HYATT HOTELS CORP, 10-K filed on 2/20/2020
Annual Report
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Cover Page - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Jan. 31, 2020
Jun. 28, 2019
Document Information      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-34521    
Entity Registrant Name HYATT HOTELS CORP    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 20-1480589    
Entity Address, Address Line One 150 North Riverside Plaza    
Entity Address, Address Line Two 8th Floor,    
Entity Address, City or Town Chicago,    
Entity Address, State or Province IL    
Entity Address, Postal Zip Code 60606    
City Area Code 312    
Local Phone Number 750-1234    
Title of 12(b) Security Class A Common Stock, $0.01 par value    
Trading Symbol H    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 2,838.0
Entity Central Index Key 0001468174    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
Documents Incorporated by Reference
Part III of this Annual Report on Form 10-K incorporates by reference portions of the registrant's Proxy Statement for its 2020 Annual Meeting of Stockholders to be held on May 20, 2020.
   
Common Class A      
Document Information      
Entity Common Stock, Shares Outstanding   35,841,277  
Common Class B      
Document Information      
Entity Common Stock, Shares Outstanding   65,463,274  
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Consolidated Statements of Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
REVENUES:      
Revenue $ 5,020 $ 4,454 $ 4,462
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:      
Depreciation and amortization 329 327 348
Other direct costs 133 48 31
Selling, general, and administrative 417 320 377
Direct and selling, general, and administrative expenses 4,823 4,122 4,202
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts 62 (11) 45
Equity earnings (losses) from unconsolidated hospitality ventures (10) 8 219
Interest expense (75) (76) (80)
Gains on sales of real estate 723 772 236
Asset impairments (18) (25) 0
Other income (loss), net 127 (49) 42
INCOME BEFORE INCOME TAXES 1,006 951 722
PROVISION FOR INCOME TAXES (240) (182) (332)
NET INCOME 766 769 390
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0 (1)
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 766 $ 769 $ 389
EARNINGS PER SHARE—Basic      
Net Income - basic (in dollars per share) $ 7.33 $ 6.79 $ 3.13
Net income attributable to Hyatt Hotels Corporation - Basic (in dollars per share) 7.33 6.79 3.12
EARNINGS PER SHARE—Diluted      
Net Income - diluted (in dollars per share) 7.21 6.68 3.09
Net income attributable to Hyatt Hotels Corporation - Diluted (in dollars per share) $ 7.21 $ 6.68 $ 3.08
Owned and leased hotels      
REVENUES:      
Revenue $ 1,848 $ 1,918 $ 2,184
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:      
Costs incurred on behalf of managed and franchised properties 1,424 1,446 1,664
Management, franchise, and other fees      
REVENUES:      
Revenue 608 552 498
Amortization of management and franchise agreement assets constituting payments to customers      
REVENUES:      
Revenue (22) (20) (18)
Net management, franchise, and other fees      
REVENUES:      
Revenue 586 532 480
Other revenues      
REVENUES:      
Revenue 125 48 36
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties      
REVENUES:      
Revenue 2,461 1,956 1,762
Costs incurred on behalf of managed and franchised properties      
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:      
Costs incurred on behalf of managed and franchised properties $ 2,520 $ 1,981 $ 1,782
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income $ 766 $ 769 $ 390
Other comprehensive income (loss), net of taxes:      
Foreign currency translation adjustments, net of tax (benefit) expense of $-, $(1), and $1 for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively 8 52 56
Unrecognized pension (cost) benefit, net of tax (benefit) expense of $(1), $1, and $- for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively (4) 2 0
Unrealized gains on available-for-sale debt securities, net of tax expense of $- for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively, and unrealized gains on available-for-sale equity securities, net of tax expense of $23 for the year ended December 31, 2017 1 0 35
Unrealized gains (losses) on derivative activity, net of tax (benefit) expense of $(5), $-, and $- for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively (14) (1)  
Unrealized gains (losses) on derivative activity, net of tax (benefit) expense of $(5), $-, and $- for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively     1
Other comprehensive income (loss) (9) 53 92
COMPREHENSIVE INCOME 757 822 482
COMPREHENSIVE INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0 (1)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ 757 $ 822 $ 481
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Consolidated Statements of Comprehensive Income Parenthetical - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Foreign currency translation adjustments, net of tax (benefit) expense $ 0 $ (1) $ 1
Unrecognized pension costs, net of tax expense (benefit) (1) 1 0
Unrealized gains on available-for-sale debt securities tax 0 0 0
Unrealized gains on available-for-sale equity securities tax     23
Unrealized gains on derivative activity, net of tax expense $ (5) $ 0  
Unrealized gains on derivative activity, net of tax expense     $ 0
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Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 893 $ 570
Restricted cash 150 33
Short-term investments 68 116
Receivables, net of allowances of $32 and $26 at December 31, 2019 and December 31, 2018, respectively 421 427
Inventories 12 14
Prepaids and other assets 134 149
Prepaid income taxes 28 36
Total current assets 1,706 1,345
Equity method investments 232 233
Property and equipment, net 3,456 3,608
Financing receivables, net of allowances 35 13
Operating lease right-of-use assets 493  
Goodwill 326 283
Intangibles, net 437 628
Deferred tax assets 144 180
Other assets 1,588 1,353
TOTAL ASSETS 8,417 7,643
CURRENT LIABILITIES:    
Current maturities of long-term debt 11 11
Accounts payable 150 151
Accrued expenses and other current liabilities 304 361
Current contract liabilities 445 388
Accrued compensation and benefits 144 150
Current operating lease liabilities 32  
Total current liabilities 1,086 1,061
Long-term debt 1,612 1,623
Long-term contract liabilities 475 442
Long-term operating lease liabilities 393  
Other long-term liabilities 884 840
Total liabilities 4,450 3,966
Commitments and contingencies (see Note 15)
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of December 31, 2019 and December 31, 2018 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 36,109,179 issued and outstanding at December 31, 2019, and Class B common stock, $0.01 par value per share, 397,457,686 shares authorized, 65,463,274 shares issued and outstanding at December 31, 2019. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,507,817 issued and outstanding at December 31, 2018, and Class B common stock, $0.01 par value per share, 399,110,240 shares authorized, 67, 1 1
Additional paid-in capital 0 50
Retained earnings 4,170 3,819
Accumulated other comprehensive loss (209) (200)
Total stockholders' equity 3,962 3,670
Noncontrolling interests in consolidated subsidiaries 5 7
Total equity 3,967 3,677
TOTAL LIABILITIES AND EQUITY $ 8,417 $ 7,643
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Consolidated Balance Sheet Parentheticals - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Allowance for doubtful accounts receivable, current $ 32 $ 26
Preferred stock, par or stated value per share (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares outstanding (in shares) 0 0
Common stock, shares, issued (in shares) 0  
Common Class A    
Common stock, par or stated value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares, outstanding (in shares) 36,109,179 39,507,817
Common stock, shares, issued (in shares) 36,109,179 39,507,817
Common Class B    
Common stock, par or stated value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 397,457,686 399,110,240
Common stock, shares, outstanding (in shares) 65,463,274 67,115,828
Common stock, shares, issued (in shares) 65,463,274 67,115,828
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Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 766 $ 769 $ 390
Adjustments to reconcile net income to net cash provided by operating activities:      
Gains on sales of real estate (723) (772) (236)
Depreciation and amortization 329 327 348
Release of contingent consideration liability (30) 0 0
Amortization of share awards 35 28 32
Amortization of operating lease right-of-use assets 35    
Deferred income taxes 28 (33) 56
Asset impairments 18 47 0
Equity (earnings) losses from unconsolidated hospitality ventures 10 (8) (219)
Amortization of management and franchise agreement assets constituting payments to customers 22 20 18
Gain on sale of contractual right (16) 0 0
Realized (gains) losses, net (2) 3 41
Unrealized (gains) losses, net (26) 47 (1)
Distributions from unconsolidated hospitality ventures 13 17 29
Other (55) (25) 4
Increase (decrease) in cash attributable to changes in assets and liabilities and other      
Receivables, net (29) 14 (37)
Inventories 1 0 12
Prepaid income taxes 10 (5) 14
Accounts payable, accrued expenses, and other current liabilities 26 (80) 102
Operating lease liabilities (34)    
Accrued compensation and benefits (1) 6 22
Other long-term liabilities 73 51 53
Other, net (54) (65) (41)
Net cash provided by operating activities 396 341 587
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of marketable securities and short-term investments (350) (665) (469)
Proceeds from marketable securities and short-term investments 349 624 480
Contributions to equity method and other investments (48) (60) (89)
Return of equity method and other investments 28 51 425
Acquisitions, net of cash acquired (18) (678) (259)
Capital expenditures (369) (297) (298)
Issuance of financing receivables (18) (2) 0
Proceeds from financing receivables 46 0 0
Proceeds from sales of real estate, net of cash disposed 940 1,382 663
Proceeds from sale of contractual right 21 0 0
Pre-condemnation proceeds 0 7 15
Other investing activities 4 12 (11)
Net cash provided by investing activities 585 374 457
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from long-term debt, net of issuance costs of $-, $4, and $-, respectively 400 416 670
Repayments of debt (409) (231) (782)
Repurchase of common stock (421) (946) (743)
Contingent consideration paid (24) 0 0
Proceeds from redeemable noncontrolling interest in preferred shares in a subsidiary 0 0 9
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary 0 (10) 0
Dividends paid (80) (68) 0
Other financing activities (7) (11) (12)
Net cash used in financing activities (541) (850) (858)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 5 (7)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 441 (130) 179
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 622 752 573
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD $ 1,063 $ 622 $ 752
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Consolidated Statements of Cash Flows - Supplemental Disclosure Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Cash Flows [Abstract]      
Debt issuance cost $ 0 $ 4 $ 0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Cash and cash equivalents 893 570 503
Restricted cash 150 33 234
Restricted cash included in other assets 20 19 15
Total cash, cash equivalents, and restricted cash 1,063 622 752
Cash paid during the period for interest 79 73 80
Cash paid during the period for income taxes 175 292 175
Cash paid for amounts included in the measurement of operating lease liabilities 50    
Non-cash investing and financing activities are as follows:      
Non-cash contributions to equity method investments (see Note 4, Note 15) 9 61 5
Non-cash issuance of financing receivables (see Note 6, Note 7) 1 45 0
Change in accrued capital expenditures (7) 13 9
Non-cash right-of-use assets obtained in exchange for operating lease liabilities 8    
Contingent liability (see Note 7) $ 0 $ 57 $ 0
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Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Millions
Total
Common Stock Amount
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests in Consolidated Subsidiaries
Common Class A
Common Class A
Common Stock Amount
Common Class B
Common Class B
Common Stock Amount
Balance, beginning of period (in shares) at Dec. 31, 2016               39,952,061   90,863,209
Balance, beginning of period at Dec. 31, 2016 $ 4,080 $ 1 $ 1,686 $ 2,665 $ (277) $ 5        
Total comprehensive income 481     389 92          
Noncontrolling interests 1         1        
Repurchase of common stock (in shares)               (9,096,871)   (3,089,437)
Repurchase of common stock (743)   (743)              
Directors compensation 2   2              
Employee stock plan issuance (in shares)               69,012    
Employee stock plan issuance 4   4              
Share-based payment activity (in shares)               287,012    
Share-based payment activity 18   18              
Class share conversions (in shares)               17,019,935   (17,019,935)
Balance, beginning of period (in shares) at Dec. 31, 2017               48,231,149   70,753,837
Balance, end of period at Dec. 31, 2017 3,843 1 967 3,054 (185) 6        
BALANCE—January 1, 2018         (253)          
Total comprehensive income 822     769 53          
Noncontrolling interests 1         1        
Repurchase of common stock (in shares)               (10,293,241)   (2,430,654)
Repurchase of common stock (946)   (946)           $ (190)  
Directors compensation $ 2   2              
Employee stock plan issuance (in shares) 61,900             61,900    
Employee stock plan issuance $ 5   5              
Share-based payment activity (in shares)               300,654    
Share-based payment activity 22   22              
Class share conversions (in shares)               1,207,355   (1,207,355)
Cash dividends (68)     (68)     $ (27)   (41)  
Balance, beginning of period (in shares) at Dec. 31, 2018               39,507,817   67,115,828
Balance, end of period at Dec. 31, 2018 3,677 1 50 3,819 (200) 7        
Total comprehensive income 757     766 (9)          
Noncontrolling interests (2)         (2)        
Repurchase of common stock (in shares)               (4,943,897)   (677,384)
Repurchase of common stock (421)   (86) (335)         (50)  
Directors compensation $ 2   2              
Employee stock plan issuance (in shares) 79,700             79,700    
Employee stock plan issuance $ 5   5              
Share-based payment activity (in shares)               490,389    
Share-based payment activity 29   29              
Class share conversions (in shares)               975,170   (975,170)
Cash dividends (80)     (80)     $ (29)   $ (51)  
Balance, beginning of period (in shares) at Dec. 31, 2019               36,109,179   65,463,274
Balance, end of period at Dec. 31, 2019 $ 3,967 $ 1 $ 0 $ 4,170 $ (209) $ 5        
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Consolidated Statements of Changes in Stockholders' Equity Parenthetical - $ / shares
12 Months Ended
Dec. 09, 2019
Sep. 09, 2019
Jun. 10, 2019
Mar. 11, 2019
Dec. 10, 2018
Sep. 20, 2018
Jun. 28, 2018
Mar. 29, 2018
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]                    
Cash dividends (in dollars per share) $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.19 $ 0.15
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Organization
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness-related businesses. We develop, own, operate, manage, franchise, license, or provide services to a portfolio of properties, consisting of full service hotels, select service hotels, resorts, and other properties, including branded spas and fitness studios, timeshare, fractional, and other forms of residential, vacation, and condominium ownership units. At December 31, 2019, (i) we operated or franchised 446 full service hotels, comprising 156,133 rooms throughout the world, (ii) we operated or franchised 467 select service hotels, comprising 66,978 rooms, of which 399 hotels are located in the United States, and (iii) our portfolio included 8 franchised all-inclusive Hyatt-branded resorts, comprising 3,153 rooms, and 3 wellness resorts, comprising 410 rooms. At December 31, 2019, our portfolio of properties operated in 65 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.
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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—Our consolidated financial statements present the results of operations, financial position, and cash flows of Hyatt Hotels Corporation and its majority owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates—We are required to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying Notes. Actual results could differ materially from such estimated amounts.
Revenue Recognition—Our revenues are primarily derived from the products and services provided to our customers and generally recognized when control of the product or service has transferred to the customer. Our customers include third-party hotel owners, guests at owned and leased hotels and spa and fitness centers, a third-party partner through our co-branded credit card program, and owners and guests of the condominium ownership units. A summary of our revenue streams is as follows:
Owned and leased hotels revenues—Owned and leased hotels revenues are derived from room rentals and services provided at our owned and leased hotels. We present revenues net of sales, occupancy, and other taxes. Taxes collected on behalf of and remitted to governmental taxing authorities are excluded from the transaction price of the underlying products and services.
Management, franchise, and other fees—Management fees primarily consist of a base fee, which is generally calculated as a percentage of gross revenues, and an incentive fee, which is generally computed based on a hotel profitability measure. Included within the aforementioned management fees are royalty fees that we earn in exchange for providing access to Hyatt's intellectual property ("IP"). Franchise fees consist of an initial fee and ongoing royalty fees computed as a percentage of gross room revenues and, as applicable, food and beverage revenues. Other fees include license fee revenues associated with the licensing of the Hyatt brand names through our co-branded credit card program and sales of our branded residential ownership units as well as termination fees.
Net management, franchise, and other fees—Management, franchise, and other fees are reduced by the amortization of management and franchise agreement assets constituting payments to customers. Consideration provided to customers is recognized in other assets and amortized over the expected customer life, which is typically the initial term of the management or franchise agreement.
Other revenues—Other revenues include revenues from our residential management operations for our condominium ownership units, the sale of promotional awards through our co-branded credit cards, and spa and fitness revenues from Exhale.
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties—Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties represent the reimbursement of costs incurred on behalf of the owners of properties. These reimbursed costs relate primarily to payroll at managed properties, as well as system-wide services and the loyalty program operated on behalf of owners.
The products and services we offer to our customers are comprised of the following performance obligations:
Management and franchise agreements
License to Hyatt's IP, including the Hyatt brand names—We receive variable consideration from third-party hotel owners in exchange for providing access to our IP, including the Hyatt brand names. The license represents a license of symbolic IP and in exchange for providing the license, Hyatt receives sales-based royalty fees. Fees are generally payable on a monthly basis as the third-party hotel owners derive value from access to our IP. Royalty fees are recognized over time as services are rendered. Under our franchise agreements, we also receive initial fees from third-party hotel owners. The initial fees do not represent a distinct performance obligation and, therefore, are combined with the royalty fees and deferred and recognized through management, franchise, and other fees over the expected customer life, which is typically the initial term of the franchise agreement.
System-wide services—We provide system-wide services on behalf of owners of managed and franchised properties. The promise to provide system-wide services is not a distinct performance obligation because it is attendant to the license of our IP. Therefore, this promise is combined with the license of our IP to form a single performance obligation. We have two accounting models depending on the terms of the agreements:
Cost reimbursement model—Third-party hotel owners are required to reimburse us for all costs incurred to operate the system-wide programs with no added margin. The reimbursements are recognized over time within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal. Expenses incurred related to the system-wide programs are recognized within costs incurred on behalf of managed and franchised properties. The reimbursement of system-wide services is billed monthly based upon an annual estimate of costs to be incurred and recognized as revenue commensurate with incurring the cost. Any amounts collected and not yet recognized as revenues are deferred and classified as contract liabilities. Any costs incurred in excess of revenues collected are classified as receivables.
Fund model—Third-party hotel owners are invoiced a system-wide assessment fee primarily based on a percentage of hotel revenues on a monthly basis. We recognize the revenues over time as services are provided through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. We have discretion over how we spend program revenues and, therefore, we are the principal. Expenses related to the system-wide programs are recognized as incurred through costs incurred on behalf of managed and franchised properties. Over time, we manage the system-wide programs to break-even, but the timing of the revenue received from the owners may not align with the timing of the expenses to operate the programs. Therefore, the difference between the revenues and expenses will impact our net income.
Hotel management agreement services—Under the terms of our management agreements, we provide hotel management agreement services, which form a single performance obligation that qualifies as a series. In exchange, we receive variable consideration in the form of management fees, which are comprised of base and/or incentive fees. Incentive fees are typically subject to the achievement of certain profitability targets, and therefore, we apply judgment in determining the amount of incentive fees recognized each period. Incentive fees revenue is recognized to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. We rely on internal financial forecasts and historical trends to estimate the amount of incentive fees revenue recognized and the probability that incentive fees will reverse in the future. Generally, base management fees are due and payable on a monthly basis as services are provided, and incentive fees are due and payable based on the terms of the agreement, but at a minimum, incentive fees are billed and collected annually. Revenue is recognized over time as services are rendered.
Under the terms of certain management agreements, primarily within the United States, we are the employer of hotel employees. When we are the employer, we are reimbursed for costs incurred related to the employee management services with no added margin, and the reimbursements are recognized over time as services are rendered within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. In jurisdictions in which we are the employer, we have discretion over how employee management services are provided and, therefore, we are the principal.
Loyalty program administration—We administer the loyalty program for the benefit of Hyatt's portfolio of properties during the period of their participation in the loyalty program. Under the program, members earn points based on their spend at our properties, by transacting with our strategic loyalty alliances, or in connection with spend on the Hyatt co-branded credit cards, which may be redeemed for the right to stay at participating
properties, as well as for other goods and services from third parties. 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. These two promises are not distinct because the promise to market and manage the program does not benefit the customer without the related arrangement for award redemptions. The costs of administering the loyalty program are charged to the properties through an assessment fee based on members' qualified expenditures. The assessment fee is billed and collected monthly, and the revenue received by the program is deferred until a member redeems points. Upon redemption of points at managed and franchised properties, we recognize the previously deferred revenue through revenues for the reimbursement of costs incurred on behalf of managed and franchised properties, net of redemption expense paid to managed and franchised hotels. We are responsible for arranging for the redemption of promotional awards, but we do not directly fulfill the award night obligation except at owned and leased hotels. Therefore, we are the agent with respect to this performance obligation for managed and franchised hotels, and we are the principal with respect to owned and leased hotels. A portion of our owned and leased hotels revenues is deferred upon initial stay as points are earned by program members at owned or leased hotels, and revenues are recognized upon redemption at owned or leased hotels.
We actuarially determine the amount to recognize as revenue based on statistical formulas that estimate the timing of future point redemptions based on historical experience. The revenue recognized each period includes an estimate of the loyalty points that will eventually be redeemed and includes an estimate of breakage for the loyalty points that will not be redeemed. Determining breakage involves significant judgment, and we engage third-party actuaries to estimate the ultimate redemption ratios used in the breakage calculations and the amount of revenue recognized upon redemption. Changes to the expected ultimate redemption assumptions are reflected in the current period. Any revenues in excess of the anticipated future redemptions are used to fund the other operational expenses of the program.
Room rentals and other services provided at owned and leased hotels
We provide room rentals and other services to our guests, including but not limited to spa, laundry, and parking. These products and services each represent individual performance obligations and, in exchange for these services, we receive fixed amounts based on published rates or negotiated contracts. Payment is due in full at the time the services are rendered or the goods are provided. If a guest enters into a package including multiple goods or services, the fixed price is allocated to each distinct good or service based on the stand-alone selling price for each item. Revenue is recognized over time when we transfer control of the good or service to the customer. Room rental revenue is recognized on a daily basis as the guest occupies the room, and revenue related to other products and services is recognized when the product or service is provided to the guest.
Hotels commonly enter into arrangements with online travel agencies, trade associations, and other entities. As part of these arrangements, Hyatt may pay the other party a commission or rebate based on the revenue generated through that channel. The determination of whether to recognize revenues gross or net of rebates and commissions is made based on the terms of each contract.
Residential management operations
We provide services related to the residential management business pursuant to rental management agreements with individual property owners or homeowners' associations whereby the property owners and/or homeowners' association participate in our rental program. The services provided include reservations, housekeeping, security, and concierge assistance to guests in exchange for a variable fee based on a revenue sharing agreement with the owner of the condominium ownership unit. The services represent an individual performance obligation. Revenue is recognized over time as services are rendered or upon completion of the guest's stay at the condominium ownership unit. We are responsible for establishing pricing as well as fulfilling the services during the guest's stay and, as a result, we are deemed to be the principal in the transaction.
Spa and fitness services
Exhale spa and fitness studios provide guests with spa and fitness services as well as retail products in exchange for fixed consideration. Each spa and fitness service represents an individual performance obligation. Payment is due in full, and revenue is recognized at the point in time the services are rendered or the products are provided to the customer. If a guest purchases a spa or fitness package, the fixed price is allocated to each distinct product or service based on the stand-alone selling price for each item.
Co-branded credit cards
We have a co-branded credit card agreement with a third party and under the terms of the agreement, we have various performance obligations: granting a license to the Hyatt name, arranging for the fulfillment of points issued to cardholders through the loyalty program, and awarding cardholders with free room nights upon achievement of certain program milestones. The loyalty points and free room nights represent material rights that can be redeemed for free or discounted services in the future.
In exchange for the products and services provided, we receive fixed and variable consideration which is allocated between the performance obligations based upon the relative stand-alone selling prices. Significant judgment is involved in determining the relative stand-alone selling prices, and therefore, we engaged a third-party valuation specialist to assist us. We utilize a relief from royalty method to determine the revenue allocated to the license, which is recognized over time as the licensee derives value from access to Hyatt's brand name. We utilize observable transaction prices and adjusted market assumptions to determine the stand-alone selling price of a loyalty point, and we utilize a cost plus margin approach to determine the stand-alone selling price of the free room nights. The revenues allocated to loyalty program points and free night awards are deferred and recognized upon redemption or expiration of a card member's promotional awards, which is recognized net of redemption expense when we are the agent. 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.
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 represent our progress in satisfying these performance obligations:
revenues and operating profits earned by the hotels during the reporting period for access to Hyatt's IP, as it is indicative of the value third-party owners derive;
revenues and operating profits of the hotels for the promise to provide management agreement services to the hotels;
award night redemptions or point redemptions with third-party partners for the administration of the loyalty program performance obligation; and
cardholder spend for the license to the Hyatt name through our co-branded credit cards, as it is indicative of the value our partner derives from the use of our name.
Within our management agreements, we have two performance obligations: providing a license to Hyatt's IP and providing management agreement services. Although these constitute two separate performance obligations, both obligations represent services that are satisfied over time, and Hyatt recognizes revenue using an output method based on the performance of the hotel. Therefore, we have not allocated the transaction price between these two performance obligations as the allocation would result in the same pattern of revenue recognition.
Revenue is adjusted for the effects of a significant financing component when the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.
We have applied the practical expedient that permits the omission of prior-period information about revenue allocated to future performance obligations.
Contract Balances—Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. Due to certain profitability hurdles in our management agreements, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the profitability hurdle has been met, the incentive fee receivable balance will be recorded in accounts receivable. Contract assets are included in receivables, net on our consolidated balance sheets. Payments received in advance of performance under the contract are classified as current or long-term contract liabilities on our consolidated balance sheets and recognized as revenue as we perform under the contract.
Cash Equivalents—We consider all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.
Restricted Cash—We had restricted cash of $170 million and $52 million at December 31, 2019 and December 31, 2018, of which $20 million and $19 million, respectively, are recorded in other assets on our consolidated balance sheets, which includes:
$115 million at December 31, 2019 related to sale proceeds from the disposition of the property adjacent to Grand Hyatt San Francisco pursuant to a potential like-kind exchange (see Note 7);
$30 million and $28 million, respectively, related to debt service on bonds related to our ownership in Grand Hyatt San Antonio (see Note 11);
$9 million related to our captive insurance subsidiary for minimum capital and surplus requirements in accordance with local insurance regulations (see Note 15); and
$16 million and $15 million, respectively, related to escrow deposits and other arrangements.
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 strategically and operationally important to our overall results. When we receive a distribution from an investment, we determine whether it is a return on our investment or a return of our investment based on the underlying nature of the distribution. We assess investments in unconsolidated hospitality ventures for impairment quarterly. When there is indication a loss in value has occurred, we evaluate the carrying value in comparison to the estimated fair value of the investment. Fair value is based upon internally developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers. The principal inputs used in the discounted cash flow analysis requiring judgment are the projected future cash flows, the discount rate, and the capitalization rate assumptions. Our estimates of projected future cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. If the estimated fair value is less than carrying value, we use our judgment to determine if the decline in value is other than temporary. In determining this, we consider factors including, but not limited to, the length of time and extent of the decline, loss of value as a percentage of the cost, financial condition and near-term financial projections, our intent and ability to recover the lost value, and current economic conditions. Impairments deemed other than temporary are charged to equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income. For additional information about equity method investments, see Note 4.
Debt and Equity Securities—Excluding the aforementioned equity method investments, debt and equity securities consist of various investments:
Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our consolidated balance sheets based on listed market prices or dealer quotations where available. Equity securities without a readily determinable fair value are recognized at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Net gains and losses, both realized and unrealized, and impairment charges on equity securities are recognized in other income (loss), net on our consolidated statements of income.
Debt securities include preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds. Debt securities are classified as either trading, available-for-sale ("AFS"), or held-to-maturity ("HTM").
Trading securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Net gains and losses, both realized and unrealized, on trading securities are recognized in net gains (losses) and interest income from marketable securities held to fund rabbi trusts or other income (loss), net, depending on the nature of the investment, on our consolidated statements of income.
AFS securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our consolidated balance sheets. Realized gains and losses on debt securities are recognized in other income (loss), net on our consolidated statements of income.
HTM securities—investments which we have the intent and ability to hold until maturity and are recorded at amortized cost.
Our preferred shares earn a return that is recognized as interest income in other income (loss), net as earned unless we determine collection is at risk.
AFS and HTM securities are assessed for impairment quarterly. To determine if an impairment is other than temporary for debt securities, we consider the duration and severity of the loss position, the strength of the underlying collateral, the term to maturity, credit rating, and our intent to sell. For debt securities that are deemed other than temporarily impaired and there is no intent to sell, impairments are separated into the amount related to the credit loss, which is typically recognized in other income (loss), net on our consolidated statements of income and the amount related to all other factors, which is recorded in accumulated other comprehensive loss on our consolidated balance sheets. For debt securities that are deemed other than temporarily impaired and there is intent to sell, impairments in their entirety are recognized in other income (loss), net on our consolidated statements of income. For additional information about debt and equity securities, see Note 4.
Foreign Currency—The functional currency of our consolidated entities located outside the United States of America is generally the local currency. The assets and liabilities of these entities are translated into U.S. dollars at year-end exchange rates, and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive loss on our consolidated balance sheets. Gains and losses from foreign currency transactions are included in earnings. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables of a long-term nature are generally included in accumulated other comprehensive loss. Gains and losses from foreign exchange rate movement related to intercompany receivables and payables that are not long-term are included in earnings.
Financing Receivables—Financing receivables represent contractual rights to receive money either on demand or on fixed or determinable dates and are recognized on our consolidated balance sheets at amortized cost. We recognize interest income as earned and provide an allowance for cancellations and defaults. Our financing receivables are composed of individual unsecured loans and other types of unsecured financing arrangements provided to hotel owners. These financing receivables generally have stated maturities and interest rates, however, the repayment terms vary and may be dependent upon future cash flows of the hotel.
On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity. We determine our financing to hotel owners to be non-performing if interest or principal is greater than 90 days past due based on the contractual terms of the individual financing receivables, if an impairment charge is recognized for a loan, or if a provision is established for our other financing arrangements. If we consider a financing receivable to be non-performing, we place the financing receivable on non-accrual status.
We individually assess all loans within financing receivables for impairment quarterly. This assessment is based on an analysis of several factors including current economic conditions and industry trends, as well as the specific risk characteristics of these loans including capital structure, loan performance, market factors, and the underlying hotel performance. When it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the individual loan agreement or if projected future cash flows available for repayment of unsecured receivables indicate there is a collection risk, we measure the impairment based on the present value of projected future cash flows discounted at the loan's effective interest rate. For impaired loans, we establish a specific loan loss reserve for the difference between the recorded investment in the loan and the estimated fair value.
In addition to loans, we include other types of financing arrangements in unsecured financing to hotel owners which we do not assess individually for impairment. We regularly evaluate our reserves for these other financing arrangements.
We write off financing to hotel owners when we determine the receivables are uncollectible and when all commercially reasonable means of recovering the receivable balances have been exhausted.
We recognize interest income when received for impaired loans and financing receivables on non-accrual status which is recognized in other income (loss), net in our consolidated statements of income. Accrual of interest income is resumed when the receivable becomes contractually current and collection doubts are removed. For additional information about financing receivables, see Note 6.
Accounts Receivable—Our accounts receivable primarily consists of trade receivables due from guests for services rendered at our owned and leased properties and from hotel owners with whom we have management and franchise agreements for services rendered and for reimbursements of costs incurred on behalf of managed and franchised properties. We record an accounts receivable reserve when losses are probable, based on an assessment of past collection activity and current business conditions.
Inventories—Inventories are comprised of operating supplies and equipment that have a period of consumption of two years or less and food and beverage items at our owned and leased hotels which are generally valued at the lower of cost (first-in, first-out) or net realizable value.
Property and Equipment and Definite-Lived Intangible Assets—Property and equipment is stated at cost, including interest incurred during development and construction periods, less accumulated depreciation. Definite-lived intangible assets are recorded at the acquisition-date fair value, less accumulated amortization. Depreciation and amortization are recognized over the estimated useful lives of the assets, primarily on the straight-line method.
Property and equipment are depreciated over the following:
Buildings and improvements
10-50 years
Leasehold improvements
The shorter of the lease term or useful life of asset
Furniture and equipment
3-20 years
Computers
3-7 years
Definite-lived intangible assets are amortized over the following:
Management and franchise agreement intangibles
4 - 30 years
Advanced booking intangibles
1 - 7 years

We assess property and equipment and definite-lived intangible assets for impairment quarterly. When events or circumstances indicate the carrying amount may not be recoverable, we evaluate the net book value of the assets for impairment by comparison to the projected undiscounted future cash flows of the assets. The principal factor used in the undiscounted cash flow analysis requiring judgment is the projected future operating cash flows, which are based on historical data, various internal estimates, and a variety of external resources, and are developed as part of our routine, long-term planning process.
If the projected undiscounted future cash flows are less than the net book value of the assets, the fair value is determined based upon internally developed discounted cash flows of the assets, third-party appraisals or broker valuations, and if appropriate, current estimated net sales proceeds from pending offers. The principal inputs used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows, the discount rates, and the capitalization rate assumptions. The excess of the net book value over the estimated fair value is recognized in asset impairments on our consolidated statements of income.
We evaluate the carrying value of our property and equipment and definite-lived intangible assets based on our plans, at the time, for such assets and consider qualitative factors such as future development in the surrounding area, status of local competition, and any significant adverse changes in the business climate. Changes to our plans, including a decision to dispose of or change the intended use of an asset, may have a material impact on the carrying value of the asset.
For additional information about property and equipment and definite-lived intangible assets, see Notes 5 and 9, respectively.
Leases—We primarily lease land, buildings, office space, spas and fitness centers, and equipment. We determine if an arrangement is an operating or finance lease at inception. For our hotel management agreements, we apply judgment in order to determine whether the contract is accounted for as a lease or management agreement based on the specific facts and circumstances of each agreement. In evaluating whether an agreement constitutes a lease, we review the contractual terms to determine which party obtains both the economic benefits and control of the assets. In arrangements where we control the assets and obtain the economic benefits, we account for the contract as a lease.
Certain of our leases include options to extend the lease term by 1 to 99 years. We include lease extension options in our operating ROU assets and lease liabilities when it is reasonably certain that we will exercise the options. The range of extension options included in our operating ROU assets and lease liabilities is approximately 1 to 20 years. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
We assess ROU assets for impairment quarterly. When events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the asset for impairment by comparison to the projected undiscounted future cash flows. If the carrying value of the asset is determined to not be recoverable and is in excess of the estimated fair value, we recognize an impairment charge in asset impairments on our consolidated statements of income.
As our leases do not provide an implicit borrowing rate, we use our estimated IBR to determine the present value of our lease payments and apply a portfolio approach. We apply judgment in estimating our IBR including factors related to currency risk and our credit risk. We also give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when determining our IBR. 
Our operating leases may include the following terms: (i) fixed minimum lease payments, (ii) variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, (iii) lease payments equal to the greater of a minimum or variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, (iv) lease payments adjusted for changes in an index or market value, or (v) variable lease payments based on a percentage split of the total gross revenue, as defined in the leases, related to our residential management operations. Future lease payments that are contingent are not included in the measurement of the operating lease liability or in the future maturities table, see Note 8.
For office space, land, and hotel leases, we do not separate the lease and nonlease components, which primarily relate to common area maintenance and utilities. We combine lease and nonlease components for those leases where we are the lessor, and we exclude all leases that are twelve months or less from the ROU assets and lease liabilities.
Acquisitions—We evaluate the facts and circumstances of each acquisition to determine whether the transaction should be accounted for as an asset acquisition or a business combination.
Under the supervision of management, independent third-party valuation specialists estimate the fair value of the assets or businesses acquired using various recognized valuation methods including the income approach, cost approach, relief from royalty approach, and sales comparison approach, which are primarily based on Level Three assumptions. Assumptions utilized in determining the fair value under these approaches include, but are not limited to, historical financial results when applicable, projected cash flows, discount rates, capitalization rates, royalty rates, current market conditions, likelihood of contract renewals, and comparable transactions. In a business combination, the fair value is allocated to tangible assets and liabilities and identifiable intangible assets, with any remaining value assigned to goodwill, if applicable. In an asset acquisition, any difference between the consideration paid and the fair value of the assets acquired is allocated across the identified assets based on the relative fair value. When we acquire the remaining ownership interest in or the property from an unconsolidated hospitality venture in a step acquisition, we estimate the fair value of our equity interest using the assumed cash proceeds we would receive from sale to a third party at a market sales price, which is determined using the aforementioned fair value methodologies and assumptions.
The results of operations of properties or businesses have been included in our consolidated statements of income since their respective dates of acquisition. Assets acquired and liabilities assumed in acquisitions are recorded on our consolidated balance sheets at the respective acquisition dates based upon their estimated fair values (see Note 7). In business combinations, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when we receive final information, including appraisals and other analyses.
Acquisition-related costs incurred in conjunction with a business combination are recognized in other income (loss), net on our consolidated statements of income. In an asset acquisition, these costs are included in the total consideration paid and allocated to the acquired assets.
Goodwill—Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. As required, we evaluate goodwill for impairment annually during the fourth quarter of each year using balances at October 1 and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount.
We evaluate the fair value of the reporting unit either by performing a qualitative or quantitative assessment. In any given year, we can elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value is in excess of the carrying value, or we elect to bypass the qualitative assessment, we proceed to the quantitative assessment.
When determining fair value, we utilize internally developed discounted future cash flow models, third-party valuation specialist models, third-party appraisals or broker valuations and, if appropriate, current estimated net sales proceeds from pending offers. Under the discounted cash flow approach, we utilize various assumptions requiring judgment, including projected future cash flows, discount rates, and capitalization rates. Our estimates of projected future cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we recognize an impairment charge in asset impairments on our consolidated statements of income based on the amount by which the reporting unit's carrying value exceeded its fair value, limited to the carrying amount of goodwill. For additional information about goodwill, see Note 9.
Indefinite-Lived Intangible Assets—We have certain brand and other indefinite-lived intangibles that were acquired through various business combinations. At the time of each respective acquisition, fair value was estimated using a relief from royalty methodology.
As required, we evaluate indefinite-lived intangible assets for impairment annually during the fourth quarter of each year using balances at October 1 and at an interim date if indications of impairment exist. We use the relief from royalty method to estimate the fair value. When determining fair value, we utilize internally developed discounted future cash flow models and third-party valuation specialist models, which include various assumptions requiring judgment, including projected future cash flows, discount rates, and market royalty rates. Our estimates of projected cash flows are based on historical data, various internal estimates, and a variety of external sources, and are developed as part of our routine, long-term planning process. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we recognize an impairment charge in asset impairments on our consolidated statements of income. For additional information about indefinite-lived intangible assets, see Note 9.
Guarantees—We enter into performance guarantees related to certain hotels we manage. We also enter into debt repayment and other guarantees with respect to unconsolidated hospitality ventures, certain managed or franchised hotels, and other properties. We record a liability for the fair value of these guarantees at their inception date. In order to estimate the fair value, we use a Monte Carlo simulation to model the probability of possible outcomes. The valuation methodology requires that we make certain assumptions and judgments regarding discount rates, volatility, hotel operating results, and hotel property sales prices. The fair value is not re-valued due to future changes in assumptions. The corresponding offset depends on the circumstances in which the guarantee was issued and is recorded to equity method investments, other assets, or expense. We amortize the liability for the fair value of a guarantee into income over the term of the guarantee using a systematic and rational, risk-based approach. Guarantees related to our managed or franchised hotels and other properties are amortized into income in other income (loss), net in our consolidated statements of income. Guarantees related to our unconsolidated hospitality ventures are amortized into equity earnings (losses) from unconsolidated hospitality ventures in our consolidated statements of income. On a quarterly basis, we evaluate the likelihood of funding under a guarantee. To the extent we determine an obligation to fund is both probable and estimable based upon performance during the period, we record a separate contingent liability in other income (loss), net or equity earnings (losses) from unconsolidated hospitality ventures. For additional information about guarantees, see Note 15.
Income Taxes—We account for income taxes to recognize the amount of taxes payable or refundable for the current year and the amount of deferred tax assets and liabilities resulting from the future tax consequences of differences between the financial statements and tax basis of the respective assets and liabilities. We recognize the financial statement effect of a tax position when, based on the technical merits of the uncertain tax position, it is more likely than not to be sustained on a review by taxing authorities. We review these estimates and make changes to recorded amounts of uncertain tax positions as facts and circumstances warrant. For additional information about income taxes, see Note 14.
Fair Value—We apply the provisions of fair value measurement to various financial instruments, which we measure at fair value on a recurring basis, and to various financial and nonfinancial assets and liabilities, which we measure at fair value on a nonrecurring basis. We disclose the fair value of our financial assets and liabilities based on observable market information where available or on market participant assumptions. These assumptions are subjective in nature, involve matters of judgment, and, therefore, fair values cannot always be determined with precision. When determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability; and
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We typically utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the classification within the fair value hierarchy has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
The fair value of debt and equity securities is discussed in Note 4; the fair value of financing receivables is discussed in Note 6; the fair value of long-term debt is discussed in Note 11; and the fair value of our guarantee liabilities is discussed in Note 15. Excluding the aforementioned assets and liabilities, the carrying values of our current financial assets and current financial liabilities approximate fair values. We recognize transfers in and transfers out of the levels of the fair value hierarchy as of the end of each quarterly reporting period.
Stock-Based Compensation—As part of our LTIP, we award SARs, RSUs, and PSUs to certain employees and directors:
SARs—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life as determined in accordance with the LTIP. All SARs have a 10-year contractual term, are settled in shares of our Class A common stock, and are accounted for as equity instruments.
We recognize the compensation expense for SARs on a straight-line basis from the date of grant through the requisite service period. The exercise price of these SARs is the fair value of our common stock at the grant date, based on a valuation of the Company prior to the IPO or the closing share price on the date of grant (as applicable). We recognize the effect of forfeitures for SARs as they occur.
RSUs—Each vested RSU will generally be settled by delivery of a single share of our Class A common stock and therefore is accounted for as an equity instrument. In certain situations, we also grant a limited number of cash-settled RSUs, which are recorded as a liability instrument. The cash-settled RSUs represent an insignificant portion of certain previous grants.
The value of the RSUs is based upon the fair value of our common stock at the grant date, based upon a valuation of the Company prior to IPO or the closing stock price of our Class A common stock for the December 2009 award and all subsequent awards. Awards issued prior to our November 2009 IPO are deferred in nature and will be settled once all tranches of the award have fully vested or otherwise as provided in the relevant agreements, while all awards issued in December 2009 and later will be settled as each individual tranche vests under the relevant agreements. We recognize compensation expense over the requisite service period of the individual grant, which is generally between one and four years unless the employee meets retirement eligibility criteria resulting in immediate recognition. We recognize the effect of forfeitures as they occur.
Under certain circumstances, we may issue performance-based RSUs which vest in tranches according to performance targets that are established annually. The value of the RSUs is determined using the fair value of our common stock at the grant date based upon the closing stock price of our Class A common stock. Due to the fact the performance tests, and therefore the vesting criteria, are established annually, each award tranche may have its own grant date. We issued 140,000 of such RSUs during the year ended December 31, 2019, for which, 126,000 RSUs have not met the grant date criteria and are therefore, not deemed granted as of December 31, 2019.
PSUs—The Company has granted PSUs to certain executive officers. PSUs vest and are settled in Class A common stock based upon the performance of the Company through the end of the applicable three-year performance period relative to the applicable performance target and are generally subject to continued employment through the applicable performance period. The PSUs will vest at the end of the performance period only if the performance threshold is met and continued service requirements are satisfied; there is no interim performance metric except in the case of certain change in control transactions.
For additional information about stock-based compensation, see Note 17.
Loyalty Program—The loyalty program is funded through contributions from participating properties and third-party loyalty alliances based on eligible revenues from loyalty program members and returns on marketable securities. The funds are used for the redemption of member awards and payment of operating expenses. Operating costs are expensed as incurred through costs incurred on behalf of managed and franchised properties.
The program invests amounts received from the properties in marketable securities which are included in other current and noncurrent assets (see Note 4). Deferred revenues related to the loyalty program are classified as current and long-term contract liabilities on our consolidated balance sheets (see Note 3). The costs of administering the loyalty program, including
the estimated cost of award redemption, are charged to the participating properties and third-party loyalty alliances based on members' qualified expenditures.
Adopted Accounting Standards
Leases—In February 2016, the Financial Accounting Standards Board ("FASB") released ASU 2016-02. ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a ROU asset and lease liability with certain practical expedients available. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make fixed minimum lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of fixed minimum lease payments over the lease term, including optional periods for which it is reasonably certain the renewal option will be exercised.
In July 2018, the FASB released Accounting Standards Update No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, providing entities with an additional optional transition method. The provisions of ASU 2016-02, and all related ASUs, were effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted.
We adopted ASU 2016-02 utilizing the optional transition approach under ASU 2018-11 and applied the package of practical expedients beginning January 1, 2019. As a result of utilizing the optional transition method, our reporting for periods prior to January 1, 2019 continue to be reported in accordance with Leases (Topic 840).
For leases in place upon adoption, we used the remaining lease term as of January 1, 2019 in determining the IBR. For the initial measurement of the lease liabilities for leases commencing on or after January 1, 2019, the IBR at the lease commencement date was applied.
For operating leases, the adoption of ASU 2016-02 resulted in the initial recognition of ROU assets of $512 million and related lease liabilities of $452 million on our consolidated balance sheet at January 1, 2019. Upon adoption, we reclassified $103 million of intangibles, net related to below market leases and $49 million of deferred rent and other lease liabilities to the operating ROU assets. The net tax impact upon adoption was insignificant. The adoption of ASU 2016-02 did not significantly impact our accounting for finance leases or for those leases where we are the lessor. Additionally, the adoption of ASU 2016-02 did not materially affect our consolidated statements of income or our consolidated statements of cash flows.
The impact on our consolidated balance sheet upon adoption of ASU 2016-02 was as follows:
 
December 31, 2018
 
January 1, 2019
 

As reported
 
Effect of the adoption of ASU 2016-02
 
As adjusted
ASSETS
 
 
 
 
 
Prepaids and other assets
$
149

 
$
(2
)
 
$
147

Intangibles, net
628

 
(103
)
 
525

Other assets
1,353

 
(7
)
 
1,346

Operating lease right-of-use assets

 
512

 
512

TOTAL ASSETS
$
7,643

 
$
400

 
$
8,043

LIABILITIES AND EQUITY
 
 
 
 
 
Accounts payable
$
151

 
$
(1
)
 
$
150

Accrued expenses and other current liabilities
361

 
(2
)
 
359

Current operating lease liabilities

 
34

 
34

Long-term operating lease liabilities

 
418

 
418

Other long-term liabilities
840

 
(49
)
 
791

Total liabilities
3,966

 
400

 
4,366

Total equity
3,677

 

 
3,677

TOTAL LIABILITIES AND EQUITY
$
7,643

 
$
400

 
$
8,043



Intangibles - Goodwill and Other - Internal-Use Software—In August 2018, the FASB released Accounting Standards Update No. 2018-15 ("ASU 2018-15"), Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of ASU 2018-15 are to be applied using a prospective or retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We early adopted ASU 2018-15 on January 1, 2019 on a prospective basis which did not materially impact our consolidated financial statements.
Future Adoption of Accounting Standards
Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss model, which requires an entity to recognize allowances for credit losses equal to its current estimate of all contractual cash flows the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to AFS debt securities to be recognized through an allowance for credit losses. The provisions of ASU 2016-13 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. While we continue to evaluate the impact of adopting ASU 2016-13 and its disclosure requirements, we do not expect a material impact upon adoption.
v3.19.3.a.u2
Revenue from Contracts with Customers
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenues
The following tables present our revenues disaggregated by the nature of the product or service:
 
Year Ended December 31, 2019
 
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
1,058

$

$

$

$
25

$
(35
)
$
1,048

Food and beverage
607




12


619

Other
143




38


181

Owned and leased hotels
1,808




75

(35
)
1,848

 
 
 
 
 
 
 
 
Base management fees

227

46

37


(50
)
260

Incentive management fees

65

72

38


(24
)
151

Franchise fees

136

4

1



141

Other fees

5

14

7

6


32

License fees




24


24

Management, franchise, and other fees

433

136

83

30

(74
)
608

Amortization of management and franchise agreement assets constituting payments to customers

(15
)
(2
)
(5
)


(22
)
Net management, franchise, and other fees

418

134

78

30

(74
)
586

 
 
 
 
 
 
 
 
Other revenues

89



35

1

125

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

2,268

113

74

6


2,461

 
 
 
 
 
 
 
 
Total
$
1,808

$
2,775

$
247

$
152

$
146

$
(108
)
$
5,020

 
Year Ended December 31, 2018
 
Owned and leased hotels
Americas management and franchising
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other
Eliminations
Total
Rooms revenues
$
1,110

$

$

$

$
23

$
(33
)
$
1,100

Food and beverage
636




10


646

Other
143




29


172

Owned and leased hotels
1,889




62

(33
)
1,918

 
 
 
 
 
 
 
 
Base management fees

200

44

34


(53
)
225

Incentive management fees

67

71

39


(29
)
148

Franchise fees

123

3

1



127

Other fees

10

9

6

6


31

License fees




21


21

Management, franchise, and other fees

400

127

80

27

(82
)
552

Amortization of management and franchise agreement assets constituting payments to customers

(13
)
(2
)
(5
)


(20
)
Net management, franchise, and other fees

387

125

75

27

(82
)
532

 
 
 
 
 
 
 
 
Other revenues




43

5

48

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

1,787

95

68

6


1,956

 
 
 
 
 
 
 
 
Total
$
1,889

$
2,174

$
220

$
143

$
138

$
(110
)
$
4,454

 
Year Ended December 31, 2017
 
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
$
1,270

$

$

$

$
22

$
(38
)
$
1,254

Food and beverage
722




11


733

Other
167




30


197

Owned and leased hotels
2,159




63

(38
)
2,184

 
 
 
 
 
 
 
 
Base management fees

193

39

29


(59
)
202

Incentive management fees

62

65

35


(27
)
135

Franchise fees

112

2




114

Other fees

13

6

5

4


28

License fees




19


19

Management, franchise, and other fees

380

112

69

23

(86
)
498

Amortization of management and franchise agreement assets constituting payments to customers

(12
)
(1
)
(5
)


(18
)
Net management, franchise, and other fees

368

111

64

23

(86
)
480

 
 
 
 
 
 
 
 
Other revenues
13




14

9

36

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

1,625

79

58



1,762

 
 
 
 
 
 
 
 
Total
$
2,172

$
1,993

$
190

$
122

$
100

$
(115
)
$
4,462


Contract Balances
Our contract assets are insignificant at December 31, 2019 and December 31, 2018.
Contract liabilities are comprised of the following:
 
December 31, 2019
 
December 31, 2018
Deferred revenue related to the loyalty program
$
671

 
$
596

Advanced deposits
77

 
81

Initial fees received from franchise owners
41

 
35

Deferred revenue related to system-wide services
5

 
7

Other deferred revenue
126

 
111

Total contract liabilities
$
920

 
$
830



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

 
$
772

Cash received and other
1,025

 
964

Revenue recognized
(935
)
 
(906
)
Ending balance, December 31
$
920

 
$
830


Revenue recognized during the years ended December 31, 2019 and December 31, 2018 included in the contract liabilities balance at the beginning of each year was $375 million and $356 million, respectively. This revenue primarily relates to the loyalty program, which is recognized net of redemption reimbursements paid to third parties, and advanced deposits.
Revenue Allocated to Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $130 million at December 31, 2019, of which we expect to recognize approximately 20% 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 as the revenue is allocated to a wholly unperformed performance obligation in a series;
Revenues related to royalty fees as they are considered sales-based royalty fees;
Revenues received for free nights granted through our co-branded credit cards as the awards are required to be redeemed within 12 months; and
Revenues related to advanced bookings at owned and leased hotels as each stay has a duration of 12 months or less.
v3.19.3.a.u2
Debt and Equity Securities
12 Months Ended
Dec. 31, 2019
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
Equity method investments were $232 million and $233 million at December 31, 2019 and December 31, 2018, respectively, and are primarily recorded on our owned and leased hotels segment.
The carrying values and ownership interests of our investments in unconsolidated hospitality ventures accounted for under the equity method are as follows:
Investee
Existing or future hotel property
Ownership interest
 
Carrying value
December 31, 2019
 
December 31, 2018
Hyatt of Baja, S. de. R.L. de C.V.
Park Hyatt Los Cabos
50.0
%
 
$
48

 
$
46

HP Boston Partners, LLC
Hyatt Place Boston/Seaport District
50.0
%
 
29

 
29

Hotel am Belvedere Holding GmbH & Co KG
Andaz Vienna Am Belvedere

50.0
%
 
22

 
25

San Jose Hotel Partners, LLC
Hyatt Place San Jose Airport, Hyatt House San Jose Airport
40.0
%
 
20

 
18

Desarrolladora Hotelera Acueducto, S. de R.L. de C.V.
Hyatt Regency Andares Guadalajara

50.0
%
 
14

 
13

Portland Hotel Properties, LLC
Hyatt Centric Downtown Portland
40.0
%
 
13

 
13

CBR HCN, LLC
Hyatt Centric Downtown Nashville
40.0
%
 
12

 

HH Nashville JV Holdings, LLC
Hyatt House Nashville at Vanderbilt
50.0
%
 
11

 
12

33 Beale Street Hotel Company, LLC
Hyatt Centric Memphis
50.0
%
 
11

 

HP Atlanta Centennial Park JV, LLC
Hyatt Place Atlanta/Centennial Park
50.0
%
 
10

 
10

Hotel Hoyo Uno, S. de R.L. de C.V.
Andaz Mayakoba Resort Riviera Maya
40.0
%
 
10

 
16

Other
Various
 
 
32

 
51

Total equity method investments
 
 
 
$
232

 
$
233


The following tables present summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
 
Years Ended December 31,
2019
 
2018
 
2017
Total revenues
$
496

 
$
513

 
$
832

Gross operating profit
179

 
182

 
289

Income (loss) from continuing operations
(24
)
 
(16
)
 
54

Net income (loss)
(24
)
 
(16
)
 
54

 
December 31, 2019
 
December 31, 2018
Current assets
$
231

 
$
228

Noncurrent assets
1,417

 
1,345

Total assets
$
1,648

 
$
1,573

 
 
 
 
Current liabilities
$
143

 
$
141

Noncurrent liabilities
1,270

 
1,148

Total liabilities
$
1,413

 
$
1,289


During the year ended December 31, 2019, we had the following activity:
We recognized $8 million of gains in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment and received $25 million of related sales proceeds.
During the year ended December 31, 2018, we had the following activity:
We recognized $40 million of net gains in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments primarily within our owned and leased hotels segment and received $43 million of related sales proceeds.
We completed an asset acquisition of our partner's interest in certain unconsolidated hospitality ventures in Brazil for a net purchase price of approximately $4 million. We recognized $16 million of impairment charges related to these investments in equity earnings (losses) from unconsolidated hospitality ventures in our owned and leased hotels segment on our consolidated statements of income as the carrying value was in excess of fair value.
During the year ended December 31, 2017, we had the following activity:
In conjunction with the sale of Avendra, an equity method investment within our Americas management and franchising segment, to Aramark, we received approximately $217 million of net proceeds and recognized a $217 million gain in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income.
We recognized $6 million of gains in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment and received $12 million of related sales proceeds.
During the years ended December 31, 2019, December 31, 2018, and December 31, 2017, we recognized $7 million, $16 million, and $3 million of impairment charges, respectively, in equity earnings (losses) from unconsolidated hospitality ventures on our consolidated statements of income as the carrying values were in excess of fair values. The fair values were determined to be Level Three fair value measures, and the impairments were deemed other-than-temporary.
Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. Additionally, we periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.
Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value and included on our consolidated balance sheets, were as follows:
 
December 31, 2019
 
December 31, 2018
Loyalty program (Note 10)
$
483

 
$
397

Deferred compensation plans held in rabbi trusts (Note 10 and Note 13)
450

 
367

Captive insurance companies
180

 
133

Total marketable securities held to fund operating programs
$
1,113

 
$
897

Less: current portion of marketable securities held to fund operating programs included in cash and cash equivalents, short-term investments, and prepaids and other assets
(219
)
 
(174
)
Marketable securities held to fund operating programs included in other assets
$
894

 
$
723


Net realized and unrealized gains (losses) and interest income from marketable securities held to fund the loyalty program are recognized in other income (loss), net on our consolidated statements of income:
 
Years Ended December 31,
2019
 
2018
 
2017
Loyalty program (Note 21)
$
26

 
$
4

 
$
9


Net realized and unrealized gains (losses) and interest income from marketable securities held to fund rabbi trusts are recognized in net gains (losses) and interest income from marketable securities held to fund rabbi trusts on our consolidated statements of income:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Unrealized gains (losses), net
$
42

 
$
(45
)
 
$
20

Realized gains, net
20

 
34

 
25

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts
$
62

 
$
(11
)
 
$
45


Our captive insurance companies hold marketable securities which include AFS debt securities that 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 2020 through 2024.
Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on our consolidated balance sheets, were as follows:
 
December 31, 2019