferred revenue
104

 
116

Total contract liabilities
$
765

 
$
772


Revenue recognized during the three months ended March 31, 2018 and March 31, 2017 included in the contract liability balance at the beginning of each year was $224 million and $215 million, respectively. This revenue was primarily related to revenue from 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 $160 million at March 31, 2018, of which we expect to recognize approximately 45% of the 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 are not included in the contracted revenue above, 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; and
Revenues received for free nights granted through our co-branded credit card as the awards are required to be redeemed within 12 months.
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.
Incremental Costs to Obtain a Contract
We did not incur significant costs to obtain a contract and generally any costs are expensed as incurred, as the amortization period would be less than one year.
v3.8.0.1
Debt and Equity Securities
3 Months Ended
Mar. 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
 
March 31, 2018
 
December 31, 2017
Equity method investments
$
174

 
$
185


During the three months ended March 31, 2018, we sold our ownership interest in an equity method investment within our owned and leased hotels segment for which we received proceeds of $9 million. We recognized a gain of $8 million in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income.
During the three months ended March 31, 2017, an unconsolidated hospitality venture within our owned and leased hotels segment sold a Hyatt Place hotel. We received proceeds of $4 million and recognized a gain of $2 million in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income.
During the three months ended March 31, 2018, we recognized impairment charges of $16 million as a result of the buyout of our partner's interest in unconsolidated hospitality ventures in Brazil, which was initiated in the first quarter of 2018 and completed subsequent to March 31, 2018. The pending acquisition indicated a carrying value in excess of fair value, which was determined to be a Level Three fair value measure and was deemed other-than-temporary. Therefore, we recognized the impairment charges. During the three months ended March 31, 2017, we recognized insignificant impairment charges. These charges are recognized in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income.
The following table presents summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
 
Three Months Ended March 31,
 
2018
 
2017
Total revenues
$
132

 
$
274

Gross operating profit
39

 
78

Loss from continuing operations
(19
)
 
(18
)
Net loss
(19
)
 
(18
)
Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. Additionally, we periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.
Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:
 
March 31, 2018
 
December 31, 2017
Loyalty program
$
389

 
$
403

Deferred compensation plans held in rabbi trusts (Note 8 and 10)
409

 
402

Captive insurance companies
111

 
111

Total marketable securities held to fund operating programs
$
909

 
$
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
(151
)
 
(156
)
Marketable securities held to fund operating programs included in other assets
$
758

 
$
760


Net realized and unrealized gains (losses) and interest income from marketable securities held to fund the loyalty program are recognized in other income (loss), net on our condensed consolidated statements of income:
 
Three Months Ended March 31,
2018
 
2017
Loyalty program
$
(4
)
 
$
3

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


Three Months Ended March 31,
2018
 
2017
Unrealized gains (losses)
$
(1
)
 
$
11

Realized gains
4

 
4

Net gains and interest income from marketable securities held to fund rabbi trusts
$
3

 
$
15


Our captive insurance companies hold marketable securities which are classified as AFS debt securities and are invested in U.S. government agencies, time deposits, and corporate debt securities. We classify these investments as current or long-term, based on their contractual maturity dates, which range from 2018 through 2022.
Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:
 
March 31, 2018
 
December 31, 2017
Interest bearing money market funds
$
9

 
$
26

Time deposits
37

 
37

Common shares
124

 
131

Total marketable securities held for investment purposes
$
170

 
$
194

Less current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(46
)
 
(63
)
Marketable securities held for investment purposes included in other assets
$
124

 
$
131


During 2013, we invested in the common shares of Playa Hotels & Resorts B.V. ("Playa"), and we accounted for our common share investment as an equity method investment. In March 2017, Playa completed a business combination. Playa Hotels & Resorts N.V. ("Playa N.V.") is now publicly traded on the NASDAQ and our ownership percentage was diluted to 11.57%. As we no longer have the ability to significantly influence Playa N.V., our investment was recharacterized as an equity security with a readily determinable fair value in March 2017. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in unrealized losses of $7 million recognized in other income (loss), net for the period ending March 31, 2018 (see Note 18). We did not sell any shares of common stock during the quarter.
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. The fair value of the preferred shares was: 
 
 
2017
Fair value at January 1
 
$
290

Gross unrealized losses
 
(54
)
Realized losses (1) (Note 18)
 
(40
)
Interest income (Note 18)
 
94

Cash redemption
 
(290
)
Fair value at March 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 March 31, 2018 and December 31, 2017, we held investments in HTM debt securities of $47 million, respectively, which are investments in third-party entities that own certain of our hotels and are recorded within other assets in our condensed 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 March 31, 2018 and December 31, 2017, we had investments of $27 million 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 condensed consolidated balance sheets. As a result of the adoption of ASU 2016-01 on January 1, 2018, we have reclassified the investments to other assets on our condensed consolidated balance sheet at March 31, 2018.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
March 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
$
60

 
$
60

 
$

 
$

 
$

Mutual funds
409

 

 

 

 
409

Common shares
124

 

 

 

 
124

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
50

 

 
40

 

 
10

U.S. government obligations
152

 

 

 
33

 
119

U.S. government agencies
46

 

 
2

 
6

 
38

Corporate debt securities
170

 

 
12

 
29

 
129

Mortgage-backed securities
24

 

 

 
5

 
19

Asset-backed securities
41

 

 

 
9

 
32

Municipal and provincial notes and bonds
3

 

 

 
1

 
2

Total
$
1,079

 
$
60

 
$
54

 
$
83

 
$
882

 
December 31, 2017
 
Cash and cash equivalents
 
Short-term investments
 
Prepaids and other assets
 
Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
 
 
 
 
 
 
 
 
 
Interest bearing money market funds
$
75

 
$
75

 
$

 
$

 
$

Mutual funds
402

 

 

 

 
402

Common shares
131

 

 

 

 
131

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
50

 

 
39

 

 
11

U.S. government obligations
158

 

 

 
38

 
120

U.S. government agencies
47

 

 
2

 
7

 
38

Corporate debt securities
179

 

 
8

 
33

 
138

Mortgage-backed securities
25

 

 

 
6

 
19

Asset-backed securities
40

 

 

 
10

 
30

Municipal and provincial notes and bonds
3

 

 

 
1

 
2

Total
$
1,110

 
$
75

 
$
49

 
$
95

 
$
891


During the three months ended March 31, 2018 and March 31, 2017, there were no transfers between levels of the fair value hierarchy. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
v3.8.0.1
Financing Receivables
3 Months Ended
Mar. 31, 2018
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Financing Receivables
FINANCING RECEIVABLES
 
March 31, 2018
 
December 31, 2017
Unsecured financing to hotel owners
$
128

 
$
127

Less allowance for losses
(109
)
 
(108
)
Less current portion included in receivables, net
(1
)
 

Total long-term financing receivables, net of allowances
$
18

 
$
19


Allowance for Losses and Impairments—The following table summarizes the activity in our unsecured financing receivables allowance:
 
2018
 
2017
Allowance at January 1
$
108

 
$
100

  Provisions
2

 
2

  Other adjustments
(1
)
 
1

Allowance at March 31
$
109

 
$
103


Credit Monitoring—Our unsecured financing receivables were as follows:
 
March 31, 2018
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
14

 
$

 
$
14

 
$

Impaired loans (1)
59

 
(59
)
 

 
59

Total loans
73

 
(59
)
 
14

 
59

Other financing arrangements
55

 
(50
)
 
5

 
50

Total unsecured financing receivables
$
128

 
$
(109
)
 
$
19

 
$
109

(1) The unpaid principal balance was $44 million and the average recorded loan balance was $59 million at March 31, 2018.
 
December 31, 2017
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
13

 
$

 
$
13

 
$

Impaired loans (2)
59

 
(59
)
 

 
59

Total loans
72

 
(59
)
 
13

 
59

  Other financing arrangements
55

 
(49
)
 
6

 
49

Total unsecured financing receivables
$
127

 
$
(108
)
 
$
19

 
$
108

(2) The unpaid principal balance was $44 million and the average recorded loan balance was $58 million at December 31, 2017.
Fair Value—We estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be $19 million at March 31, 2018 and $20 million at December 31, 2017.
v3.8.0.1
Acquisitions and Dispositions
3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions and Dispositions
ACQUISITIONS AND DISPOSITIONS
Acquisitions
Miraval—During the three months ended March 31, 2017, we acquired Miraval Group ("Miraval") from an unrelated third party. The transaction included the Miraval Life in Balance Spa brand, Miraval Arizona Resort & Spa in Tucson, Arizona, Travaasa Resort in Austin, Texas, and the option to acquire Cranwell Spa & Golf Resort ("Cranwell") in Lenox, Massachusetts. We subsequently exercised our option and acquired approximately 95% of Cranwell during the three months ended March 31, 2017. Total cash consideration for Miraval was $237 million, inclusive of working capital adjustments of $2 million finalized post-acquisition.
The following table summarizes the fair value of the identifiable net assets acquired in the acquisition of Miraval, which is recorded within corporate and other:
 
 
Current assets, net of cash acquired
$
1

Property and equipment
172

Indefinite-lived intangibles (1)
37

Management agreement intangibles (2)
14

Goodwill (3)
21

Other definite-lived intangibles (4)
7

Total assets
$
252

 
 
Current liabilities
$
13

Deferred tax liabilities
3

Total liabilities
16

Total net assets acquired attributable to Hyatt Hotels Corporation
236

Total net assets acquired attributable to noncontrolling interests
1

Total net assets acquired
$
237

 
 
(1) Includes an intangible attributable to the Miraval brand.
(2) Amortized over a useful life of 20 years.
(3) The goodwill, of which $10 million is deductible for tax purposes, is attributable to Miraval's reputation as a renowned provider of wellness and mindfulness experiences, the extension of the Hyatt brand beyond traditional hotel stays, and the establishment of deferred tax liabilities.
(4) Amortized over useful lives ranging from two to seven years.
In conjunction with the acquisition of Miraval, a consolidated hospitality venture for which we are the managing partner (the "Miraval Venture") issued $9 million of redeemable preferred shares to unrelated third-party investors. The preferred shares were non-voting, except as required by applicable law and certain contractual approval rights, and had liquidation preference over all other classes of securities within the Miraval Venture. The redeemable preferred shares earned a return of 12%. The shares were classified as a redeemable noncontrolling interest in preferred shares of a subsidiary, which were presented between liabilities and equity on our condensed consolidated balance sheets and carried at the redemption value. During the three months ended March 31, 2018, the preferred shares were redeemed for $10 million.
Dispositions
Grand Hyatt San Francisco, Andaz Maui at Wailea Resort, and Hyatt Regency Coconut Point Resort and Spa—During the three months ended March 31, 2018, we sold Grand Hyatt San Francisco, Andaz Maui at Wailea Resort together with adjacent land, and Hyatt Regency Coconut Point Resort and Spa to an unrelated third party as a portfolio for approximately $992 million, net of proration adjustments and closing costs, and entered into a long-term management agreement for each property upon sale. The sale resulted in a pre-tax gain of $529 million, which was recognized in gains on sales of real estate on our condensed consolidated statements of income during the three months ended March 31, 2018. The operating results and financial position of these hotels prior to the sale remain within our owned and leased hotels segment. Although we concluded the disposal of these properties does not qualify as discontinued operations, the disposal is considered to be material. Pre-tax net income attributable to the three properties during the three months ended March 31, 2018 and March 31, 2017 was $15 million and $10 million, respectively.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain hotels. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary. The proceeds are recognized as restricted cash on our condensed consolidated balance sheets and released (i) if they are utilized as part of a like-kind exchange agreement, (ii) if we do not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.
In conjunction with the sale of Hyatt Regency Coconut Point Resort and Spa during the three months ended March 31, 2018, proceeds of $221 million were held as restricted for use in a potential like-kind exchange.
In conjunction with the sale of Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch during the year ended December 31, 2017, proceeds of $207 million were initially held as restricted for use in a potential like-kind exchange. However, we were unable to acquire the identified replacement property within the specified 180 day period and the proceeds were released in April 2018.
v3.8.0.1
Intangibles, Net
3 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles, Net
INTANGIBLES, NET
 
March 31, 2018
 
Weighted-
average useful
lives in years
 
December 31, 2017
Management and franchise agreement intangibles
$
179

 
23

 
$
178

Lease related intangibles
131

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