10-Q 1 hq263017.htm FORM 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 

Form 10-Q

 (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-34521
HYATT HOTELS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
20-1480589
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
71 South Wacker Drive
12th Floor, Chicago, Illinois
 
60606
(Address of Principal Executive Offices)
 
(Zip Code)
(312) 750-1234
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
x
 
Accelerated filer
¨
 
Non-accelerated filer  
¨
 
Smaller reporting company         
¨
 
 
 
 
Emerging growth company
¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x
As of July 28, 2017, there were 38,940,601 shares of the registrant’s Class A common stock, $0.01 par value, outstanding and 86,090,839 shares of the registrant’s Class B common stock, $0.01 par value, outstanding.



HYATT HOTELS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2017

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions of dollars, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
REVENUES:
 
 
 
 
 
 
 
Owned and leased hotels
$
577

 
$
559

 
$
1,149

 
$
1,075

Management and franchise fees
130

 
115

 
252

 
222

Other revenues
15

 
11

 
37

 
20

Other revenues from managed properties
473

 
480

 
944

 
937

Total revenues
1,195

 
1,165

 
2,382

 
2,254

DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
 
 
 
 
 
Owned and leased hotels
430

 
413

 
857

 
802

Depreciation and amortization
91

 
86

 
182

 
167

Other direct costs
6

 
9

 
25

 
15

Selling, general, and administrative
90

 
75

 
189

 
163

Other costs from managed properties
473

 
480

 
944

 
937

Direct and selling, general, and administrative expenses
1,090

 
1,063

 
2,197

 
2,084

Net gains and interest income from marketable securities held to fund operating programs
10

 
7

 
25

 
8

Equity earnings (losses) from unconsolidated hospitality ventures
1

 
19

 
(2
)
 
21

Interest expense
(20
)
 
(20
)
 
(41
)
 
(37
)
Gains (losses) on sales of real estate
34

 
(21
)
 
34

 
(21
)
Other income (loss), net
2

 
1

 
42

 
(3
)
INCOME BEFORE INCOME TAXES
132

 
88

 
243

 
138

PROVISION FOR INCOME TAXES
(45
)
 
(21
)
 
(86
)
 
(37
)
NET INCOME
87

 
67

 
157

 
101

NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
87

 
$
67

 
$
157

 
$
101

EARNINGS PER SHAREBasic
 
 
 
 
 
 
 
Net income
$
0.69

 
$
0.50

 
$
1.23

 
$
0.75

Net income attributable to Hyatt Hotels Corporation
$
0.69

 
$
0.50

 
$
1.23

 
$
0.75

EARNINGS PER SHAREDiluted
 
 
 
 
 
 
 
Net income
$
0.68

 
$
0.49

 
$
1.22

 
$
0.74

Net income attributable to Hyatt Hotels Corporation
$
0.68

 
$
0.49

 
$
1.22

 
$
0.74







See accompanying Notes to condensed consolidated financial statements.

1

HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of dollars)
(Unaudited)



 
Three Months Ended
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Net income
$
87

 
$
67

 
$
157

 
$
101

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax expense of $- for the three and six months ended June 30, 2017 and June 30, 2016
19

 
(9
)
 
60

 
15

Unrealized gains on available-for-sale securities, net of tax expense of $7 and $28 for the three and six months ended June 30, 2017, respectively, and $8 and $5 for the three and six months ended June 30, 2016, respectively
11

 
12

 
45

 
8

Other comprehensive income
30

 
3

 
105

 
23

COMPREHENSIVE INCOME
117

 
70

 
262

 
124

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$
117

 
$
70

 
$
262

 
$
124




















See accompanying Notes to condensed consolidated financial statements.


2

HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except share and per share amounts)
(Unaudited)

 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
400

 
$
482

Restricted cash
340

 
76

Short-term investments
51

 
56

Receivables, net of allowances of $21 at June 30, 2017 and $18 at December 31, 2016
368

 
304

Inventories
15

 
28

Prepaids and other assets
153

 
153

Prepaid income taxes
36

 
40

Total current assets
1,363

 
1,139

Investments
181

 
186

Property and equipment, net
4,239

 
4,270

Financing receivables, net of allowances
19

 
19

Goodwill
145

 
125

Intangibles, net
671

 
599

Deferred tax assets
290

 
313

Other assets
993

 
1,098

TOTAL ASSETS
$
7,901

 
$
7,749

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current maturities of long-term debt
$
241

 
$
119

Accounts payable
159

 
162

Accrued expenses and other current liabilities
550

 
514

Accrued compensation and benefits
123

 
129

Total current liabilities
1,073

 
924

Long-term debt
1,446

 
1,445

Other long-term liabilities
1,530

 
1,472

Total liabilities
4,049

 
3,841

Commitments and contingencies (see Note 11)


 


Redeemable noncontrolling interest in preferred shares of a subsidiary
9

 

EQUITY:
 
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at June 30, 2017 and December 31, 2016

 

Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,422,221 issued and outstanding at June 30, 2017, and Class B common stock, $0.01 par value per share, 422,318,251 shares authorized, 86,090,839 shares issued and outstanding at June 30, 2017. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,952,061 issued and outstanding at December 31, 2016, and Class B common stock, $0.01 par value per share, 422,857,621 shares authorized, 90,863,209 shares issued and outstanding at December 31, 2016
1

 
1

Additional paid-in capital
1,358

 
1,686

Retained earnings
2,650

 
2,493

Accumulated other comprehensive loss
(172
)
 
(277
)
Total stockholders’ equity
3,837

 
3,903

Noncontrolling interests in consolidated subsidiaries
6

 
5

Total equity
3,843

 
3,908

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
$
7,901

 
$
7,749




See accompanying Notes to condensed consolidated financial statements.

3

HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)


 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
157

 
$
101

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
182

 
167

(Gains) losses on sales of real estate
(34
)
 
21

Realized losses from marketable securities
40

 

Working capital changes and other
(26
)
 
(50
)
Net cash provided by operating activities
319

 
239

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of marketable securities and short-term investments
(251
)
 
(226
)
Proceeds from marketable securities and short-term investments
252

 
232

Contributions to investments
(23
)
 
(17
)
Return of investments
200

 
52

Acquisitions, net of cash acquired
(243
)
 
(238
)
Capital expenditures
(133
)
 
(85
)
Proceeds from sales of real estate, net of cash disposed
296

 
240

Sales proceeds transferred to escrow as restricted cash
(267
)
 

Other investing activities
(13
)
 
19

Net cash used in investing activities
(182
)
 
(23
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from debt, net of issuance costs of $- and $4, respectively
420

 
519

Repayments of debt
(295
)
 
(428
)
Repurchase of common stock
(348
)
 
(131
)
Proceeds from redeemable noncontrolling interest in preferred shares of a subsidiary
9

 

Other financing activities
(7
)
 
(7
)
Net cash used in financing activities
(221
)
 
(47
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
2

 
16

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(82
)
 
185

CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR
482

 
457

CASH AND CASH EQUIVALENTS—END OF PERIOD
$
400

 
$
642

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for interest
$
40

 
$
37

Cash paid during the period for income taxes
$
63

 
$
28

Non-cash investing and financing activities are as follows:
 
 
 
Change in accrued capital expenditures
$
23

 
$
6















See accompanying Notes to condensed consolidated financial statements.

4


HYATT HOTELS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of dollars, unless otherwise indicated)
(Unaudited)
 
1.    ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality services on a worldwide basis through the development, ownership, operation, management, franchising and licensing of hospitality 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 timeshare, fractional and other forms of residential or vacation properties. At June 30, 2017, (i) we operated or franchised 321 full service hotels, comprising 124,432 rooms throughout the world, (ii) we operated or franchised 365 select service hotels, comprising 51,194 rooms, of which 329 hotels are located in the United States, and (iii) our portfolio of properties included 6 franchised all inclusive Hyatt-branded resorts, comprising 2,401 rooms, and 3 destination wellness resorts, comprising 421 rooms. At June 30, 2017, our portfolio of properties operated in 56 countries around the world.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Company," "we," "us" or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries and (ii) the term "portfolio of properties" refers to hotels and other properties or residential ownership units that we develop, own, operate, manage, franchise, license or provide services to, including under our Park Hyatt, Miraval, Grand Hyatt, Hyatt Regency, Hyatt, Andaz, Hyatt Centric, The Unbound Collection by Hyatt, Hyatt Place, Hyatt House, Hyatt Ziva, Hyatt Zilara and Hyatt Residence Club brands.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the "2016 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.

2.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Standards—In March 2016, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions of ASU 2016-09 were effective for interim periods and fiscal years beginning after December 15, 2016. We adopted ASU 2016-09 on January 1, 2017, which resulted in recognition of excess tax benefits from share-based payment transactions on the condensed consolidated statements of income and within operating activities on the condensed consolidated statements of cash flows, on a prospective basis. ASU 2016-09 did not materially impact our condensed consolidated financial statements and prior periods have not been adjusted.
Future Adoption of Accounting Standards—In May 2014, the FASB released Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for contracts with customers. In August 2015, the FASB released Accounting Standards Update No. 2015-14 ("ASU 2015-14"), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU 2015-14 delays the effective date of ASU 2014-09 by one year, making it effective for interim

5


periods and fiscal years beginning after December 15, 2017, with early adoption permitted as of the original effective date under ASU 2014-09.
ASU 2014-09 requires entities to recognize revenue when a customer obtains control of a good or a service. Revenues are recognized in an amount that reflects the consideration expected to be received in return for the goods or services. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The standard permits the use of either the full retrospective or modified retrospective (cumulative effect) transition method. We expect to adopt ASU 2014-09 utilizing the full retrospective transition method on January 1, 2018.
While we continue to evaluate possible impacts on our condensed consolidated financial statements, ASU 2014-09 is currently expected to impact either the amount or timing of revenue recognition as follows:
Under existing guidance, gains on sales of real estate are deferred when we maintain substantial continuing involvement and are amortized into management and franchise fee revenues. Upon adoption of ASU 2014-09, gains on sales of real estate will be recognized when control of the property transfers to the buyer. Any remaining unamortized deferred gains at our date of adoption will be included as an adjustment to retained earnings. See Note 9 for the deferred gains on sales of hotel properties at June 30, 2017 and December 31, 2016. For the three and six months ended June 30, 2017, we recognized $6 million and $11 million, respectively, of management and franchise fee revenues related to the amortization of these deferred gains on our condensed consolidated statements of income.
Under existing guidance, amortization of certain management and franchise agreement intangibles is recorded within depreciation and amortization on our condensed consolidated statements of income. Upon adoption of ASU 2014-09, certain management and franchise agreement intangibles will meet the definition of consideration paid to a customer and therefore, will be recorded as contra-revenue within management and franchise fee revenues on our condensed consolidated statements of income. For the three and six months ended June 30, 2017, we recognized $4 million and $8 million, respectively, of amortization expense related to management and franchise agreement intangibles that will meet the definition of consideration paid to a customer upon adoption of ASU 2014-09.
Under existing guidance, incentive fees are recognized in the amount that would be due as if the contract were to terminate at that time. Under ASU 2014-09, variable consideration is included in the transaction price only if it is probable that a significant reversal in the cumulative amount of revenue recognized would not occur when the uncertainty associated with the variable consideration is subsequently resolved. This may result in a different pattern of quarterly recognition for incentive fees for certain contracts. We do not anticipate a material impact to incentive fee recognition on a full year basis.
Under existing guidance, franchise application fees are recognized at a point in time. Upon adoption of ASU 2014-09, franchise application fees will be recognized over time. We do not expect a significant impact on our condensed consolidated financial statements.
We do not expect the standard to materially affect the amount or timing of revenue recognition for royalty fees from our franchised properties, base management fees from our managed properties, or revenues from hotel guest transactions at our owned and leased properties. We are continuing to evaluate other possible impacts to our condensed consolidated financial statements, including the impact related to our loyalty program.
In January 2016, the FASB released Accounting Standards Update No. 2016-01 ("ASU 2016-01"), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting for equity investments and financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 are effective for interim periods and fiscal years beginning after December 15, 2017. Upon adoption, the unrealized gains (losses) on available-for-sale ("AFS") equity securities, including our investment in Playa Hotels & Resorts N.V. ("Playa N.V.") (see Note 4), reported in accumulated other comprehensive loss at December 31, 2017 will be reclassified to retained earnings, and any subsequent changes in fair value will be recognized in net income on our condensed consolidated statements of income. We are continuing to evaluate the other possible impacts of adopting ASU 2016-01. 

6


In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-02 and expect this ASU may have a material effect on our condensed consolidated financial statements.
In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss model, which requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to AFS debt securities to be recorded through an allowance for credit losses. The provisions of ASU 2016-13 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-13.
In October 2016, the FASB released Accounting Standards Update No. 2016-16 ("ASU 2016-16"), Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of ASU 2016-16 are effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted. ASU 2016-16 requires an entity to adopt the amendments on a modified retrospective basis, recognizing the effects in retained earnings at the beginning of the year of adoption. Upon adoption, we do not expect ASU 2016-16 to have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB released Accounting Standards Update No. 2016-18 ("ASU 2016-18"), Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statements of cash flows. The provisions of ASU 2016-18 are effective for interim periods and fiscal years beginning after December 15, 2017, and are to be applied on a retrospective basis with early adoption permitted. Currently, the transfers between cash and cash equivalents and restricted cash are included within operating and investing activities on our condensed consolidated statement of cash flows. Upon adoption, our restricted cash balances of $340 million and $76 million at June 30, 2017 and December 31, 2016, respectively, will be included in cash, cash equivalents, and restricted cash on our condensed consolidated statements of cash flows.
In January 2017, the FASB released Accounting Standards Update No. 2017-01 ("ASU 2017-01"), Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Generally, our acquisitions of individual hotels are accounted for as business combinations, however, upon adoption of ASU 2017-01, there is an increased likelihood that the acquisitions of individual hotels will be accounted for as asset acquisitions. This standard is effective on a prospective basis, and therefore does not affect the accounting treatment for any previous transactions. The provisions of ASU 2017-01 are effective for interim periods and fiscal years beginning after December 15, 2017. We are continuing to evaluate other potential impacts of adopting ASU 2017-01.
In January 2017, the FASB released Accounting Standards Update No. 2017-04 ("ASU 2017-04"), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the impairment test which requires entities to determine the implied fair value of goodwill to measure if any impairment charge is necessary. Instead, entities will record an impairment charge based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The provisions of ASU 2017-04 are to be applied on a prospective basis and are effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2017-04.


7


3.    EQUITY AND COST METHOD INVESTMENTS
 
June 30, 2017
 
December 31, 2016
Equity method investments
$
175

 
$
180

Cost method investments
6

 
6

Total investments
$
181

 
$
186

During the six months ended June 30, 2017, an unconsolidated hospitality venture, which is classified as an equity method investment within our owned and leased hotels segment, sold a Hyatt Place hotel. We received proceeds of $4 million and recorded a gain of $2 million in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
During the three and six months ended June 30, 2017, we recorded insignificant impairment charges related to our unconsolidated hospitality ventures which are classified as equity method investments. During the three and six months ended June 30, 2016, we recorded a $2 million impairment charge in equity earnings (losses) from unconsolidated hospitality ventures related to one equity method investment.
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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Total revenues
$
179

 
$
342

 
$
453

 
$
626

Gross operating profit
67

 
132

 
145

 
202

Income (loss) from continuing operations
16

 
58

 
(2
)
 
78

Net income (loss)
16

 
58

 
(2
)
 
78


4.    MARKETABLE SECURITIES
We hold marketable securities to fund certain operating programs and for investment purposes. We periodically transfer cash and cash equivalents to time deposits, highly liquid and transparent commercial paper, corporate notes and bonds, U.S. government obligations and obligations of other government agencies 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 the condensed consolidated balance sheets, were as follows:
 
June 30, 2017
 
December 31, 2016
Loyalty program
$
400

 
$
394

Deferred compensation plans held in rabbi trusts (Note 9)
377

 
352

Captive insurance companies
72

 
65

Total marketable securities held to fund operating programs
$
849

 
$
811

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
(116
)
 
(109
)
Marketable securities held to fund operating programs included in other assets
$
733

 
$
702


8


Net gains and interest income from marketable securities held to fund operating programs on the condensed consolidated statements of income included realized and unrealized gains and losses and interest income related to the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2017
 
2016
 
2017
 
2016
Loyalty program
$
1

 
$
2

 
$
1

 
$
3

Deferred compensation plans held in rabbi trusts
9

 
5

 
24

 
5

Total net gains and interest income from marketable securities held to fund operating programs
$
10

 
$
7

 
$
25

 
$
8

Our captive insurance companies hold marketable securities which are classified as AFS and are invested in U.S. government agencies, time deposits and corporate debt securities. We classify these investments as current or long-term, based on their contractual maturity dates, which range from 2017 through 2022.
Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on the condensed consolidated balance sheets, were as follows:
 
June 30, 2017
 
December 31, 2016
Interest bearing money market funds
$
57

 
$
106

Time deposits
45

 
45

Preferred shares

 
290

Common shares
145

 

Total marketable securities held for investment purposes
$
247

 
$
441

Less current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments
(102
)
 
(151
)
Marketable securities held for investment purposes included in other assets
$
145

 
$
290

Fair Value—We measured the following financial assets at fair value on a recurring basis:
 
June 30, 2017
 
Cash and cash equivalents
 
Short-term investments
 
Prepaids and other assets
 
Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
 
 
 
 
 
 
 
 
 
Interest bearing money market funds
$
67

 
$
67

 
$

 
$

 
$

Mutual funds
377

 

 

 

 
377

Common shares
145

 

 

 

 
145

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
58

 

 
46

 

 
12

U.S. government obligations
150

 

 

 
38

 
112

U.S. government agencies
48

 

 
1

 
8

 
39

Corporate debt securities
190

 

 
4

 
38

 
148

Mortgage-backed securities
18

 

 

 
5

 
13

Asset-backed securities
40

 

 

 
10

 
30

Municipal and provincial notes and bonds
3

 

 

 
1

 
2

Total
$
1,096

 
$
67

 
$
51

 
$
100

 
$
878



9


 
December 31, 2016
 
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
$
114

 
$
114

 
$

 
$

 
$

Mutual funds
352

 

 

 

 
352

Level Two - Significant Other Observable Inputs
 
 
 
 
 
 
 
 
 
Time deposits
59

 

 
46

 

 
13

U.S. government obligations
142

 

 

 
33

 
109

U.S. government agencies
53

 

 
9

 
8

 
36

Corporate debt securities
181

 

 
1

 
35

 
145

Mortgage-backed securities
22

 

 

 
5

 
17

Asset-backed securities
34

 

 

 
8

 
26

Municipal and provincial notes and bonds
5

 

 

 
1

 
4

Level Three - Significant Unobservable Inputs
 
 
 
 
 
 
 
 
 
Preferred shares
290

 

 

 

 
290

Total
$
1,252

 
$
114

 
$
56

 
$
90

 
$
992

During the three and six months ended June 30, 2017 and June 30, 2016, there were no transfers between levels of the fair value hierarchy. We currently do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
Preferred shares—During the year ended December 31, 2013, we invested $271 million in Playa Hotels & Resorts B.V. ("Playa") for convertible redeemable preferred shares which were classified as an AFS debt security. The fair value of the preferred shares was: 
 
2017
 
2016
Fair value at January 1
$
290

 
$
335

Gross unrealized losses
(54
)
 
(7
)
Realized losses
(40
)
 

Interest income
94

 

Cash redemption
(290
)
 

Fair value at March 31
$

 
$
328

Gross unrealized gains

 
19

Fair value at June 30
$

 
$
347

In October 2016, Playa redeemed 3,458,530 of our preferred shares plus accrued and unpaid paid in kind ("PIK") dividends thereon for $41 million.
In March 2017, Playa completed a business combination with Pace Holdings Corporation ("Pace"), and our preferred shares plus accrued and unpaid PIK dividends were redeemed in full for $290 million. Upon redemption, we recorded $94 million of interest income and $40 million of realized losses in other income (loss), net on our condensed consolidated statements of income. The realized losses were the result of a difference between the fair value of the initial investment and the contractual redemption price of $8.40 per share.
Common shares—Prior to the Playa business combination, we accounted for our common share investment in Playa as an equity method investment. As a result of the Playa business combination, Playa N.V. is publicly traded on the NASDAQ and our ownership percentage was diluted to 11.57%. As we no longer have the ability to significantly influence Playa, our investment was recharacterized as an AFS equity security in March 2017. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. Our investment is re-measured quarterly at fair value through accumulated other

10


comprehensive loss on our condensed consolidated balance sheets. The remeasurement of our investment at fair value resulted in unrealized gains recorded in other comprehensive income of $127 million at June 30, 2017. In conjunction with the Playa business combination, we also received 1,738,806 of founders' warrants to purchase 579,602 additional shares of Playa N.V.'s common stock and 237,110 of earn-out warrants. During the three months ended June 30, 2017, we completed a non-cash exchange of the founders' warrants for additional common shares in Playa N.V. The earn-out warrants are recorded at a fair value of $2 million within other assets on our condensed consolidated balance sheets at June 30, 2017.
Held-to-Maturity Debt Securities—At June 30, 2017 and December 31, 2016, we had investments in held-to-maturity ("HTM") debt securities of $30 million and $27 million, respectively, which are investments in third-party entities that own certain of our hotels. The amortized costs of our investments approximate fair value and are classified as Level Three in the fair value hierarchy. The securities are mandatorily redeemable between 2020 and 2025.

5.    FINANCING RECEIVABLES

 
June 30, 2017
 
December 31, 2016
Unsecured financing to hotel owners
$
124

 
$
119

Less allowance for losses
(105
)
 
(100
)
Total long-term financing receivables, net
$
19

 
$
19

Allowance for Losses and Impairments—The following table summarizes the activity in our financing receivables allowance:
 
2017
 
2016
Allowance at January 1
$
100

 
$
98

  Provisions
2

 
1

  Other adjustments
1

 
1

Allowance at March 31
$
103

 
$
100

  Provisions
2

 
3

Allowance at June 30
$
105

 
$
103

Credit Monitoring—Our unsecured financing receivables were as follows:
 
June 30, 2017
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
13

 
$

 
$
13

 
$

Impaired loans (1)
59

 
(59
)
 

 
59

Total loans
72

 
(59
)
 
13

 
59

Other financing arrangements
52

 
(46
)
 
6

 
46

Total unsecured financing receivables
$
124

 
$
(105
)
 
$
19

 
$
105

(1) The unpaid principal balance was $44 million and the average recorded loan balance was $58 million at June 30, 2017.

11


 
December 31, 2016
 
Gross loan balance (principal and interest)
 
Related allowance
 
Net financing receivables
 
Gross receivables on non-accrual status
Loans
$
13

 
$

 
$
13

 
$

Impaired loans (2)
56

 
(56
)
 

 
56

Total loans
69

 
(56
)
 
13

 
56

Other financing arrangements
50

 
(44
)
 
6

 
44

Total unsecured financing receivables
$
119

 
$
(100
)
 
$
19

 
$
100

(2) The unpaid principal balance was $43 million and the average recorded loan balance was $57 million at December 31, 2016.
Fair Value—We estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be $19 million at June 30, 2017 and December 31, 2016.

6.    ACQUISITIONS AND DISPOSITIONS
Acquisitions
Miraval—During the six months ended June 30, 2017, we acquired Miraval Group from an unrelated third party. The transaction included the Miraval Life in Balance Spa brand, Miraval Arizona Resort & Spa in Tucson, Arizona, Travaasa Resort in Austin, Texas, and the option to acquire Cranwell Spa & Golf Resort ("Cranwell") in Lenox, Massachusetts. We subsequently exercised our option and acquired approximately 95% of Cranwell during the six months ended June 30, 2017. These transactions are collectively referred to as "Miraval." Total cash consideration for Miraval was $237 million.
The following table summarizes the fair value of the identifiable net assets acquired in the acquisition of Miraval, which is recorded within corporate and other:
 
 
Current assets, net of cash acquired
$
2

Property and equipment
173

Indefinite-lived intangibles (1)
37

Management agreement intangibles (2)
14

Goodwill (3)
17

Other definite-lived intangibles (4)
7

Total assets
$
250

 
 
Current liabilities
$
11

Deferred tax liabilities
3

Total liabilities
14

Total net assets acquired attributable to Hyatt Hotels Corporation
236

Total net assets acquired attributable to noncontrolling interests
1

Total net assets acquired
$
237

 
 
(1) Includes an intangible attributable to the Miraval brand.
(2) Amortized over a useful life of 20 years.
(3) The goodwill, of which $8 million is deductible for tax purposes, is attributable to Miraval's reputation as a renowned provider of wellness and mindfulness experiences, the extension of the Hyatt brand beyond traditional hotel stays, and the establishment of deferred tax liabilities.
(4) Amortized over useful lives ranging from two to seven years.

12


In conjunction with the acquisition of Miraval, a consolidated hospitality venture for which we are the managing member (the "Miraval Venture") issued $9 million of redeemable preferred shares to unrelated third-party investors. The preferred shares are non-voting, except as required by applicable law and certain contractual approval rights, and have liquidation preference over all other classes of securities within the Miraval Venture. The redeemable preferred shares earn a return of 12% and a redemption premium that increases over time depending on the length of time the redeemable preferred shares are outstanding. The preferred shares are redeemable at various time periods at the option of the Miraval Venture starting 12 months from the date of issuance. If not redeemed by the Miraval Venture prior to the two-year anniversary, the preferred shareholders have the option to require redemption of all preferred shares outstanding. The preferred shares are also redeemable upon the occurrence of certain change-in-control events. Under the current terms, the shares are classified as a redeemable noncontrolling interest in preferred shares of a subsidiary, which are presented between liabilities and equity on our condensed consolidated balance sheets and carried at the current redemption value.
The Confidante Miami Beach—During the three months ended June 30, 2016, we acquired Thompson Miami Beach for a purchase price of approximately $238 million, from a seller indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman. Of the $238 million purchase price, assets acquired consist of $228 million of property and equipment, which was recorded in our owned and leased hotels segment, and $10 million of management agreement intangibles, which were recorded in our Americas management and franchising segment and are being amortized over a useful life of 20 years. We rebranded this hotel as The Confidante Miami Beach and added the hotel to The Unbound Collection by Hyatt. The purchase of The Confidante Miami Beach was structured and identified as replacement property in a potential reverse like-kind exchange agreement, but the allowable period to complete the exchange expired during the fourth quarter of 2016.
Dispositions
Hyatt Regency Grand Cypress—During the three months ended June 30, 2017, we sold Hyatt Regency Grand Cypress to an unrelated third party for $202 million, net of closing costs and proration adjustments, and entered into a long-term management agreement with the owner of the property. The sale resulted in a pre-tax gain of $26 million which was deferred and is being recognized in management and franchise fees over the term of the management agreement within our Americas management and franchising segment. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment. Proceeds from the sale of Hyatt Regency Grand Cypress are held as restricted for use in a potential like-kind exchange.
Hyatt Regency Louisville—During the three months ended June 30, 2017, we sold Hyatt Regency Louisville to an unrelated third party for $65 million, net of closing costs and proration adjustments, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $35 million, which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the three and six months ended June 30, 2017. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment. Proceeds from the sale of Hyatt Regency Louisville are held as restricted for use in a potential like-kind exchange.
Land Held for Development—During the three months ended June 30, 2017, we sold land and construction in progress for $29 million to an unconsolidated hospitality venture in which we have a 50% ownership interest, with the intent to complete development of a hotel in Glendale, California. The sale resulted in a pre-tax loss of $1 million, which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the three and six months ended June 30, 2017.
Andaz 5th Avenue—During the three months ended June 30, 2016, we sold Andaz 5th Avenue to an unrelated third party for $240 million, net of $10 million of closing costs and proration adjustments and entered into a long-term management agreement with the owner of the property. The sale resulted in a pre-tax loss of $21 million which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the three and six months ended June 30, 2016. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
As a result of certain dispositions, we have agreed to provide customary indemnifications to third-party purchasers for certain liabilities incurred prior to sale and for breach of certain representations and warranties made during the sales process, such as representations of valid title, authority, and environmental issues that may not be limited by a contractual monetary amount. These indemnification agreements survive until the applicable statutes of limitation expire or until the agreed upon contract terms expire.

13


Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain hotels. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary. The proceeds are 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.

7.    INTANGIBLES, NET
 
June 30, 2017
 
Weighted-
average useful
lives in years
 
December 31, 2016
Management and franchise agreement intangibles
$
630

 
25

 
$
589

Lease related intangibles
121

 
111

 
115

Brand and other indefinite-lived intangibles
53

 

 
16

Advanced bookings intangibles
12

 
6

 
11

Other definite-lived intangibles
9

 
11

 
6

 
825

 
 
 
737

Accumulated amortization
(154
)
 
 
 
(138
)
Intangibles, net
$
671

 
 
 
$
599


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Amortization expense
$
8

 
$
6

 
$
15

 
$
13


8.    DEBT
Long-term debt, net of current maturities was $1,446 million and $1,445 million at June 30, 2017 and December 31, 2016, respectively.
Revolving Credit Facility—During the six months ended June 30, 2017, we had borrowings of $420 million and repayments of $290 million on our revolving credit facility. The weighted-average interest rate on these borrowings was 2.02% at June 30, 2017. At June 30, 2017 and December 31, 2016, we had $230 million and $100 million outstanding, respectively. At June 30, 2017, we had $1.3 billion available on our revolving credit facility.
Senior Notes—During the six months ended June 30, 2016, we issued $400 million of 4.850% senior notes due 2026, at an issue price of 99.920% (the "2026 Notes"). We received net proceeds of $396 million from the sale of the 2026 Notes, after deducting discounts and offering expenses of approximately $4 million. We used a portion of the net proceeds to pay for the redemption of $250 million of 3.875% senior notes due 2016 (the "2016 Notes") (as described below), with the remaining proceeds intended to be used for general corporate purposes. Interest on the 2026 Notes is payable semi-annually on March 15 and September 15 of each year.
The 2026 Notes, together with our $196 million of 6.875% senior notes due 2019 (the "2019 Notes"), $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), and $350 million of 3.375% senior notes due 2023 (the "2023 Notes"), are collectively referred to as the "Senior Notes."
Debt Redemption—During the three months ended June 30, 2016, we redeemed all of our outstanding 2016 Notes, of which an aggregate principal amount of $250 million was outstanding. The redemption price, which was calculated in accordance with the terms of the 2016 Notes and included principal and accrued interest plus a make-whole premium, was $254 million. The make-whole premium was recorded within other income (loss), net on our condensed consolidated statements of income, see Note 17.

14


Senior Secured Term LoanDuring the six months ended June 30, 2016, we repaid the senior secured term loan of $64 million related to Hyatt Regency Lost Pines Resort and Spa.
Fair Value—We estimated the fair value of debt, excluding capital leases, which consists of our 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 availability of market data, we have classified our revolving credit facility and other debt as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.
 
June 30, 2017
 
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)
$
1,688

 
$
1,794

 
$

 
$
1,473

 
$
321

(1) Excludes capital lease obligations of $14 million and unamortized discounts and deferred financing fees of $15 million.
 
December 31, 2016
 
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)
$
1,565

 
$
1,642

 
$

 
$
1,450

 
$
192

(2) Excludes capital lease obligations of $15 million and unamortized discounts and deferred financing fees of $16 million.

9.    LIABILITIES
 
June 30, 2017
 
December 31, 2016
Deferred gains on sales of hotel properties
$
378

 
$
363

Deferred compensation plans (Note 4)
377

 
352

Loyalty program liability
292

 
296

Guarantee liabilities (Note 11)
118

 
124

Other
365

 
337

Total other long-term liabilities
$
1,530

 
$
1,472

Accrued expenses and other current liabilities included $150 million and $139 million of liabilities related to our loyalty program at June 30, 2017 and December 31, 2016, respectively.

10.    INCOME TAXES
The effective income tax rates for the three months ended June 30, 2017 and June 30, 2016, were 34.1% and 24.7%, respectively. The effective income tax rates for the six months ended June 30, 2017 and June 30, 2016, were 35.3% and 27.2%, respectively. Our effective tax rates increased for the three and six months ended June 30, 2017 compared to the three and six months ended June 30, 2016, primarily due to the favorable impact of the reversal of uncertain tax positions in 2016 and the impact of foreign losses not benefited in 2017.
Unrecognized tax benefits were $91 million and $86 million at June 30, 2017 and December 31, 2016, respectively, of which $6 million and $5 million, respectively, would impact the effective tax rates if recognized.
During the first quarter of 2017, the Internal Revenue Service ("IRS") issued a "Notice of Deficiency" for our 2009 through 2011 tax years. We disagree with the IRS' assessment as it relates to the inclusion of loyalty program contributions as taxable income to the Company. In the second quarter of 2017, we filed a petition with the United States Tax Court for redetermination of the tax liability asserted by the IRS related to our loyalty program. If the IRS' position is upheld, it would result in an income tax liability of $119 million (including $26 million of estimated interest,

15


net of federal tax benefit) for the years under audit that would be primarily offset by a deferred tax asset, and therefore, only the related interest would have an impact on the effective tax rate if recognized. We believe we have adequate tax reserves in connection with this matter.

11.    COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements, which are discussed below:
Commitments—At June 30, 2017, we are committed, under certain conditions, to lend or invest up to $437 million, net of any related letters of credit, in various business ventures.
Performance Guarantees—Certain of our contractual agreements with third-party owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels.
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, with approximately three years remaining. This guarantee has a maximum cap, but does not have an annual cap. The remaining maximum exposure related to our performance guarantees at June 30, 2017 was $378 million, of which €293 million ($335 million using exchange rates at June 30, 2017) related to the four managed hotels in France.
We had total net performance guarantee liabilities of $69 million and $79 million at June 30, 2017 and December 31, 2016, which included $53 million and $55 million recorded in other long-term liabilities, $17 million and $24 million in accrued expenses and other current liabilities, and $1 million and insignificant receivables on our condensed consolidated balance sheets, respectively. Our total performance guarantee liabilities are comprised of the fair value of the guarantee obligation liabilities recorded upon inception, net of amortization and any separate contingent liabilities, net of cash payments. Performance guarantee expense or income and income from amortization of the guarantee obligation liabilities are recorded in other income (loss), net on our condensed consolidated statements of income, see Note 17.
 
 
The four managed hotels in France
 
Other performance guarantees
 
All performance guarantees
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Beginning balance, January 1
 
$
66

 
$
93

 
$
13

 
$
4

 
$
79

 
$
97

Amortization of initial guarantee obligation liability into income
 
(3
)
 
(8
)
 
(1
)
 

 
(4
)
 
(8
)
Performance guarantee expense, net
 
26

 
19

 

 

 
26

 
19

Net payments during the period
 
(22
)
 
(14
)
 
(4
)
 
(1
)
 
(26
)
 
(15
)
Foreign currency exchange, net
 
2

 
4

 

 

 
2

 
4

Ending balance, March 31
 
$
69

 
$
94

 
$
8

 
$
3

 
$
77

 
$
97

Initial guarantee obligation liability upon inception
 

 

 
3

 

 
3

 

Amortization of initial guarantee obligation liability into income
 
(4
)
 
(9
)
 
(1
)
 

 
(5
)
 
(9
)
Performance guarantee expense (income), net
 
15

 
10

 
(1
)
 
(2
)
 
14

 
8

Net (payments) receipts during the period
 
(27
)
 
(20
)
 
3

 
1

 
(24
)
 
(19
)
Foreign currency exchange, net
 
4

 
(1
)
 

 

 
4

 
(1
)
Ending balance, June 30
 
$
57

 
$
74

 
$
12

 
$
2

 
$
69

 
$
76

Additionally, we enter into certain management contracts where we have the right, but not an obligation, to make payments to certain hotel owners if their hotels do not achieve specified levels of operating profit. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management contract. At June 30, 2017 and December 31, 2016, there were no amounts recorded on our condensed consolidated balance sheets related to these performance test clauses.

16


Debt Repayment Guarantees—We enter into various debt repayment guarantees related to our unconsolidated hospitality ventures and certain managed or franchised hotels. Typically, we enter into debt repayment guarantees in order to assist hotel owners in obtaining third-party financing or to obtain more favorable borrowing terms. Included within debt repayment guarantees are the following:
Property Description
 
Maximum potential future payments
 
Maximum exposure net of recoverability from third parties
 
Other long-term liabilities recorded at June 30, 2017
 
Other long-term liabilities recorded at December 31, 2016
 
Year of guarantee expiration
Hotel property in Washington State (1), (3), (4), (5)
 
$
215

 
$

 
$
30

 
$
35

 
2020
Hotel properties in India (2), (3)
 
186

 
186

 
19

 
21

 
2020
Hotel property in Brazil (1)
 
80

 
40

 
3

 
3

 
2020
Hotel property in Minnesota
 
25

 
25

 
2

 
2

 
2021
Hotel property in Arizona (1), (4)
 
25

 

 
2

 
2

 
2019
Hotel properties in California (1)
 
31

 
13

 
6

 
6

 
various, through 2021
Other (1)
 
36

 
14

 
3

 

 
various, through 2021
Total
 
$
598

 
$
278

 
$
65

 
$
69

 
 
(1) We have agreements with our unconsolidated hospitality venture partner, the respective hotel owners or other third parties to recover certain amounts funded under the debt repayment guarantee; the recoverability mechanism may be in the form of cash, financing receivable, or HTM debt security.
(2) Debt repayment guarantee is denominated in Indian rupees and translated using exchange rates at June 30, 2017. We have the contractual right to recover amounts funded from the unconsolidated hospitality venture, which is a related party. We expect our maximum exposure to be $93 million, taking into account our partner’s 50% ownership interest in the unconsolidated hospitality venture.
(3) Under certain events or conditions, we have the right to force the sale of the property(ies) in order to recover amounts funded.
(4) If certain funding thresholds are met or if certain events occur, we have the ability to assume control of the property.
(5) We are subject to a completion guarantee whereby the parties agree to substantially complete the construction of the project by a specified date. In the event of default, we are obligated to complete construction using the funds available from the outstanding loan. Any additional funds paid by us are subject to recovery through a HTM debt security.
At June 30, 2017, the hotel owners are current on their debt service obligations.
Guarantee Liabilities Fair Value—We estimated the fair value of our guarantees to be $225 million and $231 million at June 30, 2017 and December 31, 2016, respectively. Due to the lack of readily available market data, we have classified our guarantees as Level Three in the fair value hierarchy.
Insurance—We obtain commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property and other miscellaneous coverages. A portion of the risk is retained on a self-insurance basis primarily through U.S. based and licensed captive insurance companies that are wholly owned subsidiaries of Hyatt and generally insure our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Losses estimated to be paid within 12 months are $33 million and $30 million at June 30, 2017 and December 31, 2016, respectively, and are classified within accrued expenses and other current liabilities on our condensed consolidated balance sheets, while losses expected to be payable in future periods are $63 million and $62 million at June 30, 2017 and December 31, 2016, respectively, and are included in other long-term liabilities on our condensed consolidated balance sheets. At

17


June 30, 2017, standby letters of credit of $7 million were issued to provide collateral for the estimated claims, which are guaranteed by us.
Collective Bargaining Agreements—At June 30, 2017, approximately 25% of our U.S. based employees were covered by various collective bargaining agreements, generally providing for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Certain employees are covered by union sponsored multi-employer pension and health plans pursuant to agreements between us and various unions. Generally, labor relations have been maintained in a normal and satisfactory manner, and we believe our employee relations are good.
Surety Bonds—Surety bonds issued on our behalf were $25 million at June 30, 2017 and primarily relate to workers’ compensation, taxes, licenses and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf at June 30, 2017 were $239 million, which relate to our ongoing operations, collateral for estimated insurance claims, and securitization of our performance under our debt repayment guarantee associated with the hotel properties in India, which is only called upon if we default on our guarantee. The letters of credit outstanding do not reduce the available capacity under our revolving credit facility.
Capital Expenditures—As part of our ongoing business operations, significant expenditures are required to complete renovation projects that have been approved.
Other—We act as general partner of various partnerships owning hotel properties subject to mortgage indebtedness. These mortgage agreements generally limit the lender's recourse to security interests in assets financed and/or other assets of the partnership(s) and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures and certain managed hotels, we may provide standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or actions of the other unconsolidated hospitality venture owners.
We are subject, from time to time, to various claims and contingencies related to lawsuits, taxes and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under our current insurance programs, subject to deductibles. We recognize a liability associated with commitments and contingencies when a loss is probable and reasonably estimable. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.


18


12.    EQUITY
 
Stockholders'
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2017
$
3,903

 
$
5

 
$
3,908

Net income
157

 

 
157

Other comprehensive income
105

 

 
105

Contributions from noncontrolling interests

 
1

 
1

Repurchase of common stock
(348
)
 

 
(348
)
Directors compensation
2

 

 
2

Employee stock plan issuance
2

 

 
2

Share-based payment activity
16

 

 
16

Balance at June 30, 2017
$
3,837

 
$
6

 
$
3,843

 
 
 
 
 
 
 
Stockholders'
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2016
$
3,991

 
$
4

 
$
3,995

Net income
101

 

 
101

Other comprehensive income
23

 

 
23

Repurchase of common stock
(131
)
 

 
(131
)
Directors compensation
2

 

 
2

Employee stock plan issuance
2

 

 
2

Share-based payment activity
16

 

 
16

Balance at June 30, 2016
$
4,004

 
$
4

 
$
4,008


19


Accumulated Other Comprehensive Loss
 
Balance at
April 1, 2017
 
Current period other comprehensive income before reclassification
 
Amount reclassified from accumulated other comprehensive loss
 
Balance at June 30, 2017
Foreign currency translation adjustments
$
(258
)
 
$
19

 
$

 
$
(239
)
Unrealized gains on AFS securities
67

 
11

 

 
78

Unrecognized pension cost
(7
)
 

 

 
(7
)
Unrealized losses on derivative instruments
(4
)
 

 

 
(4
)
Accumulated other comprehensive income (loss)
$
(202
)
 
$
30

 
$

 
$
(172
)
 
 
 
 
 
 
 
 
 
Balance at
January 1, 2017
 
Current period other comprehensive income before reclassification
 
Amount reclassified from accumulated other comprehensive loss
 
Balance at
June 30, 2017
Foreign currency translation adjustments
$
(299
)
 
$
60

 
$

 
$
(239
)
Unrealized gains on AFS securities
33

 
45

 

 
78

Unrecognized pension cost
(7
)
 

 

 
(7
)
Unrealized losses on derivative instruments
(4
)
 

 

 
(4
)
Accumulated other comprehensive income (loss)
$
(277
)
 
$
105

 
$

 
$
(172
)
 
 
 
 
 
 
 
 
 
Balance at
April 1, 2016
 
Current period other comprehensive income (loss) before reclassification
 
Amount reclassified from accumulated other comprehensive loss
 
Balance at
June 30, 2016
Foreign currency translation adjustments
$
(233
)
 
$
(9
)
 
$

 
$
(242
)
Unrealized gains on AFS securities
35

 
12

 

 
47

Unrecognized pension cost
(7
)
 

 

 
(7
)
Unrealized losses on derivative instruments
(5
)
 

 

 
(5
)
Accumulated other comprehensive income (loss)
$
(210
)
 
$
3

 
$

 
$
(207
)
 
 
 
 
 
 
 
 
 
Balance at
January 1, 2016
 
Current period other comprehensive income before reclassification
 
Amount reclassified from accumulated other comprehensive loss
 
Balance at
June 30, 2016
Foreign currency translation adjustments
$
(257
)
 
$
15

 
$

 
$
(242
)
Unrealized gains on AFS securities
39

 
8

 

 
47

Unrecognized pension cost
(7
)
 

 

 
(7
)
Unrealized losses on derivative instruments
(5
)
 

 

 
(5
)
Accumulated other comprehensive income (loss)
$
(230
)
 
$
23

 
$

 
$
(207
)
Share RepurchasesDuring 2017, 2016 and 2015, our board of directors authorized the repurchase of up to $500 million, $500 million and $400 million, respectively, of our common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan, at prices we deem appropriate and subject to market conditions, applicable law and other factors

20


deemed relevant in our sole discretion. The common stock repurchase program applies to our Class A common stock and our Class B common stock. The common stock repurchase program does not obligate us to repurchase any dollar amount or number of shares of common stock and the program may be suspended or discontinued at any time.
In March 2017, we entered into an accelerated share repurchase program ("2017 ASR") with a third-party financial institution. Under the 2017 ASR agreement, we paid $300 million and received an initial delivery of 4,596,822 Class A shares, which were repurchased at a price of $52.21 per share. This initial delivery of shares represents the minimum number of shares that we may receive under the agreement and was accounted for as a reduction to stockholders’ equity on the condensed consolidated balance sheets. Upon settlement of the 2017 ASR in the third quarter, the total number of shares ultimately delivered is determined based on the volume-weighted-average price of our common stock during that period. At June 30, 2017, the remaining shares yet to be delivered, totaled $60 million and were accounted for as an equity-classified forward contract. Subsequent to June 30, 2017, 500,000 Class A shares were delivered under partial settlement of the 2017 ASR. The initial delivery of shares resulted in a reduction in the weighted-average common shares calculation for basic and diluted earnings per share. See Note 16.
During the six months ended June 30, 2017, we repurchased 5,480,636 Class A shares, including shares repurchased pursuant to the 2017 ASR. The shares of common stock were repurchased at a weighted-average price of $52.48 per share for an aggregate purchase price of $288 million, excluding related insignificant expenses. Total shares repurchased during the six months ended June 30, 2017 represented approximately 4% of our total shares of common stock outstanding at December 31, 2016.
During the six months ended June 30, 2016, we repurchased 2,948,990 shares. The shares of common stock were repurchased at a weighted-average price of $44.47 per share for an aggregate purchase price of $131 million, excluding related insignificant expenses. The shares repurchased during the six months ended June 30, 2016 represented approximately 2% of our total shares of common stock outstanding at December 31, 2015.
The shares of Class A common stock repurchased on the open market were retired and returned to the status of authorized and unissued shares. At June 30, 2017, we had approximately $509 million remaining under the share repurchase authorization.

13.    STOCK-BASED COMPENSATION
As part of our Long-Term Incentive Plan ("LTIP"), we award Stock Appreciation Rights ("SARs"), Restricted Stock Units ("RSUs"), Performance Share Units ("PSUs") and Performance Vesting Restricted Stock ("PSs") to certain employees. Compensation expense and unearned compensation presented below exclude amounts related to employees of our managed hotels and other employees whose payroll is reimbursed, as this expense has been and will continue to be reimbursed by our third-party hotel owners and is recorded in other revenues from managed properties and other costs from managed properties on our condensed consolidated statements of income. Stock-based compensation expense included in selling, general, and administrative expense on our condensed consolidated statements of income related to these awards was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
SARs
$
1

 
$
1

 
$
9

 
$
8

RSUs
3

 
3

 
11

 
11

PSUs and PSs
1

 

 
1

 
1

Total stock-based compensation recorded within selling, general, and administrative expenses
$
5

 
$
4

 
$
21

 
$
20

SARs—During the six months ended June 30, 2017, we granted 605,601 SARs to employees with a weighted-average grant date fair value of $16.35.
RSUs— During the six months ended June 30, 2017, we granted 417,794 RSUs to employees with a weighted-average grant date fair value of $52.67.

21


PSUs—During the six months ended June 30, 2017, we granted 102,115 PSUs to our executive officers, with a weighted-average grant date fair value of $52.65. The performance period applicable to such PSUs is a three year period beginning January 1, 2017 and ending December 31, 2019.
Our total unearned compensation for our stock-based compensation programs at June 30, 2017 was $7 million for SARs, $20 million for RSUs and $6 million for PSUs and PSs, which will primarily be recorded to compensation expense over the next three years with respect to SARs and RSUs, and over the next two years with respect to PSUs and PSs.

14.    RELATED-PARTY TRANSACTIONS
In addition to those included elsewhere in the Notes to our condensed consolidated financial statements, related-party transactions entered into by us are summarized as follows:
Leases—Our corporate headquarters have been located at the Hyatt Center in Chicago, Illinois, since 2005. A subsidiary of the Company holds a master lease for a portion of the Hyatt Center and has entered into sublease agreements with certain related parties. Future expected sublease income for this space from related parties is $3 million.
Legal Services—A partner in a law firm that provided services to us throughout the six months ended June 30, 2017 and June 30, 2016, is the brother-in-law of our Executive Chairman. We incurred $1 million and insignificant legal fees with this firm for the three months ended June 30, 2017 and June 30, 2016, respectively. We incurred $2 million and insignificant legal fees with this firm during the six months ended June 30, 2017 and June 30, 2016, respectively. Legal fees, when expensed, are included in selling, general, and administrative expenses. At June 30, 2017 and December 31, 2016, we had $1 million and insignificant amounts due to the law firm, respectively.
Equity Method Investments—We have equity method investments in entities that own properties for which we receive management or franchise fees. We recorded fees of $6 million and $8 million for the three months ended June 30, 2017 and June 30, 2016, respectively. We recorded fees of $12 million and $14 million for the six months ended June 30, 2017 and June 30, 2016, respectively. At June 30, 2017 and December 31, 2016, we had receivables due from these properties of $8 million and $7 million, respectively. Our ownership interest in these unconsolidated hospitality ventures generally varies from 24% to 70%. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 11) to these entities. During the three months ended June 30, 2017 and June 30, 2016, we recorded fees related to these guarantees of $2 million and $1 million, respectively. We recorded fees related to these guarantees of $3 million and $2 million during the six months ended June 30, 2017 and June 30, 2016, respectively.
Class B Share Conversion—During the three and six months ended June 30, 2017, 4,233,000 shares and 4,772,370 shares of Class B common stock, respectively, were converted on a share-for-share basis into shares of our Class A common stock, $0.01 par value per share, of which 539,370 shares were retired during the three months ended June 30, 2017. The remaining 4,233,000 shares of Class B common stock were retired subsequent to June 30, 2017. The retirements thereby reduce the shares of Class B common stock authorized and outstanding.

15.    SEGMENT INFORMATION
Our reportable segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is our President and Chief Executive Officer. We define our reportable segments as follows:
Owned and leased hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations and for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture. Adjusted EBITDA includes intercompany expenses related to management fees paid to the Company's management and franchising segments, which are eliminated in consolidation. Intersegment revenues relate to promotional award redemptions at our owned and leased hotels related to our co-branded credit card, which are eliminated in consolidation.

22


Americas management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in the United States, Latin America, Canada and the Caribbean. This segment's revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded within other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees earned from the Company's owned hotels, which are eliminated in consolidation.
ASPAC management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Southeast Asia, as well as Greater China, Australia, South Korea, Japan and Micronesia. This segment's revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to reservations, marketing and technology costs. These revenues and costs are recorded within other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees earned from the Company's owned hotels, which are eliminated in consolidation.
EAME/SW Asia management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Europe, Africa, the Middle East, India, Central Asia and Nepal. This segment's revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to reservations, marketing and technology costs. These revenues and costs are recorded within other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees earned from the Company's owned hotels, which are eliminated in consolidation.
Our chief operating decision maker evaluates performance based on each segment's revenue and Adjusted EBITDA. Adjusted EBITDA, as we define it, is a non-GAAP measure. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated hospitality ventures Adjusted EBITDA based on our ownership percentage of each venture, adjusted to exclude interest expense; provision for income taxes; depreciation and amortization; equity earnings (losses) from unconsolidated hospitality ventures; stock-based compensation expense; gains (losses) on sales of real estate and other income (loss), net.


23


The table below shows summarized consolidated financial information by segment. Included within corporate and other are unallocated corporate expenses, results related to Miraval, license fees related to Hyatt Residence Club and results related to our co-branded credit card.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Owned and leased hotels
 
 
 
 
 
 
 
Owned and leased hotels revenues
$
562

 
$
559

 
$
1,120

 
$
1,075

Other revenues

 

 
13

 

Intersegment revenues (a)
2

 

 
4

 

Adjusted EBITDA
136


149


279


280

Depreciation and amortization
73

 
72

 
147

 
140

Americas management and franchising
 
 
 
 
 
 
 
Management and franchise fees revenues
109

 
100

 
213

 
191

Other revenues from managed properties
431

 
436

 
859

 
857

Intersegment revenues (a)
21

 
21

 
43

 
41

Adjusted EBITDA
97

 
89

 
187

 
165

Depreciation and amortization
4

 
4

 
9

 
9

ASPAC management and franchising
 
 
 
 
 
 
 
Management and franchise fees revenues
27

 
22

 
52

 
44

Other revenues from managed properties
26

 
27

 
52

 
48

Intersegment revenues (a)
1

 

 
1

 

Adjusted EBITDA
16

 
12

 
31

 
24

Depreciation and amortization
1

 
1

 
1

 
1

EAME/SW Asia management and franchising
 
 
 
 
 
 
 
Management and franchise fees revenues
17

 
16

 
33

 
32

Other revenues from managed properties
16

 
17

 
33

 
32

Intersegment revenues (a)
2

 
4

 
4

 
6

Adjusted EBITDA
9

 
8

 
17

 
16

Depreciation and amortization
2

 
2

 
3

 
3

Corporate and other
 
 
 
 
 
 
 
Revenues
33

 
13

 
59

 
22

Adjusted EBITDA
(29
)
 
(31
)
 
(58
)
 
(64
)
Depreciation and amortization
11

 
7

 
22

 
14

Eliminations
 
 
 
 
 
 
 
Revenues (a)
(26
)
 
(25
)
 
(52
)
 
(47
)
Adjusted EBITDA (b)

 

 
1

 

Depreciation and amortization

 

 

 

TOTAL
 
 
 
 
 
 
 
Revenues
$
1,195

 
$
1,165

 
$
2,382

 
$
2,254

Adjusted EBITDA
229

 
227

 
457

 
421

Depreciation and amortization
91

 
86

 
182

 
167

(a)
Intersegment revenues are included in the management and franchise fees revenues and owned and leased hotels revenues and are eliminated in Eliminations.
(b)
Includes expenses recorded by our owned and leased hotels related to billings for depreciation of technology-related capital assets.

24


The table below provides a reconciliation of our net income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to our consolidated Adjusted EBITDA: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to Hyatt Hotels Corporation
$
87

 
$
67

 
$
157

 
$
101

Interest expense
20

 
20

 
41

 
37

Provision for income taxes
45

 
21

 
86

 
37

Depreciation and amortization
91

 
86

 
182

 
167

EBITDA
243

 
194

 
466

 
342

Equity (earnings) losses from unconsolidated hospitality ventures
(1
)
 
(19
)
 
2

 
(21
)
Stock-based compensation expense (Note 13)
5

 
4

 
21

 
20

(Gains) losses on sales of real estate (Note 6)
(34
)
 
21

 
(34
)
 
21

Other (income) loss, net (Note 17)
(2
)
 
(1
)
 
(42
)
 
3

Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA
18

 
28

 
44

 
56

Adjusted EBITDA
$
229

 
$
227

 
$
457

 
$
421



25


16.    EARNINGS PER SHARE
The calculation of basic and diluted earnings per share, including a reconciliation of the numerator and denominator, are as follows:
<