HYATT HOTELS CORP, 10-Q filed on 5/7/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
Apr. 24, 2020
Document Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 2020  
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  
Trading Symbol H  
Security Exchange Name NYSE  
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 Central Index Key 0001468174  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Common Class A    
Document Information    
Entity Common Stock, Shares Outstanding   35,607,552
Common Class B    
Document Information    
Entity Common Stock, Shares Outstanding   65,463,274
v3.20.1
Condensed Consolidated Statements of Income (Loss) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
REVENUES:    
Total revenues $ 993 $ 1,241
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Depreciation and amortization 80 80
Other direct costs 34 45
Selling, general, and administrative 47 128
Direct and selling, general, and administrative expenses 988 1,215
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts (48) 30
Equity losses from unconsolidated hospitality ventures (2) (3)
Interest expense (17) (19)
Gains on sales of real estate 8 1
Asset impairments (3) (3)
Other income (loss), net (81) 51
INCOME (LOSS) BEFORE INCOME TAXES (138) 83
BENEFIT (PROVISION) FOR INCOME TAXES 35 (20)
NET INCOME (LOSS) (103) 63
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
NET INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ (103) $ 63
EARNINGS (LOSSES) PER SHARE—Basic    
Net income (in dollars per share) $ (1.02) $ 0.60
Net income attributable to Hyatt Hotels Corporation (in dollars per share) (1.02) 0.60
EARNINGS (LOSSES) PER SHARE—Diluted    
Net income (in dollars per share) (1.02) 0.59
Net income attributable to Hyatt Hotels Corporation (in dollars per share) $ (1.02) $ 0.59
Owned and leased hotels    
REVENUES:    
Total revenues $ 323 $ 470
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Owned and leased hotels 272 357
Costs incurred on behalf of managed and franchised properties 272 357
Management, franchise, and other fees    
REVENUES:    
Total revenues 108 141
Amortization of management and franchise agreement assets constituting payments to customers    
REVENUES:    
Total revenues (6) (5)
Net management, franchise, and other fees    
REVENUES:    
Total revenues 102 136
Other revenues    
REVENUES:    
Total revenues 35 45
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties    
REVENUES:    
Total revenues 533 590
Costs incurred on behalf of managed and franchised properties    
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:    
Owned and leased hotels 555 605
Costs incurred on behalf of managed and franchised properties $ 555 $ 605
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income (loss) $ (103) $ 63
Other comprehensive loss, net of taxes:    
Foreign currency translation adjustments, net of tax expense of $- for the three months ended March 31, 2020 and March 31, 2019 (51) (6)
Unrealized losses on derivative activity, net of tax benefit of $(9) and $(1) for the three months ended March 31, 2020 and March 31, 2019, respectively (25) (4)
Other comprehensive loss (76) (10)
COMPREHENSIVE INCOME (LOSS) (179) 53
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS 0 0
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION $ (179) $ 53
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - Parentheticals - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Foreign currency translation adjustments, net of tax (benefit) $ 0 $ 0
Unrealized gains on derivative activity, net of tax expense $ (9) $ (1)
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
CURRENT ASSETS:    
Cash and cash equivalents $ 1,194 $ 893
Restricted cash 18 [1] 150
Short-term investments 68 68
Receivables, net of allowances of $38 and $32 at March 31, 2020 and December 31, 2019, respectively 365 421
Inventories 12 12
Prepaids and other assets 65 134
Prepaid income taxes 31 28
Total current assets 1,753 1,706
Equity method investments 259 232
Property and equipment, net 3,294 3,456
Financing receivables, net of allowances of $99 and $100 at March 31, 2020 and December 31, 2019, respectively 35 35
Operating lease right-of-use assets 479 493
Goodwill 326 326
Intangibles, net 427 437
Deferred tax assets 199 144
Other assets 1,526 1,588
TOTAL ASSETS 8,298 8,417
CURRENT LIABILITIES:    
Current maturities of long-term debt 360 11
Accounts payable 133 150
Accrued expenses and other current liabilities 279 304
Current contract liabilities 291 445
Accrued compensation and benefits 90 144
Current operating lease liabilities 30 32
Total current liabilities 1,183 1,086
Long-term debt 1,602 1,612
Long-term contract liabilities 613 475
Long-term operating lease liabilities 386 393
Other long-term liabilities 806 884
Total liabilities 4,590 4,450
Commitments and contingencies (see Note 13)
EQUITY:    
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of March 31, 2020 and December 31, 2019 0 0
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 35,570,053 issued and outstanding at March 31, 2020, and Class B common stock, $0.01 par value per share, 397,457,686 shares authorized, 65,463,274 shares issued and outstanding at March 31, 2020. 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, 65,463,27 1 1
Additional paid-in capital 0 0
Retained earnings 3,989 4,170
Accumulated other comprehensive loss (285) (209)
Total stockholders' equity 3,705 3,962
Noncontrolling interests in consolidated subsidiaries 3 5
Total equity 3,708 3,967
TOTAL LIABILITIES AND EQUITY $ 8,298 $ 8,417
[1] Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, debt service on bonds, escrow deposits, and other arrangements.
v3.20.1
Condensed Consolidated Balance Sheet - Parentheticals - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Allowance for doubtful accounts receivable, current $ 38 $ 32
Financing receivable, allowance for credit loss $ 99 $ 100
Preferred stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares outstanding (in shares) 0 0
Common stock, shares, issued (in shares) 0  
Common Class A    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares, outstanding (in shares) 35,570,053 36,109,179
Common stock, shares, issued (in shares) 35,570,053 36,109,179
Common Class B    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 397,457,686 397,457,686
Common stock, shares, outstanding (in shares) 65,463,274 65,463,274
Common stock, shares, issued (in shares) 65,463,274 65,463,274
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ (103) $ 63
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Gains on sales of real estate (8) (1)
Depreciation and amortization 80 80
Release of contingent consideration liability 0 (25)
Amortization of share awards 17 21
Amortization of operating lease right-of-use assets 8 9
Deferred income taxes (45) 1
Equity losses from unconsolidated hospitality ventures 2 3
Amortization of management and franchise agreement assets constituting payments to customers 6 5
Unrealized (gains) losses, net 79 (12)
Distributions from unconsolidated hospitality ventures 2 2
Working capital changes and other (138) (133)
Net cash provided by (used in) operating activities (100) 13
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of marketable securities and short-term investments (110) (67)
Proceeds from marketable securities and short-term investments 109 123
Contributions to equity method and other investments (21) (7)
Return of equity method and other investments 2 0
Acquisitions, net of cash acquired 0 (15)
Capital expenditures (55) (66)
Proceeds from sales of real estate, net of cash disposed 78 0
Other investing activities 10 (7)
Net cash provided by (used in) investing activities 13 (39)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from long-term debt 400 120
Repayments of debt (51) (1)
Repurchases of common stock (69) (102)
Dividends paid (20) (20)
Other financing activities (7) (2)
Net cash provided by (used in) financing activities 253 (5)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3 0
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 169 (31)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR 1,063 622
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD 1,232 591
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Total cash, cash equivalents, and restricted cash 1,232 591
Cash paid during the period for interest 37 39
Cash paid during the period for income taxes 31 10
Cash paid for amounts included in the measurement of operating lease liabilities 13 13
Non-cash investing and financing activities are as follows:    
Non-cash contributions to equity method and other investments (see Note 7, Note 13) 33 0
Non-cash issuance of financing receivables 0 1
Change in accrued capital expenditures 9 1
Non-cash right-of-use assets obtained in exchange for operating lease liabilities (see Note 7) $ 4 $ 0
v3.20.1
Condensed 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
Cumulative effect of accounting changes, net of tax (see Note 3)
Cumulative effect of accounting changes, net of tax (see Note 3)
Retained Earnings
Cumulative Effect Period Of Adoption, Adjusted Balance
Cumulative Effect Period Of Adoption, Adjusted Balance
Common Stock Amount
Cumulative Effect Period Of Adoption, Adjusted Balance
Additional Paid-in Capital
Cumulative Effect Period Of Adoption, Adjusted Balance
Retained Earnings
Cumulative Effect Period Of Adoption, Adjusted Balance
Accumulated Other Comprehensive Loss
Cumulative Effect Period Of Adoption, Adjusted Balance
Noncontrolling Interests in Consolidated Subsidiaries
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Cumulative effect of accounting changes, net of tax (see Note 3) $ 3,677 $ 1 $ 50 $ 3,819 $ (200) $ 7                        
Balance, beginning of period (in shares) at Dec. 31, 2018               39,507,817   67,115,828                
Balance, beginning of period at Dec. 31, 2018 3,677 1 50 3,819 (200) 7                        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Cumulative effect of accounting changes, net of tax (see Note 3) 3,628 1 0 3,831 (210) 6                        
Total comprehensive income 53     63 (10)                          
Noncontrolling interests (1)         (1)                        
Repurchase of common stock (in shares)               (1,452,858)                    
Repurchase of common stock (102)   (71) (31)                            
Employee stock plan issuance (in shares)               19,245                    
Employee stock plan issuance 1   1                              
Share-based payment activity (in shares)               326,972                    
Share-based payment activity 20   20                              
Cash dividends (20)     (20)     $ (7)   $ (13)                  
Balance, end of period (in shares) at Mar. 31, 2019               38,401,176   67,115,828                
Balance, end of period at Mar. 31, 2019 3,628 1 0 3,831 (210) 6                        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Cumulative effect of accounting changes, net of tax (see Note 3) 3,628 1 0 3,831 (210) 6                        
Cumulative effect of accounting changes, net of tax (see Note 3) 3,967 1 0 4,170 (209) 5         $ (1) $ (1) $ 3,966 $ 1 $ 0 $ 4,169 $ (209) $ 5
Balance, beginning of period (in shares) at Dec. 31, 2019               36,109,179   65,463,274                
Balance, beginning of period at Dec. 31, 2019 3,967 1 0 4,170 (209) 5         (1) (1) 3,966 1 0 4,169 (209) 5
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Cumulative effect of accounting changes, net of tax (see Note 3) 3,708 1 0 3,989 (209) 3         $ (1) $ (1) $ 3,966 $ 1 $ 0 $ 4,169 $ (209) $ 5
Total comprehensive income (179)     (103) (76)                          
Noncontrolling interests (2)         (2)                        
Repurchase of common stock (in shares)               (827,643)                    
Repurchase of common stock (69)   (12) (57)                            
Employee stock plan issuance (in shares)               16,654                    
Employee stock plan issuance 1   1                              
Share-based payment activity (in shares)               271,863                    
Share-based payment activity 11   11                              
Cash dividends (20)     (20)     $ (7)   $ (13)                  
Balance, end of period (in shares) at Mar. 31, 2020               35,570,053   65,463,274                
Balance, end of period at Mar. 31, 2020 3,708 1 0 3,989 (285) 3                        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Cumulative effect of accounting changes, net of tax (see Note 3) $ 3,708 $ 1 $ 0 $ 3,989 $ (285) $ 3                        
v3.20.1
Condensed Consolidated Statements of Changes in Stockholders' Equity - Parenthetical - $ / shares
3 Months Ended
Mar. 09, 2020
Mar. 11, 2019
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]        
Cash dividend (in dollars per share) $ 0.20 $ 0.19 $ 0.20 $ 0.19
v3.20.1
Organization
3 Months Ended
Mar. 31, 2020
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 March 31, 2020, (i) we operated or franchised 453 full service hotels, comprising 155,951 rooms throughout the world, (ii) we operated or franchised 471 select service hotels, comprising 67,523 rooms, of which 402 hotels are located in the United States, and (iii) we franchised 8 all-inclusive Hyatt-branded resorts, comprising 3,153 rooms. At March 31, 2020, 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 operate under other tradenames or marks owned by such hotel or licensed by third parties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries, (ii) the term "properties" refers to hotels, resorts, and other properties, including branded spas and fitness studios, and residential, vacation, and condominium ownership units that we develop, own, operate, manage, franchise, or to which we provide services or license our trademarks, (iii) "Hyatt portfolio of properties" or "portfolio of properties" refers to hotels, resorts, and other properties that we develop, own, operate, manage, franchise, license, or provide services to, including under the Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson Hotels, Hyatt Centric, Caption by Hyatt, Joie de Vivre, Hyatt House, Hyatt Place, tommie, Hyatt Residence Club, and Exhale brands, (iv) the term "worldwide hotel portfolio" includes our full service hotels, including our wellness resorts, and our select service hotels, and (v) the term "worldwide property portfolio" includes our all-inclusive resorts, branded spas and fitness studios, and residential, vacation, and condominium ownership units in addition to our worldwide hotel portfolio.
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, 2019 (the "2019 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.
v3.20.1
Impact of the COVID-19 Pandemic
3 Months Ended
Mar. 31, 2020
Unusual or Infrequent Items, or Both [Abstract]  
Impact of the COVID-19 Pandemic IMPACT OF THE COVID-19 PANDEMIC
Overview
The COVID-19 pandemic and related travel restrictions and other containment efforts have had a significant impact on the travel industry and, as a result, on our business. The impact began in the first quarter of 2020 and has extended into the second quarter. As a result, this interim period, as well as future periods, are unlikely to be comparable to past performance or indicative of future performance. 
Impact to Financial and Non-financial Assets
We evaluate our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year and at interim dates if indications of impairment exist. Given the impact the COVID-19 pandemic is having on our industry, we concluded that indicators of impairment existed at March 31, 2020. We updated our previous assumptions based on the current economic environment. Our assumptions are subject to inherent risk and uncertainty due to the stay-in-place measures enacted as a result of the COVID-19 pandemic, consumer confidence levels, and the ongoing impact of the COVID-19 pandemic on the hospitality industry. Based on our analysis, we concluded that our goodwill and indefinite-lived intangible assets are not impaired at March 31, 2020, but we continue to monitor the impact the COVID-19 pandemic is having on our business and the valuation of our goodwill and indefinite-lived intangible assets.
We evaluate property and equipment, right-of-use assets, definite-lived intangible assets, and equity method investments for impairment quarterly. As a result of the current economic environment, we performed procedures to assess the recoverability of the net book value of property and equipment, right-of-use assets, and definite-lived intangible assets and did not identify any impairments related to these assets at March 31, 2020. For our equity method investments, we considered the impact on the underlying operations of the investments to determine whether there were any indications that the decline in value was other than temporary, and none were identified.
In assessing our financial assets for credit losses, we considered the impact of the COVID-19 pandemic. As a result of our analysis, we recognized $3 million of bad debt expense in selling, general, and administrative expenses and $4 million of credit allowances in other income (loss), net on our condensed consolidated statements of income (loss) during the three months ended March 31, 2020. We will continue to monitor our financial assets for potential credit risk as the impact of the COVID-19 pandemic evolves.
v3.20.1
Recently Issued Accounting Pronouncements
3 Months Ended
Mar. 31, 2020
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 2019 Form 10-K. Upon adoption of Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, our accounting policies have been updated as follows:
Debt and Equity Securities—Excluding equity method investments, debt and equity securities consist of various investments:
Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our condensed consolidated balance sheets based on listed market prices or dealer quotations where available. Equity securities without a readily determinable fair value are recognized at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Net gains and losses, both realized and unrealized, and impairment charges on equity securities are recognized in other income (loss), net on our condensed consolidated statements of income (loss).
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 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 condensed consolidated statements of income (loss).
AFS securities—recognized at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our condensed consolidated balance sheets. Realized gains and losses on debt securities are recognized in other income (loss), net on our condensed consolidated statements of income (loss). AFS securities are assessed quarterly for expected credit losses which are recognized in other income (loss), net on our condensed consolidated statements of income (loss). In determining the reserve for credit losses, we evaluate AFS securities at the individual security level and consider our investment strategy, current market conditions, financial strength of the underlying investments, term to maturity, credit rating, and our intent and ability to sell the securities.
HTM securities—investments that we have the intent and ability to hold until maturity and are recorded at amortized cost, net of expected credit losses. HTM securities are assessed for expected credit losses quarterly, and credit losses are recognized in other income (loss), net on our condensed consolidated statements of income (loss). We evaluate HTM securities individually when determining the reserve for credit losses due to the unique risks associated with each security. In determining the reserve for credit losses, we consider the financial strength of the underlying assets including the current and forecasted performance of the property, term to maturity, credit quality of the owner, and current market conditions.
Our preferred shares earn a return that is recognized as interest income in other income (loss), net.
For additional information about debt and equity securities, see Note 5.
Financing Receivables—Financing receivables represent contractual rights to receive money either on demand or on fixed or determinable dates and are recognized on our condensed consolidated balance sheets at amortized cost, net of expected credit losses. We recognize interest as earned and include accrued interest in the amortized cost basis of the asset.
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, but the repayment terms vary and may be dependent upon future cash flows of the hotel. We individually assess all financing receivables for credit losses quarterly and establish a reserve to reflect the net amount expected to be collected. We estimate credit losses based on an analysis of several factors, including current economic conditions, industry trends, and specific risk characteristics of the financing receivable, including capital structure, loan performance, market factors, and the underlying hotel performance. Adjustments to credit allowances on financing receivables are recognized in other income (loss), net on our condensed consolidated statements of income (loss).
We evaluate accrued interest allowances separately from the financing receivable assets. On an ongoing basis, we monitor the credit quality of our financing receivables based on historical and expected future 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 or if an allowance has been established for our other financing arrangements with that borrower. If we consider a financing receivable to be non-performing, we place the financing receivable on non-accrual status.
We recognize interest income when cash is received for financing receivables on non-accrual status which is recognized in other income (loss), net in our condensed consolidated statements of income (loss). Accrual of interest income is resumed and potential reversal of any associated allowance for credit loss occurs when the receivable becomes contractually current and collection doubts are removed.
After an allowance for credit losses has been established, we may determine the receivable balance is uncollectible when all commercially reasonable means of recovering the receivable balances have been exhausted. We write-off uncollectible balances by reversing the financing receivable and the related allowance for credit losses. For additional information about financing receivables, see Note 6.
Accounts Receivables—Our accounts receivables primarily consist of trade receivables due from guests for services rendered at our owned and leased properties and from hotel owners with whom we have management and franchise agreements for services rendered and for reimbursements of costs incurred on behalf of managed and franchised properties. We assess all accounts receivable for credit losses quarterly and establish a reserve to reflect the net amount expected to be collected. The credit loss reserve is based on an assessment of historical collection activity, the nature of the receivable, geographic considerations, and the current business environment. The allowance for credit losses is recognized in owned and leased hotels expense or selling, general, and administrative expenses on our condensed consolidated statements of income (loss), based on the nature of the receivable.
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 condensed consolidated statements of income (loss). Guarantees related to our unconsolidated hospitality ventures are amortized into equity earnings (losses) from unconsolidated hospitality ventures in our condensed consolidated statements of income (loss).
Performance and other guarantees—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 with the offset recognized in other income (loss), net.
Debt repayment guarantees—At inception of the guarantee and on a quarterly basis, we evaluate the risk of funding under a guarantee. Based on the current and forecasted performance of the underlying property, whether the property owner is current on debt service, the historical performance of the property, and the current market, we record a separate liability with an offset recognized in other income (loss), net or equity earnings (losses) from unconsolidated hospitality ventures as necessary.
For additional information about guarantees, see Note 13.
Adopted Accounting Standards
Financial InstrumentsCredit Losses—In June 2016, the Financial Accounting Standards Board ("FASB") released ASU 2016-13. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss 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. We adopted ASU 2016-13 on January 1, 2020 utilizing the modified retrospective approach. Upon adoption, we recorded an adjustment of $1 million, net of tax, to opening retained earnings related to our credit allowance for accounts receivables, a $12 million increase to our HTM debt securities, and a corresponding $12 million credit loss allowance on our condensed consolidated balance sheets. The adoption adjustments do not reflect the impact of the COVID-19 pandemic. ASU 2016-03 did not materially affect our condensed consolidated statements of income (loss) or our condensed consolidated statements of cash flows.
Future Adoption of Accounting Standards
Reference Rate Reform—In March 2020, the FASB issued Accounting Standards Update No. 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions that we can elect to adopt, subject to meeting certain criteria, regarding contract modifications, hedging relationships, and other transactions that reference the London interbank offered rate for deposits of U.S. dollars ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The relief provided in ASU 2020-04 is applicable to all entities, but is only available through December 31, 2022. We are still assessing the impact of adopting ASU 2020-04.
v3.20.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 2020
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:
 
Three Months Ended March 31, 2020
 
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
$
185

$

$

$

$

$
(7
)
$
178

Food and beverage
105






105

Other
40






40

Owned and leased hotels
330





(7
)
323

 
 
 
 
 
 
 
 
Base management fees

44

6

7


(10
)
47

Incentive management fees

4

3

2


(1
)
8

Franchise fees

27





27

Other fees

1

2

1

1


5

License fees

8

8


5


21

Management, franchise, and other fees

84

19

10

6

(11
)
108

Amortization of management and franchise agreement assets constituting payments to customers

(4
)
(1
)
(1
)


(6
)
Net management, franchise, and other fees

80

18

9

6

(11
)
102

 
 
 
 
 
 
 
 
Other revenues

27



8


35

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

484

27

20

2


533

 
 
 
 
 
 
 
 
Total
$
330

$
591

$
45

$
29

$
16

$
(18
)
$
993

 
 
Three Months Ended March 31, 2019
 
Owned and leased hotels (a)
Americas management and franchising (a)
ASPAC management and franchising
EAME/SW Asia management and franchising
Corporate and other (a)
Eliminations
Total
Rooms revenues
$
273

$

$

$

$

$
(7
)
$
266

Food and beverage
160






160

Other
44






44

Owned and leased hotels
477





(7
)
470

 
 
 
 
 
 
 
 
Base management fees

57

12

8


(14
)
63

Incentive management fees

14

17

8


(5
)
34

Franchise fees

32





32

Other fees


3

2

1


6

License fees

1



5


6

Management, franchise, and other fees

104

32

18

6

(19
)
141

Amortization of management and franchise agreement assets constituting payments to customers

(4
)

(1
)


(5
)
Net management, franchise, and other fees

100

32

17

6

(19
)
136

 
 
 
 
 
 
 
 
Other revenues

36



9


45

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

548

24

17

1


590

 
 
 
 
 
 
 
 
Total
$
477

$
684

$
56

$
34

$
16

$
(26
)
$
1,241

(a) Amounts presented have been adjusted for changes within the segments effective on January 1, 2020 (see Note 17).
 

Contract Balances
Our contract assets were $1 million and insignificant at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, 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.
Contract liabilities are comprised of the following:
 
March 31, 2020
 
December 31, 2019
Deferred revenue related to the loyalty program
$
696

 
$
671

Advanced deposits
54

 
77

Initial fees received from franchise owners
41

 
41

Deferred revenue related to system-wide services
3

 
5

Other deferred revenue
110

 
126

Total contract liabilities
$
904

 
$
920



The following table summarizes the activity in our contract liabilities:
 
2020
 
2019
Beginning balance, January 1
$
920

 
$
830

Cash received and other
246

 
247

Revenue recognized
(262
)
 
(228
)
Ending balance, March 31
$
904

 
$
849


Revenue recognized during the three months ended March 31, 2020 and March 31, 2019 included in the contract liabilities balance at the beginning of each year was $137 million and $145 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 March 31, 2020, of which we expect to recognize approximately 15% as revenue over the next 12 months and the remainder thereafter.
We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for the following:
Deferred revenue related to the loyalty program and revenue from base and incentive management fees as the revenue is allocated to a wholly unperformed performance obligation in a series;
Revenues related to royalty fees as they are considered sales-based royalty fees;
Revenues received for free nights granted through our co-branded credit 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.
v3.20.1
Debt and Equity Securities
3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Debt and Equity Securities DEBT AND EQUITY SECURITIES
Equity Method Investments
Equity method investments were $259 million and $232 million at March 31, 2020 and December 31, 2019, respectively.
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,
 
2020
 
2019
Total revenues
$
117

 
$
116

Gross operating profit
34

 
39

Loss from continuing operations
(7
)
 
(10
)
Net loss
(7
)
 
(10
)
Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. 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, 2020
 
December 31, 2019
Loyalty program (Note 9)
$
510

 
$
483

Deferred compensation plans held in rabbi trusts (Note 9 and Note 11)
385

 
450

Captive insurance companies
173

 
180

Total marketable securities held to fund operating programs
$
1,068

 
$
1,113

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
(172
)
 
(219
)
Marketable securities held to fund operating programs included in other assets
$
896

 
$
894


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 (loss):
 
Three Months Ended March 31,
2020
 
2019
Loyalty program (Note 19)
$
11

 
$
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 condensed consolidated statements of income (loss):


Three Months Ended March 31,
2020
 
2019
Unrealized gains (losses)
$
(50
)
 
$
28

Realized gains
2

 
2

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts
$
(48
)
 
$
30


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 2025.
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, 2020
 
December 31, 2019
Interest-bearing money market funds (a)
$
368

 
$
147

Time deposits
37

 
37

Common shares of Playa N.V. (Note 9)
21

 
102

Total marketable securities held for investment purposes
$
426

 
$
286

Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(405
)
 
(184
)
Marketable securities held for investment purposes included in other assets
$
21

 
$
102

(a) Proceeds from our revolving credit facility were reinvested in interest-bearing money market funds at March 31, 2020 (see Note 10).

We hold common shares of Playa Hotels & Resorts N.V. ("Playa N.V.") which are accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are
able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in $81 million of unrealized losses and $6 million of unrealized gains for the three months ended March 31, 2020 and March 31, 2019, respectively, recognized in other income (loss), net on our condensed consolidated statements of income (loss) (see Note 19). We did not sell any shares of common stock during the three months ended March 31, 2020.
Other Investments
HTM Debt Securities—At March 31, 2020 and December 31, 2019, we held $62 million and $58 million, respectively, of investments in HTM debt securities, net of allowances, which are investments in third-party entities that own or are developing certain of our hotels and are recorded within other assets on our condensed consolidated balance sheets. The securities are mandatorily redeemable between 2020 and 2027. At March 31, 2020 our investments were net of allowances of $15 million. The carrying value of our investments approximates 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 models 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, 2020 and December 31, 2019, we held $12 million and $7 million of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity.
Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
March 31, 2020
 
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
$
509

 
$
509

 
$

 
$

 
$

Mutual funds
444

 

 

 

 
444

Common shares
21

 

 

 

 
21

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
45

 

 
41

 

 
4

U.S. government obligations
207

 

 
6

 

 
201

U.S. government agencies
42

 

 
3

 

 
39

Corporate debt securities
159

 

 
18

 

 
141

Mortgage-backed securities
24

 

 

 

 
24

Asset-backed securities
38

 

 

 

 
38

Municipal and provincial notes and bonds
5

 

 

 

 
5

Total
$
1,494

 
$
509

 
$
68

 
$

 
$
917

 
December 31, 2019
 
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
$
269

 
$
269

 
$

 
$

 
$

Mutual funds
502

 

 

 

 
502

Common shares
102

 

 

 

 
102

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
47

 

 
41

 

 
6

U.S. government obligations
202

 

 
4

 
31

 
167

U.S. government agencies
50

 

 
3

 
6

 
41

Corporate debt securities
161

 

 
20

 
18

 
123

Mortgage-backed securities
23

 

 

 
4

 
19

Asset-backed securities
39

 

 

 
6

 
33

Municipal and provincial notes and bonds
4

 

 

 
1

 
3

Total
$
1,399

 
$
269

 
$
68

 
$
66

 
$
996


During the three months ended March 31, 2020 and March 31, 2019, 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.
v3.20.1
Financing Receivables
3 Months Ended
Mar. 31, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Financing Receivables FINANCING RECEIVABLES

March 31, 2020

December 31, 2019
Unsecured financing to hotel owners
$
134


$
135

Less: allowance for losses
(99
)

(100
)
Total long-term financing receivables, net of allowances
$
35


$
35


Allowance for Losses—The following table summarizes the activity in our unsecured financing receivables allowance:
 
2020
 
2019
Allowance at January 1
$
100

 
$
101

  Provisions
2

 
2

  Foreign currency exchange, net
(3
)
 

Allowance at March 31
$
99

 
$
103


Credit Monitoring—Our unsecured financing receivables were as follows:
 
March 31, 2020
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
34

 
$
(1
)
 
$
33

 
$

Impaired loans (1)
40

 
(40
)
 

 
40

Total loans
74

 
(41
)
 
33

 
40

Other financing arrangements
60

 
(58
)
 
2

 
58

Total unsecured financing receivables
$
134

 
$
(99
)
 
$
35

 
$
98

(1) The unpaid principal balance was $31 million and the average recorded loan balance was $42 million at March 31, 2020.
 
December 31, 2019
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
33

 
$
(1
)
 
$
32

 
$

Impaired loans (2)
43

 
(43
)
 

 
43

Total loans
76

 
(44
)
 
32

 
43

  Other financing arrangements
59

 
(56
)
 
3

 
56

Total unsecured financing receivables
$
135

 
$
(100
)
 
$
35

 
$
99

(2) The unpaid principal balance was $33 million and the average recorded loan balance was $46 million at December 31, 2019.
Fair Value—We estimated the fair value of financing receivables to be approximately $36 million at both March 31, 2020 and December 31, 2019. The fair values, which are classified as Level Three in the fair value hierarchy, are estimated using discounted future cash flow models. The principal inputs used are projected future cash flows and the discount rate, which is generally the effective interest rate of the loan.
v3.20.1
Acquisitions and Dispositions
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions and Dispositions ACQUISITIONS AND DISPOSITIONS
Acquisitions
Land—During the three months ended March 31, 2019, we acquired $15 million of land through an asset acquisition from an unrelated third party to develop a hotel in Austin, Texas and subsequently sold the land and related construction in progress through an asset disposition during the year ended December 31, 2019.
Dispositions
Property Under Development—During the three months ended March 31, 2020, an unrelated third-party invested in certain of our subsidiaries that are developing a hotel, parking, and retail space in Philadelphia, Pennsylvania in exchange for a 60% ownership interest, resulting in the derecognition of the non-financial assets of the subsidiaries. As a result of the transaction, we received $72 million of proceeds, recorded our 40% ownership interest as an equity method investment, and recognized a $4 million pre-tax gain in gains on sales of real estate on our condensed consolidated statements of income (loss) during the three months ended March 31, 2020. Our $22 million equity method investment was recorded at fair value based upon the value contributed by our partner to the unconsolidated hospitality venture. As additional consideration, we received a $5 million investment in an equity security without a readily determinable fair value.
Building—During the three months ended March 31, 2020, we sold a building in Omaha, Nebraska for $6 million, net of closing costs and proration adjustments. In conjunction with the sale, we entered into a lease for a portion of the building and accounted for the transaction as a sale and leaseback and recorded a $4 million right-of-use asset and related lease liability on our condensed consolidated balance sheet at March 31, 2020. The sale resulted in a $4 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income (loss) during the three months ended March 31, 2020. The operating lease has a weighted-average remaining term of 9 years and a weighted-average discount rate of 3.25%. The lease includes an option to extend the lease term by 5 years.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary and are unavailable for our use until released. The proceeds are recorded 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 the property adjacent to Grand Hyatt San Francisco during the year ended December 31, 2019, $115 million of proceeds were held as restricted for use in a potential like-kind exchange.
However, we did not acquire the identified replacement property within the specified 180 day period, and the proceeds were released during the three months ended March 31, 2020.
v3.20.1
Intangibles, Net
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles, Net INTANGIBLES, NET
 
March 31, 2020
 
Weighted-
average useful
lives in years
 
December 31, 2019
Management and franchise agreement intangibles
$
363

 
18

 
$
367

Brand and other indefinite-lived intangibles
144

 

 
144

Advanced booking intangibles
14

 
5

 
14

Other definite-lived intangibles
8

 
6

 
8

Intangibles
529

 
 
 
533

Less: accumulated amortization
(102
)
 
 
 
(96
)
Intangibles, net
$
427

 
 
 
$
437


 
Three Months Ended March 31,
 
2020
 
2019
Amortization expense
$
7

 
$
3


v3.20.1
Other Assets
3 Months Ended
Mar. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets OTHER ASSETS
 
March 31, 2020
 
December 31, 2019
Management and franchise agreement assets constituting payments to customers (1)
$
431

 
$
423

Marketable securities held to fund the loyalty program (Note 5)
420

 
347

Marketable securities held to fund rabbi trusts (Note 5)
385

 
450

Marketable securities held for captive insurance companies (Note 5)
91

 
97

Long-term investments
74

 
65

Common shares of Playa N.V. (Note 5)
21

 
102

Other
104

 
104

Total other assets
$
1,526

 
$
1,588

(1) Includes cash consideration as well as other forms of consideration provided, such as debt repayment or performance guarantees.

v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt DEBT
Long-term debt, net of current maturities, was $1,602 million and $1,612 million at March 31, 2020 and December 31, 2019, respectively.
Revolving Credit Facility—During the three months ended March 31, 2020, we had $400 million of borrowings and $50 million of repayments on our revolving credit facility. The weighted-average interest rate on these borrowings was 1.66% at March 31, 2020. At March 31, 2020 and December 31, 2019, we had $350 million and $0 balance outstanding, respectively. At March 31, 2020, we had $1,149 million of borrowing capacity available under our revolving credit facility, net of letters of credit outstanding.
Fair Value—We estimated the fair value of debt, excluding finance leases, which consists of $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), $350 million of 3.375% senior notes due 2023 (the "2023 Notes"), $400 million of 4.850% senior notes due 2026 (the "2026 Notes"), and $400 million of 4.375% senior notes due 2028 (the "2028 Notes"), collectively referred to as the "Senior Notes," bonds, and other long-term debt. Our Senior Notes and bonds are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. We estimated the fair value of other debt instruments using a discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the lack of available market data, we have classified our revolving credit facility and other debt instruments as Level Three. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.
 
March 31, 2020
 
Carrying value
 
Fair value
 
Quoted prices in active markets for identical assets (Level One)
 
Significant other observable inputs (Level Two)
 
Significant unobservable inputs (Level Three)
Debt (1)
$
1,965

 
$
1,896

 
$

 
$
1,504

 
$
392

(1) Excludes $10 million of finance lease obligations and $13 million of unamortized discounts and deferred financing fees.
 
December 31, 2019
 
Carrying value
 
Fair value
 
Quoted prices in active markets for identical assets (Level One)
 
Significant other observable inputs (Level Two)
 
Significant unobservable inputs (Level Three)
Debt (2)
$
1,627

 
$
1,740

 
$

 
$
1,680

 
$
60

(2) Excludes $11 million of finance lease obligations and $15 million of unamortized discounts and deferred financing fees.
Interest Rate Locks—At March 31, 2020 and December 31, 2019, we had outstanding interest rate locks with $275 million in notional value and mandatory settlement dates of 2021. The interest rate locks hedge a portion of the risk of changes in the benchmark interest rate associated with long-term debt we anticipate issuing in the future. These outstanding derivative instruments are designated as cash flow hedges and deemed highly effective both at inception and at March 31, 2020.
During the three months ended March 31, 2020 and March 31, 2019, we recognized $34 million and $6 million of pre-tax losses in unrealized gains (losses) on derivative activity on our condensed consolidated statements of comprehensive income (loss). At March 31, 2020, we had $58 million recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets related to these instruments. At December 31, 2019, we had $24 million recorded in other long-term liabilities on our condensed consolidated balance sheets. We estimated the fair values of interest rate locks, which are classified as Level Two in the fair value hierarchy, using discounted cash flow models. The primary sensitivity in these models is based on forward and discount curves.
v3.20.1
Other Long-Term Liabilities
3 Months Ended
Mar. 31, 2020
Other Liabilities [Abstract]  
Other Long-Term Liabilities OTHER LONG-TERM LIABILITIES
 
March 31, 2020
 
December 31, 2019
Deferred compensation plans funded by rabbi trusts (Note 5)
$
385

 
$
450

Income taxes payable
164

 
147

Self-insurance liabilities (Note 13)
79

 
80

Deferred income taxes (Note 12)
45

 
47

Guarantee liabilities (Note 13)
42

 
46

Other
91

 
114

Total other long-term liabilities
$
806

 
$
884


v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. The provisions include, but are not limited to, allowing net operating loss carrybacks, modifying the net interest deduction limitations, providing technical corrections to tax depreciation methods for qualified improvement property, allowing refundable payroll tax credits, and deferring employer social security deposits. Specifically, net operating losses incurred in 2020 may be carried back to each of the preceding five years to offset prior year taxable income generating a refund in future periods when the tax returns are filed, and the cash is received. We are in the process of evaluating the impact of each of the provisions to our business.
The effective income tax rates for the three months ended March 31, 2020 and March 31, 2019 were 25.4% and 23.5%, respectively. Our effective tax rate increased for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, primarily due to U.S. net operating losses that will be benefited at the 35% tax rate in accordance with the terms of the CARES Act.
We are subject to audits by federal, state, and foreign tax authorities. We are currently under field exam by the Internal Revenue Service ("IRS") for tax years 2015 through 2017. U.S. tax years 2009 through 2011 are before the U.S. Tax Court concerning the tax treatment of the loyalty program. Additionally, U.S. tax years 2012 through 2014 are pending the outcome of the issue currently in U.S. Tax Court. If the IRS' position to include loyalty program
contributions as taxable income to the Company is upheld, it would result in an income tax payment of $194 million (including $50 million of estimated interest, net of federal tax benefit) for all assessed years that would be partially offset by a deferred tax asset. As future tax benefits will be recognized at the reduced U.S. corporate income tax rate, $71 million of the payment and related interest would have an impact on the effective tax rate, if recognized. We believe we have an adequate uncertain tax liability recorded in connection with this matter.
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements.
Commitments—At March 31, 2020, we are committed, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures up to $295 million, net of any related letters of credit.
Performance Guarantees—Certain of our contractual agreements with third-party hotel owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At March 31, 2020, the remaining maximum exposure under our performance guarantees was $194 million.
Our most significant performance guarantee relates to four managed hotels in France that we began managing in the second quarter of 2013 ("the four managed hotels in France"), which has a term of seven years and expires on April 30, 2020. This guarantee has a maximum cap but does not have an annual cap. At March 31, 2020, our remaining contractual maximum exposure was €115 million ($127 million using exchange rates at March 31, 2020). Of this amount, we recognized approximately $6 million of expense in April to fully settle our guarantee obligation which expired on April 30, 2020.
We had $36 million and $33 million of total net performance guarantee liabilities at March 31, 2020 and December 31, 2019, respectively, which included $9 million and $14 million recorded in other long-term liabilities and $27 million and $19 million recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively.
 
 
The four managed hotels in France
 
Other performance guarantees
 
All performance guarantees
 
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Beginning balance, January 1
 
$
20

 
$
36

 
$
13

 
$
11

 
$
33

 
$
47

Initial guarantee obligation liability
 

 

 

 
1

 

 
1

Amortization of initial guarantee obligation liability into income
 
(4
)
 
(4
)
 
(1
)
 

 
(5
)
 
(4
)
Performance guarantee expense, net