UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016March 31, 2017
OR
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¨ | 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)
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Delaware | | 20-1480589 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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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, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
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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 OctoberApril 28, 2016,2017, there were 23,611,57535,162,851 shares of the registrant’s Class A common stock, $0.01 par value, outstanding and 107,247,32690,323,839 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 SEPTEMBER 30, 2016MARCH 31, 2017
TABLE OF CONTENTS
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| PART I – FINANCIAL INFORMATION | |
Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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| PART II – OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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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 | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
REVENUES: | | | | | | | | | | |
Owned and leased hotels | $ | 519 |
| | $ | 500 |
| | $ | 1,594 |
| | $ | 1,549 |
| $ | 572 |
| | $ | 516 |
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Management and franchise fees | 110 |
| | 103 |
| | 332 |
| | 320 |
| 122 |
| | 107 |
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Other revenues | 11 |
| | 10 |
| | 31 |
| | 26 |
| 22 |
| | 9 |
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Other revenues from managed properties | 448 |
| | 440 |
| | 1,385 |
| | 1,324 |
| 471 |
| | 457 |
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Total revenues | 1,088 |
| | 1,053 |
| | 3,342 |
| | 3,219 |
| 1,187 |
| | 1,089 |
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DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES: | | | | | | | | | | |
Owned and leased hotels | 402 |
| | 385 |
| | 1,204 |
| | 1,160 |
| 427 |
| | 389 |
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Depreciation and amortization | 87 |
| | 78 |
| | 254 |
| | 233 |
| 91 |
| | 81 |
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Other direct costs | 8 |
| | 8 |
| | 23 |
| | 20 |
| 19 |
| | 6 |
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Selling, general, and administrative | 74 |
| | 54 |
| | 237 |
| | 221 |
| 99 |
| | 88 |
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Other costs from managed properties | 448 |
| | 440 |
| | 1,385 |
| | 1,324 |
| 471 |
| | 457 |
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Direct and selling, general, and administrative expenses | 1,019 |
| | 965 |
| | 3,103 |
| | 2,958 |
| 1,107 |
| | 1,021 |
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Net gains (losses) and interest income from marketable securities held to fund operating programs | 12 |
| | (15 | ) | | 20 |
| | (6 | ) | |
Net gains and interest income from marketable securities held to fund operating programs | | 15 |
| | 1 |
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Equity earnings (losses) from unconsolidated hospitality ventures | 25 |
| | (17 | ) | | 46 |
| | (46 | ) | (3 | ) | | 2 |
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Interest expense | (20 | ) | | (17 | ) | | (57 | ) | | (51 | ) | (21 | ) | | (17 | ) |
Asset impairments | — |
| | (5 | ) | | — |
| | (5 | ) | |
Gains (losses) on sales of real estate | — |
| | — |
| | (21 | ) | | 9 |
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Other income (loss), net | 4 |
| | 11 |
| | 1 |
| | (3 | ) | 40 |
| | (4 | ) |
INCOME BEFORE INCOME TAXES | 90 |
| | 45 |
| | 228 |
| | 159 |
| 111 |
| | 50 |
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PROVISION FOR INCOME TAXES | (28 | ) | | (20 | ) | | (65 | ) | | (72 | ) | (41 | ) | | (16 | ) |
NET INCOME | 62 |
| | 25 |
| | 163 |
| | 87 |
| 70 |
| | 34 |
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NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | — |
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NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | — |
| | — |
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NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION | $ | 62 |
| | $ | 25 |
| | $ | 163 |
| | $ | 87 |
| $ | 70 |
| | $ | 34 |
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EARNINGS PER SHARE—Basic | | | | | | | | | | |
Net income | $ | 0.48 |
| | $ | 0.18 |
| | $ | 1.22 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
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Net income attributable to Hyatt Hotels Corporation | $ | 0.48 |
| | $ | 0.18 |
| | $ | 1.22 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
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EARNINGS PER SHARE—Diluted | | | | | | | | | | |
Net income | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.21 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
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Net income attributable to Hyatt Hotels Corporation | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.21 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
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See accompanying Notes to condensed consolidated financial statements.
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of dollars)
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Net income | $ | 62 |
| | $ | 25 |
| | $ | 163 |
| | $ | 87 |
| $ | 70 |
| | $ | 34 |
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Other comprehensive income (loss), net of taxes: | | | | | | | | | | |
Foreign currency translation adjustments, net of tax (benefit) expense of $- for the three and nine months ended September 30, 2016 and $- and $(2) for the three and nine months ended September 30, 2015, respectively | (12 | ) | | (35 | ) | | 3 |
| | (82 | ) | |
Unrealized gains (losses) on available-for-sale securities, net of tax (benefit) expense of $(5) and $- for the three and nine months ended September 30, 2016, respectively, and $6 and $10 for the three and nine months ended September 30, 2015, respectively | (8 | ) | | 9 |
| | — |
| | 15 |
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Unrealized gains on derivative activity, net of tax expense of $- for the three and nine months ended September 30, 2016 and $- for the three and nine months ended September 30, 2015 | — |
| | 1 |
| | — |
| | 1 |
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Other comprehensive income (loss) | (20 | ) | | (25 | ) | | 3 |
| | (66 | ) | |
Foreign currency translation adjustments, net of tax expense of $- for the three months ended March 31, 2017 and March 31, 2016 | | 41 |
| | 24 |
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Unrealized gains (losses) on available-for-sale securities, net of tax expense (benefit) of $21 and $(3) for the three months ended March 31, 2017 and March 31, 2016, respectively | | 34 |
| | (4 | ) |
Other comprehensive income | | 75 |
| | 20 |
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COMPREHENSIVE INCOME | 42 |
| | — |
| | 166 |
| | 21 |
| 145 |
| | 54 |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | — |
| — |
| | — |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION | $ | 42 |
| | $ | — |
| | $ | 166 |
| | $ | 21 |
| $ | 145 |
| | $ | 54 |
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See accompanying Notes to condensed consolidated financial statements.
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except share and per share amounts)
(Unaudited)
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | $ | 544 |
| | $ | 457 |
| $ | 374 |
| | $ | 482 |
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Restricted cash | 66 |
| | 96 |
| 64 |
| | 76 |
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Short-term investments | 46 |
| | 46 |
| 52 |
| | 56 |
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Receivables, net of allowances of $17 and $15 at September 30, 2016 and December 31, 2015, respectively | 318 |
| | 298 |
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Receivables, net of allowances of $18 at March 31, 2017 and December 31, 2016 | | 367 |
| | 304 |
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Inventories | 16 |
| | 12 |
| 16 |
| | 28 |
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Prepaids and other assets | 180 |
| | 152 |
| 157 |
| | 153 |
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Prepaid income taxes | 49 |
| | 63 |
| 18 |
| | 40 |
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Total current assets | 1,219 |
| | 1,124 |
| 1,048 |
| | 1,139 |
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Investments | 306 |
| | 327 |
| 169 |
| | 186 |
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Property and equipment, net | 3,971 |
| | 4,031 |
| 4,472 |
| | 4,270 |
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Financing receivables, net of allowances | 21 |
| | 20 |
| 19 |
| | 19 |
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Goodwill | 127 |
| | 129 |
| 147 |
| | 125 |
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Intangibles, net | 591 |
| | 547 |
| 658 |
| | 599 |
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Deferred tax assets | 318 |
| | 301 |
| 303 |
| | 313 |
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Other assets | 1,094 |
| | 1,112 |
| 947 |
| | 1,098 |
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TOTAL ASSETS | $ | 7,647 |
| | $ | 7,591 |
| $ | 7,763 |
| | $ | 7,749 |
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LIABILITIES AND EQUITY | | | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | | | | |
CURRENT LIABILITIES: | | | | | | |
Current maturities of long-term debt | $ | 19 |
| | $ | 328 |
| $ | 299 |
| | $ | 119 |
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Accounts payable | 127 |
| | 141 |
| 155 |
| | 162 |
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Accrued expenses and other current liabilities | 565 |
| | 516 |
| 552 |
| | 514 |
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Accrued compensation and benefits | 121 |
| | 122 |
| 103 |
| | 129 |
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Total current liabilities | 832 |
| | 1,107 |
| 1,109 |
| | 924 |
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Long-term debt | 1,447 |
| | 1,042 |
| 1,445 |
| | 1,445 |
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Other long-term liabilities | 1,451 |
| | 1,447 |
| 1,480 |
| | 1,472 |
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Total liabilities | 3,730 |
| | 3,596 |
| 4,034 |
| | 3,841 |
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Commitments and contingencies (see Note 11) |
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Redeemable noncontrolling interest in preferred shares of a subsidiary | | 9 |
| | — |
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EQUITY: | | | | | | |
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of September 30, 2016 and December 31, 2015 | — |
| | — |
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Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 23,592,340 issued and outstanding at September 30, 2016, and Class B common stock, $0.01 par value per share, 439,741,738 shares authorized, 107,247,326 shares issued and outstanding at September 30, 2016. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 26,604,687 issued and outstanding at December 31, 2015, and Class B common stock, $0.01 par value per share, 441,623,374 shares authorized, 109,628,962 shares issued and outstanding at December 31, 2015 | 1 |
| | 1 |
| |
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at March 31, 2017 and December 31, 2016 | | — |
| | — |
|
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 35,137,361 issued and outstanding at March 31, 2017, and Class B common stock, $0.01 par value per share, 422,857,621 shares authorized, 90,323,839 shares issued and outstanding at March 31, 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 |
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Additional paid-in capital | 1,687 |
| | 1,931 |
| 1,352 |
| | 1,686 |
|
Retained earnings | 2,452 |
| | 2,289 |
| 2,563 |
| | 2,493 |
|
Accumulated other comprehensive loss | (227 | ) | | (230 | ) | (202 | ) | | (277 | ) |
Total stockholders’ equity | 3,913 |
| | 3,991 |
| 3,714 |
| | 3,903 |
|
Noncontrolling interests in consolidated subsidiaries | 4 |
| | 4 |
| 6 |
| | 5 |
|
Total equity | 3,917 |
| | 3,995 |
| 3,720 |
| | 3,908 |
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TOTAL LIABILITIES AND EQUITY | $ | 7,647 |
| | $ | 7,591 |
| |
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | | $ | 7,763 |
| | $ | 7,749 |
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See accompanying Notes to condensed consolidated financial statements.
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
| | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 163 |
| | $ | 87 |
| $ | 70 |
| | $ | 34 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 254 |
| | 233 |
| 91 |
| | 81 |
|
Deferred income taxes | (16 | ) | | (43 | ) | (16 | ) | | (1 | ) |
Equity (earnings) losses from unconsolidated hospitality ventures and distributions received | (21 | ) | | 70 |
| |
(Gains) losses on sales of real estate | 21 |
| | (9 | ) | |
Realized losses from marketable securities | | 40 |
| | — |
|
Working capital changes and other | (50 | ) | | 58 |
| (35 | ) | | (63 | ) |
Net cash provided by operating activities | 351 |
| | 396 |
| 150 |
| | 51 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchases of marketable securities and short-term investments | (365 | ) | | (450 | ) | (111 | ) | | (85 | ) |
Proceeds from marketable securities and short-term investments | 373 |
| | 422 |
| 119 |
| | 83 |
|
Contributions to investments | (31 | ) | | (29 | ) | (8 | ) | | (15 | ) |
Return of investments | 78 |
| | 4 |
| 200 |
| | 23 |
|
Acquisitions, net of cash acquired | (331 | ) | | — |
| (245 | ) | | — |
|
Capital expenditures | (140 | ) | | (185 | ) | (50 | ) | | (38 | ) |
Proceeds from sales of real estate, net of cash disposed | 289 |
| | 86 |
| |
Sales proceeds transferred from escrow to cash and cash equivalents | 29 |
| | 143 |
| — |
| | 29 |
|
Proceeds from financing receivables | 1 |
| | 28 |
| |
(Increase) decrease in restricted cash | (1 | ) | | 19 |
| |
Other investing activities | 4 |
| | (14 | ) | 1 |
| | (9 | ) |
Net cash (used in) provided by investing activities | (94 | ) | | 24 |
| |
Net cash used in investing activities | | (94 | ) | | (12 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from long-term debt, net of issuance costs of $4 and $- as of September 30, 2016 and September 30, 2015, respectively | 520 |
| | 12 |
| |
Proceeds from long-term debt, net of issuance costs of $- and $4, respectively | | 180 |
| | 426 |
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Repayments of long-term debt | (435 | ) | | (5 | ) | (3 | ) | | (95 | ) |
Repurchase of common stock | (268 | ) | | (539 | ) | (348 | ) | | (63 | ) |
Proceeds from redeemable noncontrolling interest in preferred shares of a subsidiary | | 9 |
| | — |
|
Other financing activities | (2 | ) | | (2 | ) | (3 | ) | | (4 | ) |
Net cash used in financing activities | (185 | ) | | (534 | ) | |
Net cash (used in) provided by financing activities | | (165 | ) | | 264 |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH | 15 |
| | (2 | ) | 1 |
| | 11 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 87 |
| | (116 | ) | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | (108 | ) | | 314 |
|
CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR | 457 |
| | 685 |
| 482 |
| | 457 |
|
CASH AND CASH EQUIVALENTS—END OF PERIOD | $ | 544 |
| | $ | 569 |
| $ | 374 |
| | $ | 771 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | |
Cash paid during the period for interest | $ | 73 |
| | $ | 66 |
| $ | 37 |
| | $ | 33 |
|
Cash paid during the period for income taxes | $ | 74 |
| | $ | 121 |
| $ | 10 |
| | $ | 16 |
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Non-cash investing and financing activities are as follows: | | | | | | |
Non-cash management and franchise agreement intangibles | $ | 38 |
| | $ | — |
| |
Change in accrued capital expenditures | $ | 5 |
| | $ | (1 | ) | $ | 17 |
| | $ | 4 |
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See accompanying Notes to condensed consolidated financial statements.
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. As of September 30, 2016,At March 31, 2017, (i) we operated or franchised 307318 full service hotels, comprising 120,528123,684 rooms throughout the world, (ii) we operated or franchised 332346 select service hotels, comprising 46,20348,577 rooms, of which 307316 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 owned destination wellness resorts, comprising 386 rooms. As of September 30, 2016,At March 31, 2017, our portfolio of properties operated in 5456 countries around the world.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Company," "we," "us,""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, 20152016 (the "2015"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 STANDARDSPRONOUNCEMENTS
Adopted Accounting Standards—In April 2015,March 2016, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2015-03 ("2016-09 (“ASU 2015-03"2016-09”), Interest - Imputation of Interest (Subtopic 835-30)Compensation-Stock Compensation (Topic 718): Simplifying the Presentation of Debt Issuance CostsImprovements to Employee Share-Based Payment Accounting. ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in2016-09 simplifies the balance sheetaccounting for share-based payment transactions, including the income tax consequences, classification of awards as a direct deduction fromeither equity or liabilities, and classification on the carrying amountstatement of the debt liability, consistent with debt discounts.cash flows. The provisions of ASU 2015-032016-09 are effective for interim periods and fiscal years beginning after December 15, 2015.2016. We adopted the standardASU 2016-09 on January 1, 2016,2017, which resulted in recognition of excess tax benefits from share-based payment transactions on the condensed consolidated statements of income and aswithin operating activities on the condensed consolidated statements of cash flows, on a result we reclassified $5 million of debt issuance costs previously included in other assets to long-term debt onprospective basis. ASU 2016-09 did not materially impact our condensed consolidated balance sheets as of December 31, 2015.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
periods and fiscal years beginning after December 15, 2017, with early adoption permitted as of the original effective date under ASU 2014-09.
The standard permits the use of either the full retrospective or modified retrospective (cumulative effect) transition method. We currently 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 expected to impact either the amount or timing of revenue recognition as follows:
•Under existing guidance, gains on sales of real estate when we maintain substantial continuing involvement are deferred and amortized into management and franchise fees 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. We expect any remaining unamortized deferred gains as of our date of adoption will be included as an adjustment to retained earnings. For the three months ended March 31, 2017 and March 31, 2016, Hyatt recognized $5 million of management fee revenues related to the amortization of these deferred gains.
•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 may meet the definition of consideration paid to a customer and therefore, would be recorded as contra-revenue within management and franchise fee revenues in our condensed consolidated statements of income.
•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 recognition for incentive fees for certain contracts. We do not anticipate a material impact to incentive fees on a full year basis.
•Under existing guidance, franchise application fees are recognized at a point in time. Upon adoption of ASU 2014-09, initial franchise application fees will be recognized over time.
We do not expect the standard to materially affect the amount or timing of revenue recognition for royalty fees from our franchised properties or base management fees from our managed properties. We are currently evaluatingcontinuing to evaluate other possible impacts to our condensed consolidated financial statements, including the impact of adopting ASU 2014-09.
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 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 currently evaluating the impactimpacts of adopting ASU 2016-01.
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 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.
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 available-for-sale ("AFS")AFS debt securities to be recorded through an allowance for credit losses. The provisions of ASU 2016-13 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 as of 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 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. The provisions of ASU 2017-01 are effective for interim periods and fiscal years beginning after December 15, 2017. We are currently evaluating the impact 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 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.
3. EQUITY AND COST METHOD INVESTMENTS
We have investments recorded under both the equity and cost methods. These investments are an integral part of our business and are strategically and operationally important to our overall results. Our equity and cost method investment balances recorded at September 30, 2016 and December 31, 2015 were as follows:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Equity method investments | $ | 299 |
| | $ | 304 |
| $ | 163 |
| | $ | 180 |
|
Cost method investments | 7 |
| | 23 |
| 6 |
| | 6 |
|
Total investments | $ | 306 |
| | $ | 327 |
| $ | 169 |
| | $ | 186 |
|
During the threemonths ended September 30, 2016, twoMarch 31, 2017, an unconsolidated hospitality ventures inventure, which we hold or held an ownership interest and which areis classified as an equity method investmentsinvestment within our owned and leased hotels segment, each sold a Hyatt Place hotel, for which wehotel. We received combined proceeds of $7 million. We$4 million and recorded gainsa gain of $5$2 million in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
During the three months ended September 30, 2015, we sold an entity which held an interest in one of our foreign currency denominated equity method investments within our owned and leased hotels segment, for which we received proceeds of $3 million. In connection with the sale, we released $21 million of accumulated foreign currency translation losses, which were recorded to equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
During the three and nine months ended September 30, 2016, we recorded $0 and $2 million of net losses from our cost method investments, respectively. Gains or losses from cost method investments are recorded within other income (loss), net on our condensed consolidated statements of income.
During the three and nine months ended September 30, 2016, we recorded $2 million and $4 million of impairment charges, respectively, in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
The following table presents summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Total revenues | $ | 326 |
| | $ | 280 |
| | $ | 952 |
| | $ | 825 |
| $ | 274 |
| | $ | 284 |
|
Gross operating profit | 110 |
| | 88 |
| | 312 |
| | 236 |
| 78 |
| | 70 |
|
Income from continuing operations | 40 |
| | 42 |
| | 118 |
| | 26 |
| |
Net income | 40 |
| | 42 |
| | 118 |
| | 26 |
| |
Income (loss) from continuing operations | | (18 | ) | | 20 |
|
Net income (loss) | | (18 | ) | | 20 |
|
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, and U.S. government obligations and obligations of other government agencies for investment purposes.
Marketable Securities Held to Fund Operating Programs—At September 30, 2016 and December 31, 2015, our total marketableMarketable securities held to fund operating programs, which are recorded at fair value and included on the condensed consolidated balance sheets, were as follows: | | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Marketable securities held by Hyatt Gold Passport Fund | $ | 401 |
| | $ | 384 |
| |
Marketable securities held to fund our loyalty program | | $ | 397 |
| | $ | 394 |
|
Marketable securities held to fund deferred compensation plans held in rabbi trusts (Note 9) | 353 |
| | 333 |
| 364 |
| | 352 |
|
Marketable securities held to fund our captive insurance companies | 65 |
| | 82 |
| 72 |
| | 65 |
|
Total marketable securities held to fund operating programs | 819 |
| | 799 |
| $ | 833 |
| | $ | 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 | (158 | ) | | (121 | ) | (123 | ) | | (109 | ) |
Marketable securities held to fund operating programs included in other assets | $ | 661 |
| | $ | 678 |
| $ | 710 |
| | $ | 702 |
|
Net gains (losses) 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 September 30, | | Nine Months Ended September 30, |
2016 | | 2015 | | 2016 | | 2015 |
Hyatt Gold Passport Fund | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 1 |
|
Deferred compensation plans held in rabbi trusts | 12 |
| | (15 | ) | | 17 |
| | (7 | ) |
Total net gains (losses) and interest income from marketable securities held to fund operating programs | $ | 12 |
| | $ | (15 | ) | | $ | 20 |
| | $ | (6 | ) |
|
| | | | | | | |
| Three Months Ended March 31, |
2017 | | 2016 |
Loyalty program | $ | — |
| | $ | 1 |
|
Deferred compensation plans held in rabbi trusts | 15 |
| | — |
|
Total net gains and interest income from marketable securities held to fund operating programs | $ | 15 |
| | $ | 1 |
|
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 20162017 through 2021. During the three and nine months ended September 30, 2016, we recorded an insignificant unrealized loss and $1 million of unrealized gains, respectively, related to these AFS securities on the condensed consolidated balance sheets through other comprehensive income (loss).
Marketable Securities Held for Investment Purposes—At September 30, 2016 and December 31, 2015, our total marketableMarketable securities held for investment purposes, which are recorded at fair value and included on the condensed consolidated balance sheets, were as follows:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Interest bearing money market funds | $ | 62 |
| | $ | 5 |
| $ | 56 |
| | $ | 106 |
|
Time deposits | 30 |
| | 30 |
| 45 |
| | 45 |
|
Preferred shares | 334 |
| | 335 |
| — |
| | 290 |
|
Common shares | | 126 |
| | — |
|
Total marketable securities held for investment purposes | $ | 426 |
| | $ | 370 |
| $ | 227 |
| | $ | 441 |
|
Less current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments | (92 | ) | | (35 | ) | (101 | ) | | (151 | ) |
Marketable securities held for investment purposes included in other assets | $ | 334 |
| | $ | 335 |
| $ | 126 |
| | $ | 290 |
|
Fair Value—As of September 30, 2016 and December 31, 2015, weWe measured the following financial assets at fair value on a recurring basis:
| | | September 30, 2016 | | Cash and Cash Equivalents | | Short-term Investments | | Prepaids and Other Assets | | Other Assets | March 31, 2017 | | Cash and cash equivalents | | Short-term investments | | Prepaids and other assets | | Other assets |
Level One - Quoted Prices in Active Markets for Identical Assets | | | | | | | | | | | | | | | | | | |
Interest bearing money market funds | $ | 69 |
| | $ | 69 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 72 |
| | $ | 72 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Mutual funds | 353 |
| | — |
| | — |
| | — |
| | 353 |
| 364 |
| | — |
| | — |
| | — |
| | 364 |
|
Common shares | | 126 |
| | — |
| | — |
| | — |
| | 126 |
|
Level Two - Significant Other Observable Inputs | | | | | | | | | | | | | | | | | | |
Time deposits | 43 |
| | — |
| | 32 |
| | — |
| | 11 |
| 58 |
| | — |
| | 46 |
| | — |
| | 12 |
|
U.S. government obligations | 140 |
| | — |
| | — |
| | 48 |
| | 92 |
| 148 |
| | — |
| | — |
| | 38 |
| | 110 |
|
U.S. government agencies | 61 |
| | — |
| | 13 |
| | 12 |
| | 36 |
| 48 |
| | — |
| | 4 |
| | 8 |
| | 36 |
|
Corporate debt securities | 185 |
| | — |
| | 1 |
| | 54 |
| | 130 |
| 182 |
| | — |
| | 2 |
| | 38 |
| | 142 |
|
Mortgage-backed securities | 26 |
| | — |
| | — |
| | 9 |
| | 17 |
| 19 |
| | — |
| | — |
| | 5 |
| | 14 |
|
Asset-backed securities | 31 |
| | — |
| | — |
| | 11 |
| | 20 |
| 40 |
| | — |
| | — |
| | 10 |
| | 30 |
|
Municipal and provincial notes and bonds | 3 |
| | — |
| | — |
| | 1 |
| | 2 |
| 3 |
| | — |
| | — |
| | 1 |
| | 2 |
|
Level Three - Significant Unobservable Inputs | | | | | | | | | | |
Preferred shares | 334 |
| | — |
| | — |
| | — |
| | 334 |
| |
Total | $ | 1,245 |
| | $ | 69 |
| | $ | 46 |
| | $ | 135 |
| | $ | 995 |
| $ | 1,060 |
| | $ | 72 |
| | $ | 52 |
| | $ | 100 |
| | $ | 836 |
|
| | | December 31, 2015 | | Cash and Cash Equivalents | | Short-term Investments | | Prepaids and Other Assets | | Other Assets | 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 | $ | 18 |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 114 |
| | $ | 114 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Mutual funds | 333 |
| | — |
| | — |
| | — |
| | 333 |
| 352 |
| | — |
| | — |
| | — |
| | 352 |
|
Level Two - Significant Other Observable Inputs | | | | | | | | | | | | | | | | | | |
Time deposits | 45 |
| | — |
| | 38 |
| | — |
| | 7 |
| 59 |
| | — |
| | 46 |
| | — |
| | 13 |
|
U.S. government obligations | 131 |
| | — |
| | — |
| | 32 |
| | 99 |
| 142 |
| | — |
| | — |
| | 33 |
| | 109 |
|
U.S. government agencies | 83 |
| | — |
| | 6 |
| | 10 |
| | 67 |
| 53 |
| | — |
| | 9 |
| | 8 |
| | 36 |
|
Corporate debt securities | 168 |
| | — |
| | 2 |
| | 36 |
| | 130 |
| 181 |
| | — |
| | 1 |
| | 35 |
| | 145 |
|
Mortgage-backed securities | 26 |
| | — |
| | — |
| | 6 |
| | 20 |
| 22 |
| | — |
| | — |
| | 5 |
| | 17 |
|
Asset-backed securities | 27 |
| | — |
| | — |
| | 7 |
| | 20 |
| 34 |
| | — |
| | — |
| | 8 |
| | 26 |
|
Municipal and provincial notes and bonds | 3 |
| | — |
| | — |
| | 1 |
| | 2 |
| 5 |
| | — |
| | — |
| | 1 |
| | 4 |
|
Level Three - Significant Unobservable Inputs | | | | | | | | | | | | | | | | | | |
Preferred shares | 335 |
| | — |
| | — |
| | — |
| | 335 |
| 290 |
| | — |
| | — |
| | — |
| | 290 |
|
Total | $ | 1,169 |
| | $ | 18 |
| | $ | 46 |
| | $ | 92 |
| | $ | 1,013 |
| $ | 1,252 |
| | $ | 114 |
| | $ | 56 |
| | $ | 90 |
| | $ | 992 |
|
During the three and nine months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015, there were no transfers between levels of the fair value hierarchy. Our policy is to recognize transfers in and transfers out as of the end of each quarterly reporting period. We currently do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
We invest a portion of our cash into short-term interest bearing money market funds that have a maturity of less than ninety days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies, and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis. The fair value of our mutual funds is classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Time deposits are recorded at par value, which approximates fair value and are classified as Level Two. The remaining securities, other than our investment in preferred shares, are classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
Preferred shares—During the year ended December 31, 2013, we invested $271 millionin Playa Hotels & Resorts B.V. ("Playa") for redeemable, convertible preferred shares. We have the option to convert ourredeemable preferred shares and any accrued and unpaid paid in kind ("PIK") dividends thereon into shares of common stock at any time through the later of the second anniversary of the closing of our investment or an initial public offering by Playa ("Playa IPO"). The preferred investment is redeemable at our option in August 2021. In the event of a Playa IPO or other equity issuance by Playa, we have the option to request that Playa redeem up to $125 million of preferred shares at par plus any accrued and unpaid PIK dividends thereon. As a result, we havewhich were classified the preferred investment as an AFS debt security, which is re-measured quarterly at fair value on the condensed consolidated balance sheets through other comprehensive income (loss).security. The fair value of the preferred shares was:
|
| | | | | | | |
| 2016 | | 2015 |
Fair value at January 1 | $ | 335 |
| | $ | 280 |
|
Gross unrealized gains | 19 |
| | 10 |
|
Gross unrealized losses | (7 | ) | | — |
|
Fair value at June 30 | $ | 347 |
| | $ | 290 |
|
Gross unrealized gains | — |
| | 15 |
|
Gross unrealized losses | (13 | ) | | — |
|
Fair value at September 30 | $ | 334 |
| | $ | 305 |
|
|
| | | | | | | |
| 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 |
|
On September 27, 2016,In March 2017, Playa publicly filedcompleted a Registration Statement on Form S-1business combination with the U.S. Securities and Exchange CommissionPace Holdings Corporation ("SEC"Pace"), in conjunction with its proposed initial public offering ("IPO") of common shares. In connection with the potential Playa IPO, we have committed to convert up to $50 million of our preferred shares at par plus any accrued and unpaid PIK dividends thereon at a conversion price equal to the lower of $8.40 per share or the IPO price. The remaining preferred shares and any accrued and unpaid PIK dividends thereon are expected to be redeemed by Playa with IPO proceeds. The conversion and redemption are expected to close simultaneously with the Playa IPO. There is no assurance that Playa will complete its proposed IPO. In a transaction separate from their IPO, Playa redeemed 3,458,530 of our preferred shares plus accrued and unpaid PIKpaid in kind ("PIK") dividends thereonwere redeemed in full for $41$290 million. Upon redemption, we recorded $94 million of interest income and $40 million of realized losses in October 2016.
Due toother income (loss), net on our condensed consolidated statements of income. The realized losses were the lackresult of availability of market data, the preferred shares are classified as Level Three. Historically, we estimateda 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 preferred shares usingbusiness combination, we accounted for our common share investment in Playa as an option-pricing model.equity method investment. As a result of the potential Playa IPO,business combination, Playa Hotels & Resorts N.V. is now publicly traded on the NASDAQ and our ownership percentage was diluted to 11.57%. As we revisedno longer have the ability to significantly influence Playa, our valuation approachinvestment was recharacterized as an AFS equity security in March 2017. The remeasurement of our investment at September 30, 2016 and utilized a hybrid of the option-pricing model and the probability-weighted expected return method, to estimate the fair value resulted in unrealized gains recorded in other comprehensive income of our preferred shares.$109 million at March 31, 2017. The hybrid model includes various scenarios, such as the successful completion of the Playa IPO and assumptions around conversion and redemption, as well as scenarios where we continue to use the option-pricing model. We assigned a probability to each scenario to arrive at our estimated fair value as of September 30, 2016. Our scenarios include assumptions regarding (i) a potential range of IPO prices and size of the offering, (ii) conversion of up to $50 million of our preferred shares into common shares of Playa and (iii) the redemption of 3,458,530 shares, which closed in October 2016. These option-pricing model scenarios include assumptions regarding the expected term, risk-free interest rate over the expected term, volatility, dividend yield and enterprise value. Financial forecasts were used in the computation of the enterprise value using the income approach, based on assumed revenue growth rates and operating margin levels. The risks associated with achieving these forecasts were assessed in selecting the appropriate weighted-average cost of capital.
The option-pricing scenarios include variations of the expected term, risk-free interest rate, volatility, and dividend yield assumptions as follows:
|
| | | | | |
| September 30, 2016 | | December 31, 2015 |
Expected term | 0.50 to 1.25 years |
| | 0.75 years |
|
Risk-free Interest Rate | 0.45% to 0.64% |
| | 0.57 | % |
Volatility | 47.6% to 47.9% |
| | 46.0 | % |
Dividend Yield | 12.0 | % | | 12.0 | % |
There is inherent uncertainty in our assumptions and fluctuations in these assumptions or the probabilities assigned to each scenario may result in different estimates of fair value. At September 30, 2016, the assumption which most significantly impacted the fair value of the preferredcommon shares is the assignment of probabilities to each
potential scenario. A change to the assigned probabilities may causeclassified as Level One in the fair value hierarchy as we are able to decrease upobtain market available pricing information. Our investment is re-measured quarterly at fair value through accumulated other comprehensive loss on the condensed consolidated balance sheets. In conjunction with the Playa business combination, we also received 1,738,806 of founders’ warrants to $15purchase 579,602 additional shares of Playa’s common stock and 237,110 of earn-out warrants. The warrants were recorded at a fair value of $5 million and increase up to $60 million, representingwithin other assets on the difference between the low and high end of the range of fair values based on each scenario.condensed consolidated balance sheets at March 31, 2017.
Held-to-Maturity Debt Securities—At September 30, 2016March 31, 2017 and December 31, 2015,2016, we had investments in held-to-maturity ("HTM") debt securities of $25$27 million, which are investments in third-party entities that own certain of our hotels. The amortized costcosts of our investments approximatesapproximate fair value.value and are classified as Level Three in the fair value hierarchy. The securities are mandatorily redeemable between 2020 and 2025.
5. FINANCING RECEIVABLES
Our financing receivables at September 30, 2016 and December 31, 2015 were as follows:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Unsecured financing to hotel owners | $ | 127 |
| | $ | 120 |
| $ | 122 |
| | $ | 119 |
|
Less allowance for losses | (106 | ) | | (98 | ) | (103 | ) | | (100 | ) |
Less current portion included in receivables, net | — |
| | (2 | ) | |
Total long-term financing receivables, net | $ | 21 |
| | $ | 20 |
| $ | 19 |
| | $ | 19 |
|
During the three months ended September 30, 2015, all of our outstanding secured financing receivables to hotel owners were settled. We received net cash proceeds of $26 million, an unsecured financing receivable of $6 million, and preferred equity investments of $7 million. The settlements of the secured financing receivables resulted in a net recovery of $8 million, which was recognized in other income (loss), net on our condensed consolidated statements of income during the three months ended September 30, 2015.
Allowance for Losses and Impairments—For the three and nine months ended September 30, 2016 and September 30, 2015,The following table summarizes the activity in our financing receivables allowance was as follows:allowance:
|
| | | | | | | | | | | |
| Secured Financing | | Unsecured Financing | | Total |
Allowance at January 1, 2016 | $ | — |
| | $ | 98 |
| | $ | 98 |
|
Provisions | — |
| | 4 |
| | 4 |
|
Other Adjustments | — |
| | 1 |
| | 1 |
|
Allowance at June 30, 2016 | — |
| | 103 |
| | 103 |
|
Provisions | — |
| | 3 |
| | 3 |
|
Allowance at September 30, 2016 | $ | — |
| | $ | 106 |
| | $ | 106 |
|
|
| | | | | | | | | | | |
| Secured Financing |
| Unsecured Financing |
| Total |
Allowance at January 1, 2015 | $ | 13 |
|
| $ | 87 |
|
| $ | 100 |
|
Provisions | 2 |
|
| 4 |
|
| 6 |
|
Other Adjustments | — |
| | (1 | ) | | (1 | ) |
Allowance at June 30, 2015 | 15 |
| | 90 |
| | 105 |
|
Provisions | 1 |
| | 1 |
| | 2 |
|
Write-offs | (1 | ) | | — |
| | (1 | ) |
Recoveries | (9 | ) | | — |
| | (9 | ) |
Other Adjustments | (6 | ) | | 4 |
| | (2 | ) |
Allowance at September 30, 2015 | $ | — |
| | $ | 95 |
| | $ | 95 |
|
|
| | | | | | | |
| 2017 | | 2016 |
Allowance at January 1 | $ | 100 |
| | $ | 98 |
|
Provisions | 2 |
| | 1 |
|
Other Adjustments | 1 |
| | 1 |
|
Allowance at March 31 | $ | 103 |
| | $ | 100 |
|
Credit Monitoring—Our unsecured financing receivables were as follows:
| | | September 30, 2016 | March 31, 2017 |
| Gross Loan Balance (Principal and Interest) | | Allowance | | Net Financing Receivables | | Gross Receivables on Non-Accrual Status | Gross Loan Balance (Principal and Interest) | | Related Allowance | | Net Financing Receivables | | Gross Receivables on Non-Accrual Status |
Loans | $ | 14 |
| | $ | — |
| | $ | 14 |
| | $ | — |
| $ | 13 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Impaired loans (1) | 63 |
| | (63 | ) | | — |
| | 63 |
| 58 |
| | (58 | ) | | — |
| | 58 |
|
Total loans | 77 |
| | (63 | ) | | 14 |
| | 63 |
| 71 |
| | (58 | ) | | 13 |
| | 58 |
|
Other financing arrangements | 50 |
| | (43 | ) | | 7 |
| | 43 |
| 51 |
| | (45 | ) | | 6 |
| | 45 |
|
Total unsecured financing receivables | $ | 127 |
| | $ | (106 | ) | | $ | 21 |
| | $ | 106 |
| $ | 122 |
| | $ | (103 | ) | | $ | 19 |
| | $ | 103 |
|
(1) The unpaid principal balance was $45$44 million and the average recorded loan balance was $61$57 million at September 30, 2016.March 31, 2017.
| | | December 31, 2015 | December 31, 2016 |
| Gross Loan Balance (Principal and Interest) | | Allowance | | Net Financing Receivables | | Gross Receivables on Non-Accrual Status | Gross Loan Balance (Principal and Interest) | | Related Allowance | | Net Financing Receivables | | Gross Receivables on Non-Accrual Status |
Loans | $ | 15 |
| | $ | — |
| | $ | 15 |
| | $ | — |
| $ | 13 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Impaired loans (2) | 58 |
| | (58 | ) | | — |
| | 58 |
| 56 |
| | (56 | ) | | — |
| | 56 |
|
Total loans | 73 |
| | (58 | ) | | 15 |
| | 58 |
| 69 |
| | (56 | ) | | 13 |
| | 56 |
|
Other financing arrangements | 47 |
| | (40 | ) | | 7 |
| | 40 |
| 50 |
| | (44 | ) | | 6 |
| | 44 |
|
Total unsecured financing receivables | $ | 120 |
| | $ | (98 | ) | | $ | 22 |
| | $ | 98 |
| $ | 119 |
| | $ | (100 | ) | | $ | 19 |
| | $ | 100 |
|
(2) The unpaid principal balance was $42$43 million and the average recorded loan balance was $55$57 million at December 31, 2015.2016.Fair Value—We estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be approximately $2219 million at September 30, 2016March 31, 2017 and December 31, 2015. During the three and nine months ended September 30, 2016 and September 30, 2015, there were no transfers between levels of the fair value hierarchy.2016.
6. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Royal Palms Resort and SpaMiraval—During the three months ended September 30, 2016,March 31, 2017, we acquired Royal Palms Resort and SpaMiraval Group from an unrelated third partyparty. The transaction included the Miraval Life in Balance Spa brand, Miraval Arizona Resort & Spa in Tucson, Arizona, Travaasa Resort in Austin, Texas, and the option to acquire Cranwell Spa & Golf Resort ("Cranwell") in Lenox, Massachusetts. We subsequently exercised our option and acquired approximately 95% of Cranwell during the three months ended March 31, 2017. These transactions are collectively referred to as "Miraval." Total cash consideration for aMiraval was $239 million, subject to working capital adjustments.
The following table summarizes the fair value of the identifiable net purchase priceassets acquired in the acquisition of approximately $86 million, net of $2 million of proration adjustments. DueMiraval, which is recorded within corporate and other:
|
| | | |
| |
Current assets, net of cash acquired | $ | 4 |
|
Property and equipment | 173 |
|
Indefinite-lived intangibles (1) | 37 |
|
Management agreement intangibles (2) | 14 |
|
Goodwill (3) | 20 |
|
Other definite-lived intangibles (4) | 7 |
|
Total assets | $ | 255 |
|
| |
Current liabilities | $ | 11 |
|
Deferred income tax liability | 6 |
|
Total liabilities | 17 |
|
Total net assets acquired attributable to Hyatt Hotels Corporation | 238 |
|
Total net assets acquired attributable to noncontrolling interests | 1 |
|
Total net assets acquired | $ | 239 |
|
| |
(1) Includes an intangible attributable to the iconic nature of the hotel, we retained the Royal Palms Resort and Spa name and added the hotel to The Unbound Collection by Hyatt. Of the $88 million purchase price, assets acquired and recorded in our owned and leased hotels segment consist of $75 million of property and equipment, $9 million of indefinite-lived brand intangibles, and $1 million of advanced bookings intangibles. We also recorded $3 million of management agreement intangibles in our Americas management and franchising segment, which are being amortizedMiraval brand.
(2) Amortized over a useful life of 20 years.
(3) The purchasegoodwill, of Royal Palms Resort and Spa was structured and identifiedwhich $8 million is deductible for tax purposes, is attributable to Miraval's reputation as a replacement propertyrenowned 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.
Redeemable noncontrolling interest in preferred shares of a potential reverse like-kind exchange agreement.
The Confidante Miami Beachsubsidiary—During the ninemonths ended September 30, 2016, we acquired Thompson Miami Beach for a purchase price of approximately $238 million, from a seller indirectly owned by a limited partnership affiliatedIn conjunction with the brotheracquisition of our Executive Chairman. OfMiraval, a consolidated hospitality venture for which we are the $238 million purchase price, assets acquired consist of $228managing member (the "Miraval Venture") issued $9 million of propertyredeemable preferred shares to unrelated third-party investors. The preferred shares are non-voting, except as required by applicable law and equipment, which was recorded in our ownedcertain contractual approval rights, and leased hotels segment,have liquidation preference over all other classes of securities within the Miraval Venture. The redeemable preferred shares earn a return of 12% and $10 milliona redemption premium that increases over time depending on the length of management agreement intangibles, which were recorded in our Americas management and franchising segment andtime the redeemable preferred shares are being amortized over a useful life of 20 years. We rebranded this hotel asoutstanding. The Confidante Miami Beach, and addedpreferred shares are redeemable at various time periods at the hotel to The Unbound Collection by Hyatt. The purchase of
The Confidante Miami Beach was structured and identified as a replacement property in a potential reverse like-kind exchange agreement.
Dispositions
Hyatt Regency Birmingham (U.K.)—During the three months ended September 30, 2016, we sold the sharesoption of the company that owns Hyatt Regency Birmingham (U.K.) to an unrelated third party for approximately $49 million, netMiraval Venture starting 12 months from the date of closing costs and proration adjustments and entered into a long-term management agreement withissuance. If not redeemed by the owner of the property. The sale resulted in a $17 million pre-tax gain which has been deferred and is being recognized in management and franchise fees over the term of the management agreement, within our EAME/SW Asia management segment. The operating results and financial position of this hotelMiraval Venture prior to the sale remain within our owned and leased hotels segment.
Andaz 5th Avenue—Duringtwo-year anniversary, the nine months ended September 30, 2016, we sold Andaz 5th Avenuepreferred shareholders have the option to an unrelated third party for $240 million, netrequire redemption of $10 million of closing costs and proration adjustments and entered into a long-term management agreement withall preferred shares outstanding. The preferred shares are also redeemable upon the owner of the property. The sale resulted in a $21 million pre-tax loss which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the nine months ended September 30, 2016. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Indianapolis—During the nine months ended September 30, 2015, we sold Hyatt Regency Indianapolis to an unrelated third party for $69 million, net of closing costs and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $8 million, which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the nine months ended September 30, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Land Held for Development—During the nine months ended September 30, 2015, we sold land and construction in progress for $14 million to an unconsolidated hospitality venture in which we have a 40% ownership interest, for which we received $12 million in cash proceeds as of September 30, 2015.
A Hyatt House Hotel— During the nine months ended September 30, 2015, we sold a select service property to an unrelated third party for $5 million, net of closing costs, resulting in a $1 million pre-tax gain which was recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the nine months ended September 30, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
As a resultoccurrence of certain dispositions, we have agreed to provide customary indemnifications to third-party purchasers for certainchange-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 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.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition 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 to restricted cashequity on our condensed consolidated balance sheets and released once they are utilized as part of a like-kind exchange agreement or when a like-kind exchange agreement is not completed withincarried at the allowable time period.
In conjunction with the sale of five Hyatt Place properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary. Pursuant to the like-kind exchange agreements, the combined net proceeds of $51 million from the sales of these hotels were placed into an escrow account administered by a qualified intermediary. During the nine months ended September 30, 2015, we released the net proceeds because the identified replacement property was not acquired in order to complete the exchange.
In conjunction with the sale of thirty-eight select service properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary for twenty-seven of the select service hotels. In the fourth quarter of 2014, we utilized the net proceeds from twenty-one of the twenty-seven hotels as part of the like-kind exchange agreement to acquire Park Hyatt New York. During the nine months endedcurrent redemption value.
September 30, 2015, we released $92 million of net proceeds related to the remaining six hotels from restricted cash, as the intermediary distributed these funds from escrow to complete the reverse like-kind exchange transaction in connection with the acquisition of Hyatt Regency Lost Pines Resort and Spa.
7. INTANGIBLE ASSETS
The following is a summary of intangible assets at September 30, 2016 and December 31, 2015:INTANGIBLES, NET
| | | September 30, 2016 | | Weighted- Average Useful Lives in Years | | December 31, 2015 | March 31, 2017 | | Weighted- Average Useful Lives in Years | | December 31, 2016 |
Management and franchise agreement intangibles | $ | 572 |
| | 25 |
| | $ | 535 |
| $ | 611 |
| | 25 |
| | $ | 589 |
|
Lease related intangibles | 121 |
| | 112 |
| | 136 |
| 117 |
| | 111 |
| | 115 |
|
Brand intangibles | 16 |
| | — |
| | 7 |
| |
Advanced booking intangibles | 10 |
| | 6 |
| | 12 |
| |
Other | 6 |
| | 14 |
| | 8 |
| |
Brand and other indefinite-lived intangibles | | 53 |
| | — |
| | 16 |
|
Advanced bookings intangibles | | 12 |
| | 6 |
| | 11 |
|
Other definite-lived intangibles | | 12 |
| | 11 |
| | 6 |
|
| 725 |
| | | | 698 |
| 805 |
| | | | 737 |
|
Accumulated amortization | (134 | ) | | | | (151 | ) | (147 | ) | | | | (138 | ) |
Intangibles, net | $ | 591 |
| | | | $ | 547 |
| $ | 658 |
| | | | $ | 599 |
|
Amortization expense relating to intangible assets for the three and nine months ended September 30, 2016 and September 30, 2015 was as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Amortization expense | $ | 7 |
| | $ | 8 |
| | $ | 20 |
| | $ | 23 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
Amortization expense | $ | 7 |
| | $ | 7 |
|
8. DEBT
Long-term debt, net of current maturities was $1,445 million at September 30, 2016March 31, 2017 and December 31, 2015, was $1,447 million and $1,042 million, respectively.2016.
Senior NotesRevolving Credit Facility—During the ninethree months ended September 30,March 31, 2017, we borrowed $180 million on our revolving credit facility at a weighted-average interest rate of 1.89%. At March 31, 2017 and December 31, 2016, we issued $400had $280 million of 4.850% senior notes due 2026, at an issue price of 99.920% (the "2026 Notes"). We received net proceeds of $396and $100 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 the 2016 Notes (as described below), with the remaining proceeds intended to be used for general corporate purposes. Interestoutstanding, respectively. At March 31, 2017, we had $1.2 billion available on the 2026 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2016.our revolving credit facility.
The 2026 Notes, together with our $250 millionFair Value—We estimated the fair value of 3.875% senior notes repaid in 2016 (the "2016 Notes"),debt, excluding capital leases, which consists of $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") and $400 million of 4.850% senior notes due 2026 (the "2026 Notes"), are collectively referred to as the "Senior Notes."
Debt Redemption—During the nine months ended September 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.
Senior Secured Term Loan—During the nine months ended September 30, 2016, we repaid the senior secured term loan related to Hyatt Regency Lost Pines Resort and Spa of $64 million.
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. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities. We estimated the fair value of our other long-term
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 long-term 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.
At September 30, 2016 and December 31, 2015, weWe had the following debt balances, excluding capital lease obligations, as described above:obligations:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 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, excluding capital lease obligations | $ | (1,451 | ) | | $ | (1,604 | ) | | $ | — |
| | $ | (1,506 | ) | | $ | (98 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 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) | $ | 1,745 |
| | $ | 1,834 |
| | $ | — |
| | $ | 1,462 |
| | $ | 372 |
|
(1) Excludes capital lease obligations of $15 million and unamortized discounts and deferred financing fees of $16 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 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2015 |
| 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, excluding capital lease obligations | $ | (1,354 | ) | | $ | (1,421 | ) | | $ | — |
| | $ | (1,277 | ) | | $ | (144 | ) |
During the three(2) Excludes capital lease obligations of $15 million and nine months endedSeptember 30, 2016unamortized discounts and September 30, 2015, there were no transfers between levelsdeferred financing fees of the fair value hierarchy.$16 million.
9. LIABILITIES
Other long-term liabilities at September 30, 2016 and December 31, 2015 consisted of the following:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Deferred compensation plans | | $ | 364 |
| | $ | 352 |
|
Deferred gains on sales of hotel properties | $ | 368 |
| | $ | 367 |
| 357 |
| | 363 |
|
Deferred compensation plans | 353 |
| | 333 |
| |
Hyatt Gold Passport Fund | 259 |
| | 280 |
| |
Guarantee liabilities (see Note 11) | 129 |
| | 120 |
| |
Loyalty program liability | | 288 |
| | 296 |
|
Guarantee liabilities (Note 11) | | 118 |
| | 124 |
|
Other | 342 |
| | 347 |
| 353 |
| | 337 |
|
Total | $ | 1,451 |
| | $ | 1,447 |
| |
Total other long-term liabilities | | $ | 1,480 |
| | $ | 1,472 |
|
Accrued expenses and other current liabilities included $176$143 million and $166$139 million of liabilities related to the Hyatt Gold Passport Fundour loyalty program at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively.
10. INCOME TAXES
The effective income tax rates for the three months ended September 30,March 31, 2017 and March 31, 2016, were 36.8% and September 30, 2015, were 30.2% and 44.6%, respectively. The effective income tax rates for the nine months ended September 30, 2016 and September 30, 2015, were 28.4% and 45.3%31.7%, respectively. Our effective tax rates decreasedincreased for the three and nine months ended September 30, 2016March 31, 2017 compared to the three and nine months ended September 30, 2015,March 31, 2016, primarily due to the 2016 tax impact of global transfer pricing changes implemented during the fourth quarter of 2015 and a reversal of uncertain tax positions for certain filing positions in foreign jurisdictions recorded in the third quarter. In addition to the aforementioned items, the 2015 effective tax rates were higher compared to 2016 due to the effect of certain unconsolidated hospitality venture losses that were not fully benefited in 2015.2017.
Unrecognized tax benefits were $100$89 million and $110$86 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, of which $13$9 million and $21$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’s assessment as it relates to the inclusion of loyalty program contributions as taxable income to the Company. In the second quarter of 2017, we intend to file 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’s position is upheld, it would result in an income tax liability of $118 million (including $25 million of estimated interest, 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 September 30, 2016March 31, 2017, we are committed, under certain conditions, to lend or invest up to $366433 million, net of any related letters of credit, in various business ventures.
During the three months ended September 30, 2016, we entered into a commitment to fund up to $50 million of preferred equity in a third-party entity which is developing a hotel in Seattle, Washington, for which we also provided a debt repayment guarantee. During the nine months ended September 30, 2016, we also entered into a commitment to purchase land and a to-be-constructed hotel located in Portland, Oregon from the developer upon substantial completion of construction for a purchase price of approximately $160 million.
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 7seven years, with approximately 3.75three and one-quarter years remaining, andremaining. This guarantee has a maximum cap, but does not have an annual cap. The remaining maximum exposure related to our performance guarantees at September 30, 2016March 31, 2017 was $416$349 million, of which €344€293 million ($387312 million using exchange rates as ofat September 30, 2016March 31, 2017) related to the four managed hotels in France.
We had total net performance guarantee liabilities of $73$77 million and $97$79 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, which included $59$52 million and $81$55 million recorded in other long-term liabilities, and $14$26 million and $16$24 million in accrued expenses and other current liabilities, and $1 million and $0 in 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 the condensed consolidated statements of income, see Note 17.
The following table details the total performance guarantee liability:
| | | | The Four Managed Hotels in France | | Other Performance Guarantees | | All Performance Guarantees | | The Four Managed Hotels in France | | Other Performance Guarantees | | All Performance Guarantees |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Beginning balance, January 1 | | $ | 93 |
| | $ | 106 |
| | $ | 4 |
| | $ | 5 |
| | $ | 97 |
| | $ | 111 |
| | $ | 66 |
| | $ | 93 |
| | $ | 13 |
| | $ | 4 |
| | $ | 79 |
| | $ | 97 |
|
Amortization of initial guarantee obligation liability into income | | (17 | ) | | (5 | ) | | — |
| | — |
| | (17 | ) | | (5 | ) | | (3 | ) | | (8 | ) | | (1 | ) | | — |
| | (4 | ) | | (8 | ) |
Performance guarantee (income) expense, net | | 29 |
| | 15 |
| | (2 | ) | | (1 | ) | | 27 |
| | 14 |
| |
Performance guarantee expense, net | | | 26 |
| | 19 |
| | — |
| | — |
| | 26 |
| | 19 |
|
Net payments during the period | | (34 | ) | | (22 | ) | | — |
| | — |
| | (34 | ) | | (22 | ) | | (22 | ) | | (14 | ) | | (4 | ) | | (1 | ) | | (26 | ) | | (15 | ) |
Foreign currency exchange, net | | 3 |
| | (9 | ) | | — |
| | — |
| | 3 |
| | (9 | ) | | 2 |
| | 4 |
| | — |
| | — |
| | 2 |
| | 4 |
|
Ending balance, June 30 | | 74 |
| | 85 |
| | 2 |
| | 4 |
| | 76 |
| | 89 |
| |
Amortization of initial guarantee obligation liability into income | | (8 | ) | | (2 | ) | | — |
| | (1 | ) | | (8 | ) | | (3 | ) | |
Performance guarantee (income) expense, net | | 13 |
| | (1 | ) | | — |
| | (1 | ) | | 13 |
| | (2 | ) | |
Net (payments) receipts during the period | | (10 | ) | | — |
| | 1 |
| | 1 |
| | (9 | ) | | 1 |
| |
Foreign currency exchange, net | | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Ending balance, September 30 | | $ | 70 |
| | $ | 82 |
| | $ | 3 |
| | $ | 3 |
| | $ | 73 |
| | $ | 85 |
| |
Ending balance, March 31 | | | $ | 69 |
| | $ | 94 |
| | $ | 8 |
| | $ | 3 |
| | $ | 77 |
| | $ | 97 |
|
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 September 30, 2016March 31, 2017 and December 31, 2015,2016, there were no amounts recorded on our condensed consolidated balance sheets related to these performance test clauses.
Debt Repayment Guarantees—We enter into various debt repayment guarantees primarily 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 partythird-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 September 30, 2016 | | Other Long-term Liabilities recorded at December 31, 2015 | | Year of Guarantee Expiration | | Maximum Potential Future Payments | | Maximum Exposure Net of Recoverability from Third Parties | | Other Long-term Liabilities recorded at March 31, 2017 | | Other Long-term Liabilities recorded at December 31, 2016 | | Year of Guarantee Expiration |
Hotel property in Washington (1), (3), (4), (5) | | $ | 215 |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | 2020 | |
Hotel property in Washington State (1), (3), (4), (5) | | | $ | 215 |
| | $ | — |
| | $ | 33 |
| | $ | 35 |
| | 2020 |
Hotel properties in India (2), (3) | | 180 |
| | 180 |
| | 23 |
| | 27 |
| | 2020 | | 185 |
| | 185 |
| | 21 |
| | 21 |
| | 2020 |
Hotel property in Brazil (1) | | 80 |
| | 40 |
| | 3 |
| | 4 |
| | 2020 | | 80 |
| | 40 |
| | 3 |
| | 3 |
| | 2020 |
Hotel property in Minnesota | | 25 |
| | 25 |
| | 2 |
| | 2 |
| | 2021 | | 25 |
| | 25 |
| | 2 |
| | 2 |
| | 2021 |
Hotel property in Arizona (1), (4) | | 25 |
| | — |
| | 2 |
| | 3 |
| | 2019 | | 25 |
| | — |
| | 2 |
| | 2 |
| | 2019 |
Vacation ownership property (1) | | 17 |
| | — |
| | — |
| | — |
| | 2016 | |
Hotel property in Hawaii (1) | | 15 |
| | 8 |
| | 2 |
| | 3 |
| | 2017 | |
Hotel property in Colorado | | 13 |
| | 13 |
| | — |
| | — |
| | 2016 | |
Hotel properties in California (1) | | | 21 |
| | 8 |
| | 5 |
| | 6 |
| | 2020 |
Other (1) | | 17 |
| | 1 |
| | — |
| | — |
| | various, through 2017 | | 24 |
| | 8 |
| | — |
| | — |
| | 2017 |
Total | | $ | 587 |
| | $ | 267 |
| | $ | 70 |
| | $ | 39 |
| | | $ | 575 |
| | $ | 266 |
| | $ | 66 |
| | $ | 69 |
| |
(1) We have agreements with either 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, notesfinancing receivable, or HTM debt securities.security.
(2) Debt repayment guarantee is denominated in Indian rupees and translated using exchange rates at March 31, 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 $90$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.
As of September 30, 2016,
At March 31, 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 $229 million and $231 million at March 31, 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 twelve12 months are $4032 million and $35$30 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, 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 $5563 million and $57$62 million as ofat September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, and are included in other long-term liabilities on our condensed consolidated balance sheets. At September 30, 2016March 31, 2017, standby letters of credit of $7 million were issued to provide collateral for the estimated claims, which are guaranteed by us. For further discussion, see the "—Letters of Credit" section of this footnote.Note.
Collective Bargaining Agreements—At September 30, 2016March 31, 2017, approximately 26%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 $2425 million at September 30, 2016March 31, 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 as ofat September 30, 2016March 31, 2017 were $238236 million, which relate to our ongoing operations 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 werehave 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 the 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 the 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.
12. EQUITY
Stockholders’ Equity and Noncontrolling Interests—The following tables detail the equity activity for the nine months ended September 30, 2016 and September 30, 2015, respectively.
| | | | Stockholders’ equity | | Noncontrolling interests in consolidated subsidiaries | | Total equity |
Balance at January 1, 2017 | | $ | 3,903 |
| | $ | 5 |
| | $ | 3,908 |
|
Net income | | 70 |
| | — |
| | 70 |
|
Other comprehensive income | | 75 |
| | — |
| | 75 |
|
Contributions from noncontrolling interests | | — |
| | 1 |
| | 1 |
|
Repurchase of common stock | | (348 | ) | | — |
| | (348 | ) |
Employee stock plan issuance | | 1 |
| | — |
| | 1 |
|
Share-based payment activity | | 13 |
| | — |
| | 13 |
|
Balance at March 31, 2017 | | $ | 3,714 |
| | $ | 6 |
| | $ | 3,720 |
|
| | | | | | | | | | | | |
| Stockholders’ equity | | Noncontrolling interests in consolidated subsidiaries | | Total equity | Stockholders’ equity | | Noncontrolling interests in consolidated subsidiaries | | Total equity |
Balance at January 1, 2016 | $ | 3,991 |
| | $ | 4 |
| | $ | 3,995 |
| $ | 3,991 |
| | $ | 4 |
| | $ | 3,995 |
|
Net income | 163 |
| | — |
| | 163 |
| 34 |
| | — |
| | 34 |
|
Other comprehensive income (loss) | 3 |
| | — |
| | 3 |
| |
Other comprehensive income | | 20 |
| | — |
| | 20 |
|
Repurchase of common stock | (268 | ) | | — |
| | (268 | ) | (63 | ) | | — |
| | (63 | ) |
Directors compensation | 2 |
| | — |
| | 2 |
| |
Employee stock plan issuance | 3 |
| | — |
| | 3 |
| 1 |
| | — |
| | 1 |
|
Share-based payment activity | 19 |
| | — |
| | 19 |
| 13 |
| | — |
| | 13 |
|
Balance at September 30, 2016 | $ | 3,913 |
| | $ | 4 |
| | $ | 3,917 |
| |
| | | | | | |
| Stockholders’ equity | | Noncontrolling interests in consolidated subsidiaries | | Total equity | |
Balance at January 1, 2015 | $ | 4,627 |
| | $ | 4 |
| | $ | 4,631 |
| |
Net income | 87 |
| | — |
| | 87 |
| |
Other comprehensive income (loss) | (66 | ) | | — |
| | (66 | ) | |
Repurchase of common stock | (539 | ) | | — |
| | (539 | ) | |
Directors compensation | 2 |
| | — |
| | 2 |
| |
Employee stock plan issuance | 3 |
| | — |
| | 3 |
| |
Share-based payment activity | 16 |
| | — |
| | 16 |
| |
Balance at September 30, 2015 | $ | 4,130 |
| | $ | 4 |
| | $ | 4,134 |
| |
Balance at March 31, 2016 | | $ | 3,996 |
| | $ | 4 |
| | $ | 4,000 |
|
Accumulated Other Comprehensive Loss—The following tables detail the accumulated other comprehensive loss activity, net of tax, for the three and nine months ended September 30, 2016 and September 30, 2015, respectively. |
| | | | | | | | | | | | | | | |
| Balance at July 1, 2016 | | Current period other comprehensive income (loss) before reclassification | | Amount reclassified from accumulated other comprehensive loss (a) | | Balance at September 30, 2016 |
Foreign currency translation adjustments | $ | (242 | ) | | $ | (15 | ) | | $ | 3 |
| | $ | (254 | ) |
Unrealized gains (losses) on AFS securities | 47 |
| | (8 | ) | | — |
| | 39 |
|
Unrecognized pension cost | (7 | ) | | — |
| | — |
| | (7 | ) |
Unrealized losses on derivative instruments | (5 | ) | | — |
| | — |
| | (5 | ) |
Accumulated Other Comprehensive Income (Loss) | $ | (207 | ) | | $ | (23 | ) | | $ | 3 |
| | $ | (227 | ) |
(a) The amount reclassified from accumulated other comprehensive loss related to the sale of the shares of the company that owns Hyatt Regency Birmingham (U.K.) and was recorded within other long-term liabilities on our condensed consolidated balance sheets. |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Balance at January 1, 2016 | | Current period other comprehensive income (loss) before reclassification | | Amount reclassified from accumulated other comprehensive loss (a) | | Balance at September 30, 2016 |
Foreign currency translation adjustments | $ | (257 | ) | | $ | — |
| | $ | 3 |
| | $ | (254 | ) |
Unrealized gains on AFS securities | 39 |
| | — |
| | — |
| | 39 |
|
Unrecognized pension cost | (7 | ) | | — |
| | — |
| | (7 | ) |
Unrealized losses on derivative instruments | (5 | ) | | — |
| | — |
| | (5 | ) |
Accumulated Other Comprehensive Income (Loss) | $ | (230 | ) | | $ | — |
| | $ | 3 |
| | $ | (227 | ) |
(a) The amount reclassified from accumulated other comprehensive loss related to the sale of the shares of the company that owns Hyatt Regency Birmingham (U.K.) and was recorded within other long-term liabilities on our condensed consolidated balance sheets. |
| | | | | | | |
| Balance at July 1, 2015 | | Current period other comprehensive income (loss) before reclassification | | Amount reclassified from accumulated other comprehensive loss (b) | | Balance at September 30, 2015 |
Foreign currency translation adjustments | $ | (202 | ) | | $ | (56 | ) | | $ | 21 |
| | $ | (237 | ) |
Unrealized gains on AFS securities | 12 |
| | 9 |
| | — |
| | 21 |
|
Unrecognized pension cost | (5 | ) | | — |
| | — |
| | (5 | ) |
Unrealized gains (losses) on derivative instruments | (6 | ) | | 1 |
| | — |
| | (5 | ) |
Accumulated Other Comprehensive Income (Loss) | $ | (201 | ) | | $ | (46 | ) | | $ | 21 |
| | $ | (226 | ) |
(b) The amount reclassified from accumulated other comprehensive loss was recognized within equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income.
|
| | | | | | | |
| Balance at January 1, 2015 | | Current period other comprehensive income (loss) before reclassification | | Amount reclassified from accumulated other comprehensive loss (b) | | Balance at September 30, 2015 |
Foreign currency translation adjustments | $ | (155 | ) | | $ | (103 | ) | | $ | 21 |
| | $ | (237 | ) |
Unrealized gains on AFS securities | 6 |
| | 15 |
| | — |
| | 21 |
|
Unrecognized pension cost | (5 | ) | | — |
| | — |
| | (5 | ) |
Unrealized gains (losses) on derivative instruments | (6 | ) | | 1 |
| | — |
| | (5 | ) |
Accumulated Other Comprehensive Income (Loss) | $ | (160 | ) | | $ | (87 | ) | | $ | 21 |
| | $ | (226 | ) |
(b) The amount reclassified from accumulated other comprehensive loss was recognized within equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income. |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2017 | | Current period other comprehensive income before reclassification | | Amount reclassified from accumulated other comprehensive loss | | Balance at March 31, 2017 |
Foreign currency translation adjustments | $ | (299 | ) | | $ | 41 |
| | $ | — |
| | $ | (258 | ) |
Unrealized gains on AFS securities | 33 |
| | 34 |
| | — |
| | 67 |
|
Unrecognized pension cost | (7 | ) | | — |
| | — |
| | (7 | ) |
Unrealized losses on derivative instruments | (4 | ) | | — |
| | — |
| | (4 | ) |
Accumulated other comprehensive income (loss) | $ | (277 | ) | | $ | 75 |
| | $ | — |
| | $ | (202 | ) |
| | | | | | | |
| Balance at January 1, 2016 | | Current period other comprehensive income (loss) before reclassification | | Amount reclassified from accumulated other comprehensive loss | | Balance at March 31, 2016 |
Foreign currency translation adjustments | $ | (257 | ) | | $ | 24 |
| | $ | — |
| | $ | (233 | ) |
Unrealized gains (losses) on AFS securities | 39 |
| | (4 | ) | | — |
| | 35 |
|
Unrecognized pension cost | (7 | ) | | — |
| | — |
| | (7 | ) |
Unrealized losses on derivative instruments | (5 | ) | | — |
| | — |
| | (5 | ) |
Accumulated other comprehensive income (loss) | $ | (230 | ) | | $ | 20 |
| | $ | — |
| | $ | (210 | ) |
| | | | | | | |
Share RepurchaseRepurchases—During 2016 2015, and 2014,2015, our board of directors authorized the repurchase of up to $250 million, $400$500 million and $700$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 deemed relevant in our sole discretion. The common stock repurchase program applies to our Class A common stock and/orand 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. On May 3, 2017, our board of directors authorized the repurchase of up to an additional $500 million of our common stock. See Note 18 for further details regarding the 2017 share repurchase plan.
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 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 a future period, the total number of shares ultimately delivered is determined based on the volume-weighted-average price of our common stock during that period. The remaining shares yet to be delivered, totaling $60 million, are accounted for as an equity-classified forward contract. 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 ninethree months ended September 30, 2016 and September 30, 2015,March 31, 2017, we repurchased 5,556,424 and 9,614,4635,480,636 shares, of common stock, respectively. Theseincluding shares repurchased pursuant to the 2017 ASR. The shares of common stock were repurchased at a weighted-average price of $48.25 and $56.05$52.48 per share respectively, for an aggregate purchase price of $268$288 million, and $539 million, respectively, excluding related insignificant expenses in both periods. Theexpenses. Total shares repurchased during the ninethree months ended September 30, 2016March 31, 2017 represented approximately 4% of our total shares of common stock outstanding as ofat December 31, 2015.2016.
During the three months ended March 31, 2016, we repurchased 1,527,750 shares. The shares of common stock were repurchased at a weighted-average price of $41.37 per share for an aggregate purchase price of $63 million, excluding related insignificant expenses. The shares repurchased during the ninethree months ended September 30, 2015March 31, 2016 represented approximately 6%1% of our total shares of common stock outstanding as ofat December 31, 2014. 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 while the shares of Class B common stock repurchased were retired and the total number of authorized Class B shares was reduced by the number of shares repurchased. As of September 30, 2016,shares. At March 31, 2017, we had $111$9 million remaining under the share repurchase authorization.
Treasury Stock Retirement—During the nine months ended September 30, 2015, we retired 195,423 shares of treasury stock. These shares were retired at a weighted-average price of $43.41 per share resulting in an $8 million reduction in treasury stock. The retired shares of treasury stock were returned to the status of authorized and unissued.
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 ("PSSs"PSs") to certain employees. Stock-based compensationCompensation 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 for the three and nine months ended September 30, 2016 and September 30, 2015 werewas as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
SARs | $ | 1 |
| | $ | 1 |
| | $ | 9 |
| | $ | 9 |
| $ | 8 |
| | $ | 7 |
|
RSUs | 2 |
| | 3 |
| | 13 |
| | 14 |
| 8 |
| | 8 |
|
PSUs and PSSs | (2 | ) | | (5 | ) | | (1 | ) | | (3 | ) | |
PSUs and PSs | | — |
| | 1 |
|
Total stock-based compensation recorded within selling, general, and administrative expenses | $ | 1 |
| | $ | (1 | ) | | $ | 21 |
| | $ | 20 |
| $ | 16 |
| | $ | 16 |
|
SARs—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life in accordance with the plan. All outstanding SARs have a 10-year contractual term, are settled in shares of our Class A common stock and are accounted for as equity instruments.
During the ninethree months ended September 30, 2016,March 31, 2017, we granted 924,424605,601 SARs to employees with a weighted-average grant date fair value of $14.52. The fair value of each SAR was estimated on the grant date using the Black-Scholes-Merton option-pricing model.$16.35.
RSUs—Each vested RSU represents the right to receive a single share of our Class A common stock (or, in the case of an insignificant portion of total RSUs granted, its cash equivalent value). The value of the stock-settled RSUs is based on the fair value of our Class A common stock as of the grant date. We record compensation expense for RSUs over the vesting period of the individual award. Vesting is dependent upon continuous service by the employee, but will accelerate due to death or disability or in the event of a change in control. Compensation expense for retirement eligible grantees is recorded in full once the grantee becomes retirement eligible. In certain limited situations we also grant cash-settled RSUs which are recorded as liability instruments. During the ninethree months ended September 30, 2016,March 31, 2017, we granted a total of 444,629416,215 RSUs (an insignificant portion of which are cash-settled RSUs) to employees which, with respect to stock-settled RSUs, had a weighted-average grant date fair value of $47.36.
PSUs and PSSs—We granted both PSUs and PSSs to certain executive officers.
PSUs vest and are paid out in Class A common stock based upon the performance of the Company through the end of the applicable three year performance period relative to the applicable performance target. During the nine months ended September 30, 2016, we granted to our executive officers a total of 111,620 PSUs, with a weighted-average grant date fair value of $47.36.$52.65.
PSUs and PSs—During the three months ended March 31, 2017, we granted a total of 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, 20162017 and ending December 31, 2018. The PSUs will vest at2019. During the end of the performance period only if the performance threshold is met and continued service requirements are satisfied; there is no interim performance metric except in the case of certain change in control transactions.
PSSs vest and restrictions on transfer thereon lapse based upon the performance of the Company through the end of the applicable three year performance period relative to the applicable performance target. The PSSs vest in full if the maximum performance metric is achieved. At the end of the performance period, the PSSs that domonths ended March 31, 2017, we did not vest will be forfeited. The PSSs will vest at the end of the performance period only if the performance threshold is met and applicable continued service requirements are met; there is no interim performance metric except in the case of certain change in control transactions.grant any PSs under our LTIP.
Our total unearned compensation for our stock-based compensation programs as of September 30, 2016at March 31, 2017 was $7$8 million for SARs, $15$24 million for RSUs and $2$8 million for PSUs and PSSs,PSs, which will primarily be recorded to compensation expense over the next three years with respect to SARs and RSUs, with a limited portion of the SAR and RSU awards extending to four years, and over the next two years with respect to PSUs and PSSs.PSs.
14. RELATED-PARTY TRANSACTIONS
In addition to those included elsewhere in the Notes to the 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 $4$3 million.
Equity Method Investments—We have equity method investments in entities that own properties for which we providereceive management and/or franchise services and receive fees. We recorded fees of $8 million and $7$6 million for the three months ended September 30, 2016March 31, 2017 and September 30, 2015, respectively. We recorded fees of $22 million and $19 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. As of September 30, 2016March 31, 2016. At March 31, 2017 and December 31, 2015,2016, we had receivables due from these properties of $7 million and $6 million, respectively.million. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 11) to these entities. During the three and nine months ended September 30,March 31, 2017 and March 31, 2016, we recorded fees related to these guarantees of $1 million and $3 million, respectively.million. Our ownership interest in these unconsolidated hospitality ventures generally varies from 24% to 70%. See Note 3 for further details regarding these investments.
Class B Share Repurchase—During the three and nine months ended September 30, 2016, we repurchased 1,881,636 shares of Class B common stock for a weighted average price of $53.15 per share, for an aggregate purchase price of approximately $100 million. The shares repurchased represented approximately 1% of our total shares of common stock outstanding prior to the repurchase. During the nine months ended September 30, 2015, we repurchased 1,776,501 shares of Class B common stock for a weighted average price of $58.91 per share, for an aggregate purchase price of approximately $105 million. The shares repurchased represented approximately 1% of our total shares of common stock outstanding prior to the repurchase. The shares of Class B common stock were repurchased in privately negotiated transactions from trusts for the benefit of certain Pritzker family members and limited partnerships owned indirectly by trusts for the benefit of certain Pritzker family members and were retired, thereby reducing the total number of shares outstanding and reducing the shares of Class B common stock authorized and outstanding by the repurchased share amount.
Class B Share Conversion—During the three months ended September 30, 2016, 500,000March 31, 2017, 539,370 shares of Class B common stock were converted on a share-for-share basis into shares of our Class A common stock, $0.01 par value per share. The shares of Class B common stock that were converted into shares of Class A common stock have beenwere retired subsequent to March 31, 2017, thereby reducing 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 theour 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 Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("Adjusted EBITDA"),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.
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 collectedearned 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 greaterGreater 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 ITtechnology 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 collectedearned 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 primarily 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 ITtechnology 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 collectedearned 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; asset impairments; gains (losses) on sales of real estate;expense and other income (loss), net; depreciation and amortization; interest expense; and provision for income taxes.
Effective January 1, 2016, our definition of Adjusted EBITDA has been updated to exclude stock-based compensation expense, to facilitate comparison with our competitors. We have applied this change in the definition of Adjusted EBITDA to 2015 historical results to allow for comparability between the periods presented.net.
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 September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Owned and leased hotels | | | | | | | | | | |
Owned and leased hotels revenues | $ | 519 |
| | $ | 500 |
| | $ | 1,594 |
| | $ | 1,549 |
| $ | 558 |
| | $ | 516 |
|
Other revenues | | 13 |
| | — |
|
Intersegment revenues (a) | | 2 |
| | — |
|
Adjusted EBITDA | 120 |
| | 110 |
| | 400 |
| | 374 |
| 143 |
|
| 131 |
|
Depreciation and amortization | 71 |
| | 69 |
| | 211 |
| | 208 |
| 74 |
| | 68 |
|
Americas management and franchising | | | | | | | | | | |
Management and franchise fees revenues | 90 |
| | 85 |
| | 281 |
| | 269 |
| 104 |
| | 91 |
|
Other revenues from managed properties | 409 |
| | 409 |
| | 1,266 |
| | 1,225 |
| 428 |
| | 421 |
|
Intersegment revenues (a) | 16 |
| | 15 |
| | 57 |
| | 55 |
| 22 |
| | 20 |
|
Adjusted EBITDA | 77 |
| | 74 |
| | 242 |
| | 229 |
| 90 |
| | 76 |
|
Depreciation and amortization | 5 |
| | 5 |
| | 14 |
| | 14 |
| 5 |
| | 5 |
|
ASPAC management and franchising | | | | | | | | | | |
Management and franchise fees revenues | 23 |
| | 21 |
| | 67 |
| | 65 |
| 25 |
| | 22 |
|
Other revenues from managed properties | 24 |
| | 19 |
| | 72 |
| | 59 |
| 26 |
| | 21 |
|
Intersegment revenues (a) | 1 |
| | — |
| | 1 |
| | 1 |
| — |
| | — |
|
Adjusted EBITDA | 14 |
| | 12 |
| | 38 |
| | 37 |
| 15 |
| | 12 |
|
Depreciation and amortization | — |
| | — |
| | 1 |
| | 1 |
| — |
| | — |
|
EAME/SW Asia management | | | | | | | | |
EAME/SW Asia management and franchising | | | | |
Management and franchise fees revenues | 15 |
| | 16 |
| | 47 |
| | 49 |
| 16 |
| | 16 |
|
Other revenues from managed properties | 15 |
| | 12 |
| | 47 |
| | 40 |
| 17 |
| | 15 |
|
Intersegment revenues (a) | 2 |
| | 4 |
| | 8 |
| | 10 |
| 2 |
| | 2 |
|
Adjusted EBITDA | 8 |
| | 7 |
| | 24 |
| | 23 |
| 8 |
| | 8 |
|
Depreciation and amortization | 1 |
| | 1 |
| | 4 |
| | 4 |
| 1 |
| | 1 |
|
Corporate and other | | | | | | | | | | |
Revenues | 12 |
| | 10 |
| | 34 |
| | 29 |
| 26 |
| | 9 |
|
Adjusted EBITDA | (27 | ) | | (32 | ) | | (91 | ) | | (92 | ) | (29 | ) | | (33 | ) |
Depreciation and amortization | 10 |
| | 3 |
| | 24 |
| | 6 |
| 11 |
| | 7 |
|
Eliminations (a) | | | | | | | | |
Revenues | (19 | ) | | (19 | ) | | (66 | ) | | (66 | ) | |
Adjusted EBITDA | — |
| | — |
| | — |
| | — |
| |
Eliminations | | | | |
Revenues (a) | | (26 | ) | | (22 | ) |
Adjusted EBITDA (b) | | 1 |
| | — |
|
Depreciation and amortization | — |
| | — |
| | — |
| | — |
| — |
| | — |
|
TOTAL | | | | | | | | | | |
Revenues | $ | 1,088 |
| | $ | 1,053 |
| | $ | 3,342 |
| | $ | 3,219 |
| $ | 1,187 |
| | $ | 1,089 |
|
Adjusted EBITDA | 192 |
| | 171 |
| | 613 |
| | 571 |
| 228 |
| | 194 |
|
Depreciation and amortization | 87 |
| | 78 |
| | 254 |
| | 233 |
| 91 |
| | 81 |
|
| |
(a) | Intersegment revenues are included in the management and franchise fees revenues and owned and leased hotels revenues and are eliminated in Eliminations. |
| |
(b) | Adjusted EBITDA elimination includes expenses recorded by our owned and leased hotels related to billings for depreciation on technology-related capital assets. |
The table below provides a reconciliation of our consolidated Adjusted EBITDAnet income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporation for the three and nine months ended September 30, 2016 and September 30, 2015.our consolidated Adjusted EBITDA:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Adjusted EBITDA | $ | 192 |
| | $ | 171 |
| | $ | 613 |
| | $ | 571 |
| |
Equity earnings (losses) from unconsolidated hospitality ventures | 25 |
| | (17 | ) | | 46 |
| | (46 | ) | |
Stock-based compensation expense (see Note 13) | (1 | ) | | 1 |
| | (21 | ) | | (20 | ) | |
Asset impairments (a) | — |
| | (5 | ) | | — |
| | (5 | ) | |
Gains (losses) on sales of real estate (see Note 6) | — |
| | — |
| | (21 | ) | | 9 |
| |
Other income (loss), net (see Note 17) | 4 |
| | 11 |
| | 1 |
| | (3 | ) | |
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | (23 | ) | | (21 | ) | | (79 | ) | | (63 | ) | |
EBITDA | 197 |
| | 140 |
| | 539 |
| | 443 |
| |
Depreciation and amortization | (87 | ) | | (78 | ) | | (254 | ) | | (233 | ) | |
Net income attributable to Hyatt Hotels Corporation | | $ | 70 |
| | $ | 34 |
|
Interest expense | (20 | ) | | (17 | ) | | (57 | ) | | (51 | ) | 21 |
| | 17 |
|
Provision for income taxes | (28 | ) | | (20 | ) | | (65 | ) | | (72 | ) | 41 |
| | 16 |
|
Net income attributable to Hyatt Hotels Corporation | $ | 62 |
| | $ | 25 |
| | $ | 163 |
| | $ | 87 |
| |
Depreciation and amortization | | 91 |
| | 81 |
|
EBITDA | | 223 |
| | 148 |
|
Equity (earnings) losses from unconsolidated hospitality ventures | | 3 |
| | (2 | ) |
Stock-based compensation expense (see Note 13) | | 16 |
| | 16 |
|
Other (income) loss, net (see Note 17) | | (40 | ) | | 4 |
|
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | | 26 |
| | 28 |
|
Adjusted EBITDA | | $ | 228 |
| | $ | 194 |
|
| |
(a) | In conjunction with our regular assessment of impairment indicators, we identified property and equipment whose carrying value exceeded its fair value and as a result recorded an impairment charge of $5 million in the three and nine months ended September 30, 2015 to asset impairments within our owned and leased hotels segment on our condensed consolidated statements of income. |
16. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share, including a reconciliation of the numerator and denominator, wereare as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Numerator: | | | | | | | | | | |
Net income | $ | 62 |
| | $ | 25 |
| | $ | 163 |
| | $ | 87 |
| $ | 70 |
| | $ | 34 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| |
Net income and accretion attributable to noncontrolling interests | | — |
| | — |
|
Net income attributable to Hyatt Hotels Corporation | $ | 62 |
| | $ | 25 |
| | $ | 163 |
| | $ | 87 |
| $ | 70 |
| | $ | 34 |
|
Denominator: | | | | | | | | | | |
Basic weighted average shares outstanding | 131,917,434 |
| | 141,876,299 |
| | 133,672,570 |
| | 144,457,314 |
| 129,746,644 |
| | 135,128,860 |
|
Share-based compensation | 1,146,718 |
| | 1,131,077 |
| | 933,563 |
| | 1,229,860 |
| 1,250,891 |
| | 796,029 |
|
Diluted weighted average shares outstanding | 133,064,152 |
| | 143,007,376 |
| | 134,606,133 |
| | 145,687,174 |
| 130,997,535 |
| | 135,924,889 |
|
Basic Earnings Per Share: | | | | | | | | | | |
Net income | $ | 0.48 |
| | $ | 0.18 |
| | $ | 1.22 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| |
Net income and accretion attributable to noncontrolling interests | | — |
| | — |
|
Net income attributable to Hyatt Hotels Corporation | $ | 0.48 |
| | $ | 0.18 |
| | $ | 1.22 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
|
Diluted Earnings Per Share: | | | | | | | | | | |
Net income | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.21 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| |
Net income and accretion attributable to noncontrolling interests | | — |
| | — |
|
Net income attributable to Hyatt Hotels Corporation | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.21 |
| | $ | 0.60 |
| $ | 0.54 |
| | $ | 0.25 |
|
The computations of diluted net income per share for the three and nine months ended September 30, 2016March 31, 2017 and September 30, 2015March 31, 2016 do not include the following shares of Class A common stock assumed to be issued as stock-settled SARs, RSUs and RSUsan equity-classified forward contract because they are anti-dilutive.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
SARs | 73,300 |
| | 1,700 |
| | 80,400 |
| | 10,100 |
| 39,200 |
| | — |
|
RSUs | — |
| | — |
| | 4,200 |
| | — |
| — |
| | 12,000 |
|
Equity-classified forward contract under the 2017 ASR | | 26,800 |
| | — |
|
17. OTHER INCOME (LOSS), NET
The table below provides a reconciliation of the components in other income (loss), net, for the three and nine months ended September 30, 2016 and September 30, 2015, respectively.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Performance guarantee liability amortization (see Note 11) | $ | 8 |
| | $ | 3 |
| | $ | 25 |
| | $ | 8 |
|
Depreciation recovery | 8 |
| | 2 |
| | 19 |
| | 2 |
|
Interest income | 2 |
| | 2 |
| | 5 |
| | 6 |
|
Foreign currency gains (losses), net | (1 | ) | | (6 | ) | | 2 |
| | (13 | ) |
Performance guarantee income (expense), net (see Note 11) | (13 | ) | | 2 |
| | (40 | ) | | (12 | ) |
Debt settlement costs (see Note 8) | — |
| | — |
| | (3 | ) | | — |
|
Recoveries (provisions) on hotel loans, net (see Note 5) | — |
| | 8 |
| | (1 | ) | | 6 |
|
Other | — |
| | — |
| | (6 | ) | | — |
|
Other income (loss), net | $ | 4 |
| | $ | 11 |
| | $ | 1 |
| | $ | (3 | ) |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
Interest income (Note 4) | $ | 95 |
| | $ | 1 |
|
Depreciation recovery | 6 |
| | 5 |
|
Performance guarantee liability amortization (Note 11) | 4 |
| | 8 |
|
Performance guarantee expense, net (Note 11) | (26 | ) | | (19 | ) |
Realized losses (Note 4) | (40 | ) | | — |
|
Other | 1 |
| | 1 |
|
Other income (loss), net | $ | 40 |
| | $ | (4 | ) |
18. SUBSEQUENT EVENT
On May 3, 2017, our board of directors authorized the repurchase of up to an additional $500 million 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 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. At May 4, 2017, we had approximately $509 million remaining under our current share repurchase authorization.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report contains "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements include statements about the Company's plans, strategies, financial performance, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: the factors discussed in our filings with the SEC, including our Annual Report on Form 10-K; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the rate and the pace of economic recovery following economic downturns; levels of spending in business and leisure segments as well as consumer confidence; declines in occupancy and average daily rate; limited visibility with respect to future bookings; loss of key personnel; hostilities, or fear of hostilities, including future terrorist attacks, that affect travel; travel-related accidents; natural or man-made disasters such as earthquakes, tsunamis, tornadoes, hurricanes, floods, oil spills, nuclear incidents and global outbreaks of pandemics or contagious diseases or fear of such outbreaks; our ability to successfully achieve certain levels of operating profits at hotels that have performance guarantees in favor of our third party owners; the impact of hotel renovations; risks associated with our ability to successfully executecapital allocation plans and common stock repurchase program, including the risk that our common stock repurchase program;program could increase volatility and fail to enhance stockholder value; the seasonal and cyclical nature of the real estate and hospitality businesses; changes in distribution arrangements, such as through Internet travel intermediaries; changes in the tastes and preferences of our customers, including the entry of new competitors in the lodging business; relationships with colleagues and labor unions and changes in labor laws; financial condition of, and our relationships with, third-party property owners, franchisees and hospitality venture partners; the possible inability of our third-party owners, franchisees or development partners to access capital necessary to fund current operations or implement our plans for growth; risks associated with potential acquisitions and dispositions and the introduction of new brand concepts; the timing of acquisitions and dispositions; failure to successfully complete proposed transactions (including the failure to satisfy closing conditions or obtain required approvals); unforeseen terminations of our management or franchise agreements; changes in federal, state, local or foreign tax law; increases in interest rates and operating costs; foreign exchange rate fluctuations or currency restructurings; lack of acceptance of new brands or innovation; our ability to successfully implement our new global loyalty program;platform and the level of acceptance of the new program by our guests; general volatility of the capital markets and our ability to access such markets; changes in the competitive environment in our industry, including as a result of industry consolidation, and the markets where we operate; cyber incidents and information technology failures; outcomes of legal or administrative proceedings; and violations of regulations or laws related to our franchising business. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion should be read in conjunction with the Company's condensed consolidated financial statements and accompanying Notes, which appear elsewhere in this Quarterly Report on Form 10-Q.
Executive Overview
We are a global hospitality company engaged in the development, ownership, operation, management, franchising and licensing of a portfolio of properties, including hotels, resorts and residential and vacation ownership properties around the world. As of September 30, 2016,At March 31, 2017, our worldwide hotel portfolio consisted of 639664 hotels (166,731(172,261 rooms), including:
276282 managed properties (90,276(92,399 rooms), all of which we operate under management agreements with third-party property owners;
292310 franchised properties (48,267(51,041 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;
34
35 owned properties (17,714(18,008 rooms) (including 1 consolidated hospitality venture), 1 capital leased property (171 rooms), and 7 operating leased properties (2,411 rooms), all of which we manage; and
2023 managed properties and 96 franchised properties owned or leased by unconsolidated hospitality ventures (7,892(8,231 rooms).
Our worldwide property portfolio also included:
3 destination wellness resorts (386 rooms), all of which we own and operate (including 1 consolidated hospitality venture);
6 all inclusive resorts (2,401 rooms), all of which are owned by a third party in which we hold a common share investment and operated by an unconsolidated hospitality venture that haswhich operates the resorts under franchise agreements with us;
16 vacation ownership properties (1,038 units), all of which are licensed by Interval Leisure Group ("ILG") under the Hyatt Residence Club brand and operated by third parties, including ILG and its affiliates; and
1819 residential properties (2,417(2,546 units), which consist of branded residences and serviced apartments. We manage all of the serviced apartments and those branded residential units that participate in a rental program with an adjacent Hyatt-branded hotel.
We report our consolidated operations in U.S. dollars. Tabular amounts are displayed in millions of U.S. dollars, or as otherwise specifically identified. Percentages may not recompute due to rounding and not meaningful percentage changes are presented as "NM". Constant currency disclosures throughout Management's Discussion and Analysis of Financial Condition and Results of Operations are non-GAAP measures. See "—Segment Results" belowNon-GAAP Measures" for further discussion of constant currency disclosures. We manage our business within four reportable segments as described below:
Owned and leased hotels, which consists of our owned and leased full service and select service hotels and, for purposes of segment Adjusted EBITDA, our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture;
Americas management and franchising, which consists of our management and franchising of properties located in the United States, Latin America, Canada and the Caribbean;
ASPAC management and franchising, which consists of our management and franchising of properties located in Southeast Asia, as well as greaterGreater China, Australia, South Korea, Japan and Micronesia; and
EAME/SW Asia management and franchising, which consists of our management and franchising of properties located primarily in Europe, Africa, the Middle East, India, Central Asia and Nepal.
The results ofWithin corporate and other, we include our unallocated corporate overhead, results of Miraval, license fees related to Hyatt Residence Club and results of our co-branded credit card are reported within corporate and other.card. See Part I, Item 1 "Financial Statements—Note 15 to the Condensed Consolidated Financial Statements" for further discussion of our segment structure.
During the three months ended September 30, 2016,March 31, 2017, we purchased Royal Palms Resort and Spa for approximately $88 million. The hotel is included in The Unbound Collection by Hyatt.
During the third quarter, we announced plans forentered into the following future openings:key transactions:
acquired Miraval, the renowned provider of wellness and mindfulness experiences, for $239 million, subject to working capital adjustments. The acquisition of Miraval extends the Hyatt Centric Carlisle Bay,brand beyond traditional hotel stays and forms a distinct new wellness category within the first Hyatt-branded hotel in Barbados;Hyatt portfolio of brands;
launched World of Hyatt, Regency Phnom Penh, the first Hyatt Regency in Cambodia; and
Hyatt Regency Zadar Maraska, the first Hyatt-branded hotel in Croatia.
We opened 11 hotels in the third quarter including Andaz Ottawa Byward Market, the first Andaz hotel in Canada.
On October 27, 2016, we announced aour new global loyalty program, Worldplatform which replaced our Gold Passport loyalty program; and
2017 ASR to repurchase $300 million of Hyatt, which will launch on March 1, 2017.our Class A common stock to return capital to our shareholders.
Our financial performance for the quarter ended September 30, 2016March 31, 2017 reflects an increase in net income of $37$36 million compared to the quarter ended September 30, 2015.March 31, 2016. Consolidated revenues increased $35$98 million, or 3.3%9.0% ($39102 million or 3.7%9.5% excluding the impact of currency), during the quarter ended September 30, 2016March 31, 2017, compared to the quarter ended September 30, 2015.March 31, 2016. Owned and leased hotels revenues for the quarter ended September 30, 2016March 31, 2017, increased $19$56 million compared to the quarter ended September 30, 2015,March 31, 2016, which included a net unfavorable currency impact of $4 million. The increase in owned and leased hotels revenues resulted primarily from an increase in non-comparable owned and leased hotels revenues of $13$48 million, including $1 million inan insignificant net unfavorable currency impact, which was primarily driven by new openings and acquisitions, in 2016, partially offset by hotels sold in 2016. Additionally, comparable owned and leased hotels revenues increased $6$8 million, including $3a $4 million in net
unfavorable currency impact, which was primarily driven by full service hotels in the United States and Mexico as a result of improved transientgroup average daily rate ("ADR") and group Revenue per Available Room ("RevPAR").
occupancy.
Our management and franchise fees for the quarter ended September 30, 2016March 31, 2017 increased $7$15 million compared to the quarter ended September 30, 2015,March 31, 2016, which included an insignificant net unfavorable currency impact. Fee increases wereimpact, primarily dueattributable to increased franchise fees from newour Americas management and converted hotels and improved performance at existing hotels in the Americas.franchising segment.
Our consolidated Adjusted EBITDA for the thirdfirst quarter of 20162017 increased $21$34 million compared to the thirdfirst quarter of 2015,2016, which included $1 million in net unfavorable currency impact. The increase was primarily driven by our Americas management and franchising segment which increased $14 million and our owned and leased hotels segment which increased $10 million and a $5 millionincrease attributable to corporate and other.$12 million. See "—Non-GAAP Measures" below for an explanation of how we useutilize Adjusted EBITDA, why we present it and material limitations on its usefulness, as well as a reconciliation of our consolidated Adjusted EBITDAnet income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporationconsolidated Adjusted EBITDA.
Hotel Chain RevPARRevenue per Available Room ("RevPAR") Statistics.
| | | | RevPAR | | RevPAR |
| | Three Months Ended September 30, | | Three Months Ended March 31, |
(Comparable Locations) | | Number of Comparable Hotels (1) | | 2016 | | 2015 | | Change | | Change (in constant $) | | Number of Comparable Hotels (1) | | 2017 | | 2016 | | Change | | Change (in constant $) |
Comparable systemwide hotels | | 539 | | $ | 140 |
| | $ | 137 |
| | 2.6 | % | | 2.5 | % | |
Systemwide hotels | | | 595 | | $ | 130 |
| | $ | 125 |
| | 4.4 | % | | 4.7 | % |
Owned and leased hotels | | 39 | | $ | 171 |
| | $ | 171 |
| | 0.3 | % | | 1.0 | % | | 39 | | $ | 171 |
| | $ | 168 |
| | 1.9 | % | | 2.7 | % |
Americas full service hotels | | 148 | | $ | 158 |
| | $ | 152 |
| | 3.6 | % | | 3.8 | % | | 153 | | $ | 149 |
| | $ | 142 |
| | 5.0 | % | | 5.1 | % |
Americas select service hotels | | 267 | | $ | 110 |
| | $ | 106 |
| | 4.6 | % | | 4.6 | % | | 298 | | $ | 101 |
| | $ | 97 |
| | 3.8 | % | | 3.9 | % |
ASPAC full service hotels | | 60 | | $ | 149 |
| | $ | 143 |
| | 4.4 | % | | 1.8 | % | | 70 | | $ | 139 |
| | $ | 133 |
| | 5.0 | % | | 5.2 | % |
EAME/SW Asia full service hotels | | 58 | | $ | 121 |
| | $ | 134 |
| | (9.7 | )% | | (7.8 | )% | | 63 | | $ | 114 |
| | $ | 113 |
| | 1.0 | % | | 3.1 | % |
EAME/SW Asia select service hotels | | 5 | | $ | 66 |
| | $ | 63 |
| | 4.7 | % | | 5.0 | % | | 10 | | $ | 70 |
| | $ | 65 |
| | 7.8 | % | | 8.6 | % |
(1) Comparable systemwide hotels include one select service hotel in ASPAC, which is not included in the ASPAC full service hotel statistics. The number of managed and franchised hotels presented above includes owned and leased hotels.
In the Americas management and franchising segment, transient Average Daily Rate ("ADR") growth as well as group occupancydemand and ADR growth at our full service hotels contributed tohelped drive RevPAR increases in the thirdfirst quarter of 2017, compared to the first quarter of 2016. Demand from groups was higher while transient demand was softer in the first quarter of 2017 compared to the first quarter of 2016, comparedboth due in part to the third quartertiming of 2015, partly dueEaster. While transient demand decreased, higher transient rates helped minimize the impact to the shift of the Jewish holidays out of the third quarter of 2016 and into the fourth quarter of 2016.transient revenues. Our owned and leased hotels segment, which consistsis made up primarily of hotels located primarily in the Americas, experienced transient revenuealso saw similar group demand and ADR growth as a result of increased ADR in the thirdfirst quarter of 2017, compared to same period in 2016. Group occupancy experienced moderate growth at our owned and leased hotelsrevenue booked in the United States, due to the shift of the Jewish holidays out of the third quarter of 2016.
In the Americas management and franchising segment, short-term group bookings made in the third quarter of 20162017 for stays in 2016 were2017 was lower compared to bookings madethe same period last year. Group revenue booked in the third quarter of 20152017 for stays in 2015. Long-term bookings made in the third quarter of 2016 for stays beyond 2016 increasedfuture years was also lower compared to bookings made in the third quarter of 2015 for years beyond 2015.same period last year.
ASPAC management and franchising segment results forRevPAR increased during the thirdfirst quarter of 2017 compared to the first quarter of 2016 were relatively flatdriven by strong transient demand in Hong Kong, China and Southeast Asia as the region continued to be negatively impacted by a shifting preference in tourism destinations. While overallwell as increased group demand remained strong, the region experienced decreased ADR during the third quarter of 2016. Our hotels in South Korea experienced improved results as the tourism industry has recovered after the country was negatively impacted by the MERS outbreak in 2015. Hong Kong, Macau and Taiwan markets experienced lower visitor arrivals and we expect this trend to continue. Hong Kong, however, had strong group results during the third quarter despite the difficult market conditions.Indonesia.
The RevPAR decline in our EAME/SW Asia management and franchising segment RevPAR increased during the thirdfirst quarter of 2017 compared to the first quarter of 2016 resulted from decreased ADR anddriven by improved occupancy in France, Switzerland and Turkey. The hotels in France and Turkey continued to experience lower demand due to security concerns and terrorism inacross the region. Our hotelWestern Europe, specifically Germany and the United Kingdom, and India experienced strong year-over-year occupancy and ADR growth. Increases in Switzerland experienced reduced occupancy as a result of a decline in transient demand. These decreasescertain locations within Western Europe were partially offset by a combinationthe impact of strong rate and occupancy growth across Southwest Asiarenovations at two properties in France, as thewell as soft demand in Switzerland. Additionally, our hotels in Turkey continued to benefit from an improved business environment. We expect the current trends in the EAME/SW Asia regions to continue to impact the segment's results for 2016.be impacted by security concerns and lower demand.
Results of Operations
Three and Nine Months Ended September 30, 2016March 31, 2017 Compared with Three and Nine Months Ended September 30, 2015March 31, 2016
Discussion on Consolidated Results
For additional information regarding our consolidated results below, please also refer to our condensed consolidated statements of income included in this quarterly filing.report. The impactimpacts from our investments in marketable securities held to fund operating programs, including securities held to fund our benefit programs funded through a rabbi trust and securities held to fund our Gold Passportloyalty program, were recorded on the various financial statement line items discussed below and have no impact on net income.
Owned and leased hotels revenues.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | | Currency Impact | |
| | 2017 | | 2016 | | Better / (Worse) | | Currency Impact |
Comparable owned and leased hotels revenues | $ | 492 |
| | $ | 486 |
| | $ | 6 |
| | 1.2 | % | | $ | (3 | ) | $ | 511 |
| | $ | 503 |
| | $ | 8 |
| | 1.5 | % | | $ | (4 | ) |
Non-comparable owned and leased hotels revenues | 27 |
| | 14 |
| | 13 |
| | 92.9 | % | | (1 | ) | 61 |
| | 13 |
| | 48 |
| | 383.0 | % | | — |
|
Total Owned and Leased Hotels Revenues | $ | 519 |
| | $ | 500 |
| | $ | 19 |
| | 3.8 | % | | $ | (4 | ) | |
Total owned and leased hotels revenues | | $ | 572 |
| | $ | 516 |
| | $ | 56 |
| | 10.9 | % | | $ | (4 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | | Currency Impact |
Comparable owned and leased hotels revenues | $ | 1,533 |
| | $ | 1,505 |
| | $ | 28 |
| | 1.9 | % | | $ | (17 | ) |
Non-comparable owned and leased hotels revenues | 61 |
| | 44 |
| | 17 |
| | 38.6 | % | | (1 | ) |
Total Owned and Leased Hotels Revenues | $ | 1,594 |
| | $ | 1,549 |
| | $ | 45 |
| | 2.9 | % | | $ | (18 | ) |
The increasesincrease in comparable owned and leased hotels revenues for the three and nine months ended September 30, 2016March 31, 2017, compared to the three and nine months ended September 30, 2015 wereMarch 31, 2016, was primarily driven by full service hotels in the United States, and Mexico, partially offset by decreases at certain of our international hotels primarily due todriven by rate and occupancy declines in Switzerland, renovation activity in France and net unfavorable currency impact and market weakness.impact. The increasesincrease in non-comparable owned and leased hotels revenues for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015 werewas driven by acquisitions and openings, in 2016, partially offset by hotels sold in 2015 and 2016. See "—Segment Results" below for further discussion of owned and leased hotels revenues.
Management and franchise fee revenues.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | |
| | 2017 | | 2016 | | Better / (Worse) |
Base management fees | $ | 49 |
| | $ | 47 |
| | $ | 2 |
| | 4.3 | % | $ | 47 |
| | $ | 45 |
| | $ | 2 |
| | 4.7 | % |
Incentive management fees | 25 |
| | 23 |
| | 2 |
| | 8.7 | % | 35 |
| | 30 |
| | 5 |
| | 17.0 | % |
Franchise fees | 27 |
| | 24 |
| | 3 |
| | 12.5 | % | 27 |
| | 23 |
| | 4 |
| | 16.2 | % |
Other fee revenues | 9 |
| | 9 |
| | — |
| | — | % | 13 |
| | 9 |
| | 4 |
| | 47.2 | % |
Total management and franchise fees | $ | 110 |
| | $ | 103 |
| | $ | 7 |
| | 6.8 | % | $ | 122 |
| | $ | 107 |
| | $ | 15 |
| | 14.2 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Base management fees | $ | 143 |
| | $ | 140 |
| | $ | 3 |
| | 2.1 | % |
Incentive management fees | 85 |
| | 83 |
| | 2 |
| | 2.4 | % |
Franchise fees | 77 |
| | 67 |
| | 10 |
| | 14.9 | % |
Other fee revenues | 27 |
| | 30 |
| | (3 | ) | | (10.0 | )% |
Total management and franchise fees | $ | 332 |
| | $ | 320 |
| | $ | 12 |
| | 3.8 | % |
The increase in management and franchise fees during the three months ended March 31, 2017, compared to the same period in the prior year, which included an insignificant and $2 million net unfavorable currency impact, during the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year. The increase in franchise fees for the three and nine months ended September 30, 2016 was primarily driven by new and converted hotels and improved performance at existing hotels in the Americas.Americas management and franchising segment. The increase in other fee revenues was driven by a termination fee for a hotel that left the chain. See "—Segment Results" for further discussion of management and franchise fees by region.
Other revenues. Other revenues increased $13 million during thethree months ended March 31, 2017, compared to the three months ended March 31, 2016, driven by the sales of villas at Andaz Maui at Wailea Resort, in which we acquired our partners' share of the unconsolidated hospitality venture during the fourth quarter of 2016.
Other revenues from managed properties.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | |
| | 2017 | | 2016 | | Better / (Worse) |
Other revenues from managed properties excluding rabbi trust impact | $ | 443 |
| | $ | 447 |
| | $ | (4 | ) | | (0.9 | )% | $ | 464 |
| | $ | 457 |
| | $ | 7 |
| | 1.3 | % |
Rabbi trust impact | 5 |
| | (7 | ) | | 12 |
| | 171.4 | % | 7 |
| | — |
| | 7 |
| | NM |
|
Other revenues from managed properties | $ | 448 |
| | $ | 440 |
| | $ | 8 |
| | 1.8 | % | $ | 471 |
| | $ | 457 |
| | $ | 14 |
| | 2.8 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Other revenues from managed properties excluding rabbi trust impact | $ | 1,378 |
| | $ | 1,327 |
| | $ | 51 |
| | 3.8 | % |
Rabbi trust impact | 7 |
| | (3 | ) | | 10 |
| | 333.3 | % |
Other revenues from managed properties | $ | 1,385 |
| | $ | 1,324 |
| | $ | 61 |
| | 4.6 | % |
Excluding the impact of rabbi trust, other revenues from managed properties decreased during the three months ended September 30, 2016, compared to the three months ended September 30, 2015, due to decreased full service hotels payroll and related costs driven by hotel conversions and a hotel that left the chain, partially offset by increased reimbursements related to our Hyatt Gold Passport program due to increased member participation. Excluding the impact of rabbi trust, other revenues from managed properties increased during the ninethree months ended September 30, 2016,March 31, 2017, compared to the ninethree months ended September 30, 2015,March 31, 2016, due to a higher volume ofincreased reimbursements paidrelated to us by our managed properties for increased member participation in our Hyatt Gold Passportloyalty program and increased select service hotelstechnology costs. These increases were partially offset by decreased payroll and related costs partially offset by decreasedat full service hotels payroll and related costs driven by hotel conversions and onea hotel that left the chain.
Owned and leased hotels expense.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | |
| | 2017 | | 2016 | | Better / (Worse) |
Comparable owned and leased hotels expense | $ | 378 |
| | $ | 377 |
| | $ | (1 | ) | | (0.3 | )% | $ | 379 |
| | $ | 376 |
| | $ | (3 | ) | | (1.0 | )% |
Non-comparable owned and leased hotels expense | 22 |
| | 11 |
| | (11 | ) | | (100.0 | )% | 45 |
| | 13 |
| | (32 | ) | | (243.6 | )% |
Rabbi trust impact | 2 |
| | (3 | ) | | (5 | ) | | (166.7 | )% | 3 |
| | — |
| | (3 | ) | | NM |
|
Total Owned and Leased Hotels Expense | $ | 402 |
| | $ | 385 |
| | $ | (17 | ) | | (4.4 | )% | |
Total owned and leased hotels expense | | $ | 427 |
| | $ | 389 |
| | $ | (38 | ) | | (10.0 | )% |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Comparable owned and leased hotels expense | $ | 1,143 |
| | $ | 1,125 |
| | $ | (18 | ) | | (1.6 | )% |
Non-comparable owned and leased hotels expense | 58 |
| | 37 |
| | (21 | ) | | (56.8 | )% |
Rabbi trust impact | 3 |
| | (2 | ) | | (5 | ) | | (250.0 | )% |
Total Owned and Leased Hotels Expense | $ | 1,204 |
| | $ | 1,160 |
| | $ | (44 | ) | | (3.8 | )% |
ComparableThe increase in comparable owned and leased hotels expense, which included $2 million and $11$3 million net favorable currency impact, in the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in the prior year. The increase in the nine months ended September 30, 2016year was primarily driven by increased payroll and related costs and property taxesrent expense at certain properties. Non-comparableThe increase in non-comparable owned and leased hotels expense, which included $1 millionan insignificant net favorable currency impact in both the three and nine months ended September 30, 2016,March 31, 2017, compared to the same periodsperiod in the prior year. The increases in both periods were primarilyyear, was driven by acquisitions and openings, in 2016, partially offset by hotels sold in 2016 and 2015.
2016.
Depreciation and amortization. Depreciation and amortization increased $9 million and $21$10 million during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in the prior year. The increases wereyear, primarily driven by depreciation foracquisitions and hotel openings, and assets placed in service in 2015 and 2016mid-2016 related to ITtechnology projects, acquisitions and hotel openings, partially offset by decreased depreciation related to the sale of Andaz 5th Avenue.two hotels in 2016. A portion of the depreciation related to IT assetstechnology projects is recovered from our managed and franchised hotels and the corresponding recovery is included in other income (loss), net.
Other direct costs. Other direct costs increased $13 million during the three months ended March 31, 2017, compared to the three months ended March 31, 2016, driven by the sales of villas at Andaz Maui at Wailea Resort.
Selling, general, and administrative expenses.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Selling, general, and administrative expenses | $ | 74 |
| | $ | 54 |
| | $ | (20 | ) | | (37.0 | )% |
Less rabbi trust impact | (10 | ) | | 12 |
| | 22 |
| | 183.3 | % |
Less stock-based compensation expense | (1 | ) | | 1 |
| | 2 |
| | 200.0 | % |
Adjusted selling, general, and administrative expenses | $ | 63 |
| | $ | 67 |
| | $ | 4 |
| | 6.0 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Change |
Selling, general, and administrative expenses | $ | 99 |
| | $ | 88 |
| | $ | 11 |
| | 11.7 | % |
Less: rabbi trust impact | (12 | ) | | — |
| | (12 | ) | | NM |
|
Less: stock-based compensation expense | (16 | ) | | (16 | ) | | — |
| | (2.0 | )% |
Adjusted selling, general, and administrative expenses | $ | 71 |
| | $ | 72 |
| | $ | (1 | ) | | (2.3 | )% |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Selling, general, and administrative expenses | $ | 237 |
| | $ | 221 |
| | $ | (16 | ) | | (7.2 | )% |
Less rabbi trust impact | (14 | ) | | 5 |
| | 19 |
| | 380.0 | % |
Less stock-based compensation expense | (21 | ) | | (20 | ) | | 1 |
| | 5.0 | % |
Adjusted selling, general, and administrative expenses | $ | 202 |
| | $ | 206 |
| | $ | 4 |
| | 1.9 | % |
Adjusted selling, general, and administrative expenses excludes the impact of expenses related to benefit programs funded through rabbi trusts and stock-based compensation expense. Adjusted selling, general, and administrative expenses, as we define it, is a non-GAAP measure. See "—Non-GAAP Measures" below for further discussion of adjusted selling, general, and administrative expenses. Effective January 1, 2016 our definition of Adjusted EBITDA has been updated to exclude stock-based compensation expense, therefore, our definition of adjusted selling, general, and administrative expenses has also been updated to exclude stock-based compensation expense. We have applied this change in the definition of adjusted selling, general, and administrative expenses to 2015 historical results to allow for comparability between the periods presented.
Adjusted selling, general, and administrative expenses decreased during the three months ended September 30, 2016, compared to the same period in the prior year, driven by reductions in professional fees related to certain initiatives completed during 2015 and other taxes assessed in the prior year. The decrease during the ninemonths ended September 30, 2016 compared to the same period in the prior year, was driven by reductions in professional fees, partially offset by increases in payroll and related costs.
Net gains (losses) and interest income from marketable securities held to fund operating programs.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Rabbi trust impact allocated to selling, general, and administrative expenses | $ | 10 |
| | $ | (12 | ) | | $ | 22 |
| | 183.3 | % |
Rabbi trust impact allocated to owned and leased hotels expense | 2 |
| | (3 | ) | | 5 |
| | 166.7 | % |
Net gains and interest income from marketable securities held to fund our Gold Passport program allocated to owned and leased hotels revenues | — |
| | — |
| | — |
| | — | % |
Net gains (losses) and interest income from marketable securities held to fund operating programs | $ | 12 |
| | $ | (15 | ) | | $ | 27 |
| | 180.0 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Rabbi trust impact allocated to selling, general, and administrative expenses | $ | 12 |
| | $ | — |
| | $ | 12 |
| | NM |
|
Rabbi trust impact allocated to owned and leased hotels expense | 3 |
| | — |
| | 3 |
| | NM |
|
Net gains and interest income from marketable securities held to fund our loyalty program allocated to owned and leased hotels revenues | — |
| | 1 |
| | (1 | ) | | (69.9 | )% |
Net gains and interest income from marketable securities held to fund operating programs | $ | 15 |
| | $ | 1 |
| | $ | 14 |
| | NM |
|
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Rabbi trust impact allocated to selling, general, and administrative expenses | $ | 14 |
| | $ | (5 | ) | | $ | 19 |
| | 380.0 | % |
Rabbi trust impact allocated to owned and leased hotels expense | 3 |
| | (2 | ) | | 5 |
| | 250.0 | % |
Net gains and interest income from marketable securities held to fund our Gold Passport program allocated to owned and leased hotels revenues | 3 |
| | 1 |
| | 2 |
| | 200.0 | % |
Net gains (losses) and interest income from marketable securities held to fund operating programs | $ | 20 |
| | $ | (6 | ) | | $ | 26 |
| | 433.3 | % |
Equity earnings (losses) from unconsolidated hospitality ventures.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Equity earnings (losses) from unconsolidated hospitality ventures | $ | 25 |
| | $ | (17 | ) | | $ | 42 |
| | 247.1 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Equity earnings (losses) from unconsolidated hospitality ventures | $ | (3 | ) | | $ | 2 |
| | $ | (5 | ) | | (222.1 | )% |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Equity earnings (losses) from unconsolidated hospitality ventures | $ | 46 |
| | $ | (46 | ) | | $ | 92 |
| | 200.0 | % |
The decrease during the three and nine months ended September 30,March 31, 2017, as compared to the three months ended March 31, 2016, included $20was attributable to the following:
$7 million ofdecrease due to equity earnings attributable to one of our unconsolidated hospitality ventures primarily related to their debt refinancing, which resulted in a distribution during the third quarter of 2016 and $5 million related to two of our unconsolidated hospitality ventures which sold hotels during the third quarter. Equity earnings during the nine months ended September 30, 2016 also included $7 million related to a forfeited deposit on a sale of hotels by an unconsolidated hospitality venture that did not close. Additionally, duringclose; and
$2 million increase driven by the three and nine months ended September 30, 2016, we recorded $2 million and $4 million of impairment charges, respectively.
The three and nine months ended September 30, 2015 included thegain on sale of a hotel by an entity that held an interest in one of our foreign currency denominated unconsolidated hospitality ventures which resultedventure in 2017.
In March 2017, Playa entered into a loss of $21 million duebusiness combination with Pace as discussed in Part I, Item 1 "Financial Statements—Note 4 to the release of accumulated foreign currency translation upon sale. The nine months ended September 30, 2015 also included $28 million ofCondensed Consolidated Financial Statements." As the retained Playa investment is no longer accounted for as an equity method investment, we will not have equity earnings or losses in future periods related to two foreign unconsolidated hospitality ventures. Such losses are attributable to the following, among other items: (i) foreign currency losses recorded by one of our unconsolidated hospitality ventures which holds loans denominatedinvestment in a currency other than its functional currency, resulting in losses due to currency volatility during the period, and (ii) operating and non-operating losses related to one of our unconsolidated hospitality ventures driven primarily by interest, tax, and other nonrecurring expenses recorded during the period.Playa.
Interest expense. Interest expense increased $3 million and $6$4 million during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in the prior year, driven by interest expense related toon the 2026 Notes which were issued in the first quarter of 2016 and interest on the outstanding balance on our credit revolver. These increases were partially offset by decreased interest expense related toon the senior unsecured notes due in 2016, Notes which were redeemed duringin the second quarter of 2016.
Asset Impairments. During the three and ninemonths ended September 30, 2015, we recognized $5 million of asset impairment charges related to propertyMarch 31, 2017 and equipment within our owned and leased hotels segment.
Gains (losses) on sales of real estate. During the nine months ended September 30,March 31, 2016, we sold Andaz 5th Avenue resultingdid not record any asset impairments. However, a change in a pre-tax lossour assumptions and estimates by 4% could reduce the fair value of $21 million. During the nine months ended September 30, 2015, we sold Hyatt Regency Indianapolis resultingone of our reporting units at March 31, 2017, and could potentially result in a pre-tax gainan impairment of $8 million and a Hyatt House property resulting in a pre-tax gaingoodwill of $1up to $17 million.
Other income (loss), net. Other income (loss), net decreased $7 million and increased $4$44 million during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in the prior year. These changes areThe change was primarily driven byattributable to the following:
•$94 million of interest income and $40 million of realized losses related to the redemption of our Playa preferred shares; and
•$7 million increase in performance guarantee expense and a $5 million decrease in performance guarantee income (expense), net related to the four managed hotels in France. See Part I, Item 1 "Financial Statements—Note 11 to the Condensed Consolidated Financial Statements" for further details related to our performance guarantees. Other income (loss), net for
the three and nine months ended September 30, 2015 included foreign currency losses recorded by entities which hold loans denominated in a currency other than its functional currency, primarily related to the Brazilian real. Refer to Note 17 for a reconciliation of the components in other income (loss), net.
Provision for income taxes.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | |
| | 2017 | | 2016 | | Better / (Worse) |
Income before income taxes | $ | 90 |
| | $ | 45 |
| | $ | 45 |
| | 100.0 | % | $ | 111 |
| | $ | 50 |
| | $ | 61 |
| | 122.7 | % |
Provision for income taxes | (28 | ) | | (20 | ) | | (8 | ) | | (40.0 | )% | (41 | ) | | (16 | ) | | (25 | ) | | (158.7 | )% |
Effective tax rate | 30.2 | % | | 44.6 | % | |
|
| | 14.4 | % | 36.8 | % | | 31.7 | % | |
|
| | (5.1 | )% |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Income before income taxes | $ | 228 |
| | $ | 159 |
| | $ | 69 |
| | 43.4 | % |
Provision for income taxes | (65 | ) | | (72 | ) | | 7 |
| | 9.7 | % |
Effective tax rate | 28.4 | % | | 45.3 | % | | | | 16.9 | % |
Provision for income taxesIncome tax expense increased $8$25 million duringin the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, primarily due to an increase in income before income taxes in the third quarter of 2016, partially offsetquarter. The increase in the effective tax rate is primarily driven by benefits described below. Income tax expense decreased $7 million for the nine month period ended September 30, 2016 compared to the same period in 2015. The decrease was due to a tax benefit recognized in 2016 as a result of the global transfer pricing changes implemented during the fourth quarter of 2015 to better align the methodology with our global business operating model and the release of tax reserves in certain foreign jurisdictions. Additionally, the periods ended September 30, 2015 were unfavorably impacted by the effect of certain foreign unconsolidated hospitality venture losses that were not fully benefited in 2015.2017.
Segment Results
We evaluate segment operating performance using segment revenue and segment Adjusted EBITDA, as described in Part I, Item 1 "Financial Statements—Note 15 which includes discussion of an update to the definition of Adjusted EBITDA effective January 1, 2016.Condensed Consolidated Financial Statements."
The charts below illustrate revenues by segment excluding other revenues from managed properties for the three and nine months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015, which are presented before intersegment eliminations.
*Consolidated revenues for the three months ended September 30, 2016March 31, 2017 included corporate and other revenues of $12$26 million, eliminations of $19$26 million and other revenues from managed properties of $448$471 million.
**Consolidated revenues for the three months ended September 30, 2015March 31, 2016 included corporate and other revenues of $10$9 million, eliminations of $19$22 million and other revenues from managed properties of $440 million.
*Consolidated revenues for the nine months ended September 30, 2016 included corporate and other revenues of $34 million, eliminations of $66 million and other revenues from managed properties of $1,385 million.
**Consolidated revenues for the nine months ended September 30, 2015 included corporate and other revenues of $29 million, eliminations of $66 million and other revenues from managed properties of $1,324$457 million.
Owned and leased hotels segment revenues.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | | Currency Impact | |
| | 2017 | | 2016 | | Better / (Worse) | | Currency Impact |
Comparable owned and leased hotels revenues | $ | 492 |
| | $ | 486 |
| | $ | 6 |
| | 1.2 | % | | $ | (3 | ) | $ | 513 |
| | $ | 503 |
| | $ | 10 |
| | 1.9 | % | | $ | (4 | ) |
Non-comparable owned and leased hotels revenues | 27 |
| | 14 |
| | 13 |
| | 92.9 | % | | (1 | ) | 45 |
| | 13 |
| | 32 |
| | 259.8 | % | | — |
|
Total Owned and Leased Hotels Revenues | $ | 519 |
| | $ | 500 |
| | $ | 19 |
| | 3.8 | % | | $ | (4 | ) | |
Total owned and leased hotels revenues | | 558 |
| | 516 |
| | 42 |
| | 8.3 | % | | (4 | ) |
Other revenues | | 13 |
| | — |
| | 13 |
| | NM |
| | — |
|
Total segment revenues | | $ | 571 |
| | $ | 516 |
| | $ | 55 |
| | 10.8 | % | | $ | (4 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | | Currency Impact |
Comparable owned and leased hotels revenues | $ | 1,533 |
| | $ | 1,505 |
| | $ | 28 |
| | 1.9 | % | | $ | (17 | ) |
Non-comparable owned and leased hotels revenues | 61 |
| | 44 |
| | 17 |
| | 38.6 | % | | (1 | ) |
Total Owned and Leased Hotels Revenues | $ | 1,594 |
| | $ | 1,549 |
| | $ | 45 |
| | 2.9 | % | | $ | (18 | ) |
The increasesincrease in comparable owned and leased hotels revenues during the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015, were primarily driven by increases of $12 million and $42 million in the United States, respectively, partially offset by decreases of $6 million and $14 million, respectively, at our international hotels. During the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015,March 31, 2016, was primarily driven by increases of $15 million at our hotels in the United States, partially offset by decreases of $5 million at our international hotels. The revenue growth at our United States comparable full service hotels in the United States was primarily a result of improved transient rategroup business and food and beverage revenues. Duringrevenues, driven in part by the nine months ended September 30,shift of Easter from the first quarter of 2016 compared to the nine months ended September 30, 2015, revenue growth at our United States comparable full service hotels was primarily a resultsecond quarter of increased group and transient rates as well as food and beverage revenues.2017. The decreasesdecrease in comparable international hotels during the three and nine months ended September 30, 2016 compared to the same periods in 2015, werewas primarily driven by a net unfavorable currency impact of $3$4 million and $17 million, respectively. Unfavorabledecreased performance at certain of our owned hotels in EAME/SW Asia wasEurope, partially offset by favorable performanceincreased transient business in Mexico.
The increasesincrease in non-comparable owned and leased hotels revenues werewas driven by the openingfollowing activity, in order of Grand Hyatt Rio de Janeirosignificance:
the acquisition of our partners' interest in Andaz Maui at Wailea Resort and villas in 2016;
the acquisitions of The Confidante Miami Beach and Royal Palms Resort and Spa in 2016; and
the opening of Grand Hyatt Rio de Janeiro in 2016.
The increase in revenues was partially offset by the salefollowing activity:
the dispositions of Andaz 5th Avenue.Avenue and Hyatt Regency Birmingham (U.K.) in 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
| 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
Comparable Owned and Leased Hotels | $ | 171 |
| | $ | 171 |
| | 0.3 | % | | 1.0 | % | | 79.4 | % | | 78.4 | % | | 1.0 | % | | $ | 216 |
| | $ | 218 |
| | (0.9 | )% | | (0.3 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| RevPAR | | Occupancy | | ADR |
| 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2017 | | 2016 | | Change in Occ % pts | | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ |
Comparable owned and leased hotels | $ | 171 |
| | $ | 168 |
| | 1.9 | % | | 2.7 | % | | 75.0 | % | | 74.2 | % | | 0.8 | % | | $ | 228 |
| | $ | 226 |
| | 0.8 | % | | 1.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
| 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
Comparable Owned and Leased Hotels | $ | 173 |
| | $ | 170 |
| | 2.0 | % | | 3.0 | % | | 78.0 | % | | 77.3 | % | | 0.7 | % | | $ | 222 |
| | $ | 219 |
| | 1.1 | % | | 2.0 | % |
Excluding the net unfavorable currency impact, the increase in comparable RevPAR at our owned and leased hotels during the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, was primarily driven by improved transient ADR and group occupancybusiness at our comparable full service hotels in the United States and increased transient business at our comparable full service hotel in Mexico, partially offset by decreased ADR at certain of our comparable full service hotels in EAME/SW Asia. The increase during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was primarily driven by improved ADR and occupancy at our comparable full service hotels in the United States and Mexico, partially offset by decreased ADR at our comparable full service hotels in EAME/SW Asia.
Europe.
During the three and nine months ended September 30, 2016, weMarch 31, 2017, no properties were removed one and two properties, respectively, that were sold during the periods from the comparable owned and leased hotels results.
Owned and leased hotels segment Adjusted EBITDA.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) | |
| | 2017 | | 2016 | | Better / (Worse) |
Owned and leased hotels Adjusted EBITDA | $ | 97 |
| | $ | 89 |
| | $ | 8 |
| | 9.0 | % | $ | 117 |
| | $ | 103 |
| | $ | 14 |
| | 13.6 | % |
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | 23 |
| | 21 |
| | 2 |
| | 9.5 | % | 26 |
| | 28 |
| | (2 | ) | | (8.6 | )% |
Segment Adjusted EBITDA | $ | 120 |
| | $ | 110 |
| | $ | 10 |
| | 9.1 | % | $ | 143 |
| | $ | 131 |
| | $ | 12 |
| | 8.8 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Owned and leased hotels Adjusted EBITDA | $ | 321 |
| | $ | 311 |
| | $ | 10 |
| | 3.2 | % |
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | 79 |
| | 63 |
| | 16 |
| | 25.4 | % |
Segment Adjusted EBITDA | $ | 400 |
| | $ | 374 |
| | $ | 26 |
| | 7.0 | % |
Owned and leased hotels Adjusted EBITDA. Adjusted EBITDA at our comparable owned and leased hotels increased $6 million and $14$3 million during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in 2015,2016, which included $1 million and $5 million in net unfavorable currency impact. These increases wereThis increase was largely due to revenue growth in the United States and Mexico. Partially offsetting the revenue growth in the nine months ended September 30, 2016 were increased payroll and related costs and property taxes at certain properties. Adjusted EBITDA at our non-comparable hotels increased $2$11 million during the three months ended September 30, 2016,March 31, 2017, compared to the same period in 2015,2016, primarily driven by the opening of Grand Hyatt Rio de Janeiro, partially offset by the sale of Andaz 5th Avenue. Adjusted EBITDA at our non-comparable hotels decreased $4 million during the ninemonths ended September 30, 2016 compared to the same period in 2015, primarily driven by the sale of Andaz 5th Avenue and the acquisition of The Confidante Miami Beach.activity previously discussed.
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. Our pro rata share of Adjusted EBITDA from our unconsolidated hospitality ventures included an insignificant net favorable currency impact during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in 2015.2016. The increases during the three and nine months ended September 30, 2016, compared to the same periods in 2015 weredecrease was primarily driven by hotel openingsour acquisition of our partners' share of Andaz Maui at Wailea Resort, sales of hotels by unconsolidated hospitality ventures during 2016 and Playa's business combination with Pace in the first quarter of 2017, partially offset by improved performance at hotels within twoseveral unconsolidated hospitality ventures that operate in resort markets.
In the event of successful completion of the Playa IPO, our common stock investment in Playa may be recharacterized as an investment in an equity security. Depending on both the magnitude of the Playa IPOAmericas and the amount of our common stock ownership subsequent to the Playa IPO, we may no longer account for our investment under the equity method of accounting. In this situation, our share of Playa’s results would no longer be included in our pro rata share of unconsolidated ventures Adjusted EBITDA, which comprised approximately one third of the pro rata share of unconsolidated ventures Adjusted EBITDA for the nine months ended September 30, 2016.
India.
Americas management and franchising segment revenues.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management, Franchise and Other Fees | $ | 90 |
| | $ | 85 |
| | $ | 5 |
| | 5.9 | % |
Other Revenues from Managed Properties | 409 |
| | 409 |
| | — |
| | — | % |
Total Segment Revenues | $ | 499 |
| | $ | 494 |
| | $ | 5 |
| | 1.0 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment revenues | | | | | | | |
Management, franchise and other fees | $ | 104 |
| | $ | 91 |
| | $ | 13 |
| | 14.1 | % |
Other revenues from managed properties | 428 |
| | 421 |
| | 7 |
| | 1.7 | % |
Total segment revenues | $ | 532 |
| | $ | 512 |
| | $ | 20 |
| | 3.9 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management, Franchise and Other Fees | $ | 281 |
| | $ | 269 |
| | $ | 12 |
| | 4.5 | % |
Other Revenues from Managed Properties | 1,266 |
| | 1,225 |
| | 41 |
| | 3.3 | % |
Total Segment Revenues | $ | 1,547 |
| | $ | 1,494 |
| | $ | 53 |
| | 3.5 | % |
Americas management and franchising revenues included an insignificant and $1 million net unfavorable currency impact in the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in 2015.
Management,2016. The increase in management, franchise and other fees increased $5 million and $12 million during the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the three and nine months ended September 30, 2015. FranchiseMarch 31, 2016, was driven by a $5 million increase in management fees. Incentive fees and base fees increased $3 million and $10$2 million, respectively, compared to the same periods in the prior year primarily driven by converted full service hotels due to the aforementioned shift in Easter timing, new select service hotels and improved performance at existing full service hotels. ManagementFranchise fees increased $3$4 million primarily driven by improved performance at our all inclusive properties, new hotels and $5ramping of existing hotels. Other fees revenue increased $4 million respectively, compared to the same periods in the prior year. The increases during the three and ninemonths ended September 30, 2016 were driven by a $2 million and $3 million increase in base fees, respectively, primarily related to increased fees due to strong RevPAR growth at select service hotels andtermination fee for a recent full service hotel opening. The three and ninemonths ended September 30, 2016 also included increased incentive fees of $1 million and $2 million, respectively, spread acrossthat left the portfolio. Other fee revenues decreased $1 million and $3 million during the three and nine months ended September 30, 2016, respectively, compared to the same periods in the prior year as the 2015 periods included termination fees of $2 million and $3 million, respectively.chain.
Other revenues from managed properties were flatincreased during the three months ended September 30, 2016,March 31, 2017, compared to the three months ended September 30, 2015, dueMarch 31, 2016, driven by increased reimbursements related to our loyalty program and technology costs, partially offset by decreased full service hotels payroll and related costs driven by hotel conversions and one hotel that left the chain, offset by increased reimbursements related to our Hyatt Gold Passport program due to increased member participation. Other revenues from managed properties increased $41 million duringchain.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2017 | | 2016 | | Change in Occ % pts | | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ |
Americas Full Service | $ | 149 |
| | $ | 142 |
| | 5.0 | % | | 5.1 | % | | 72.2 | % | | 71.2 | % | | 1.0 | % | | $ | 207 |
| | $ | 199 |
| | 3.7 | % | | 3.7 | % |
Americas Select Service | $ | 101 |
| | $ | 97 |
| | 3.8 | % | | 3.9 | % | | 74.1 | % | | 73.3 | % | | 0.8 | % | | $ | 136 |
| | $ | 132 |
| | 2.7 | % | | 2.7 | % |
Excluding the ninemonths ended September 30, 2016, compared to the nine months ended September 30, 2015, due to a higher volume of reimbursements paid to us by our managed properties for increased member participation in our Hyatt Gold Passport program and increased select service hotels payroll and related costs, partially offset by decreasednet unfavorable currency impact, comparable full service hotels payroll and related costs driven by hotel conversions and one hotel that left the chain.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
Americas Full Service | $ | 158 |
| | $ | 152 |
| | 3.6 | % | | 3.8 | % | | 79.5 | % | | 78.8 | % | | 0.7 | % | | $ | 199 |
| | $ | 193 |
| | 2.7 | % | | 2.9 | % |
Americas Select Service | $ | 110 |
| | $ | 106 |
| | 4.6 | % | | 4.6 | % | | 81.7 | % | | 80.9 | % | | 0.8 | % | | $ | 135 |
| | $ | 131 |
| | 3.5 | % | | 3.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
Americas Full Service | $ | 154 |
| | $ | 150 |
| | 2.6 | % | | 3.1 | % | | 76.9 | % | | 77.0 | % | | (0.1 | )% | | $ | 200 |
| | $ | 195 |
| | 2.7 | % | | 3.3 | % |
Americas Select Service | $ | 107 |
| | $ | 101 |
| | 6.0 | % | | 6.0 | % | | 79.7 | % | | 77.8 | % | | 1.9 | % | | $ | 134 |
| | $ | 130 |
| | 3.4 | % | | 3.5 | % |
Our full service hotels comparable RevPAR increased in the three months ended September 30, 2016 compared to the same periods in the prior year primarily due to transient ADR growth, as well as group occupancy and ADR growth, partly driven by the shift of the Jewish holidays out of the third quarter of 2016 and into the fourth quarter of 2016. Our full service hotels comparable RevPAR increased in the nine months ended September 30, 2016March 31, 2017, compared to the same period in the prior year, primarily due to increased transient occupancygroup demand and ADR as well asgrowth, partly driven by the timing of the Easter holiday. RevPAR at our select service hotels increased group ADR.in the three months ended March 31, 2017, compared to the same period in the prior year, primarily driven by ADR growth and increased occupancy.
During the three months ended September 30, 2016, no properties wereMarch 31, 2017, one property that left the chain was removed from the comparable Americas full service or select service systemwide hotels. During the nine months ended September 30, 2016, we removed one property from the comparable Americas full service systemwide hotels that left the chain and no properties were removed from the comparable Americas select service systemwide hotels.
Americas management and franchising segment Adjusted EBITDA.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 77 |
| | $ | 74 |
| | $ | 3 |
| | 4.1 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 90 |
| | $ | 76 |
| | $ | 14 |
| | 18.1 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 242 |
| | $ | 229 |
| | $ | 13 |
| | 5.7 | % |
Adjusted EBITDA increased in the three and nine months ended September 30, 2016,March 31, 2017, which included an insignificant and $1 million net unfavorable currency impact, respectively, compared to the three and nine months ended September 30, 2015, due primarily toMarch 31, 2016. The increase was driven by the aforementioned $5 million and $12$13 million increase in management, franchise and other fees respectively.and a $1 million decrease in adjusted selling, general, and administrative expenses.
ASPAC management and franchising segment revenues. |
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management, Franchise and Other Fees | $ | 23 |
| | $ | 21 |
| | $ | 2 |
| | 9.5 | % |
Other Revenues from Managed Properties | 24 |
| | 19 |
| | 5 |
| | 26.3 | % |
Total Segment Revenues | $ | 47 |
| | $ | 40 |
| | $ | 7 |
| | 17.5 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment revenues | | | | | | | |
Management, franchise and other fees | $ | 25 |
| | $ | 22 |
| | $ | 3 |
| | 16.1 | % |
Other revenues from managed properties | 26 |
| | 21 |
| | 5 |
| | 19.8 | % |
Total segment revenues | $ | 51 |
| | $ | 43 |
| | $ | 8 |
| | 18.0 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management, Franchise and Other Fees | $ | 67 |
| | $ | 65 |
| | $ | 2 |
| | 3.1 | % |
Other Revenues from Managed Properties | 72 |
| | 59 |
| | 13 |
| | 22.0 | % |
Total Segment Revenues | $ | 139 |
| | $ | 124 |
| | $ | 15 |
| | 12.1 | % |
ASPAC management and franchising total revenues included an insignificant and $1 million net unfavorable currency impact in the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the three and nine months ended September 30, 2015.March 31, 2016. The increasesincrease in management, franchise and other fees was primarily driven by a $2 million increase in incentive fees due to new hotels in Australia and China and improved performance at certain properties in China and Japan. The increase in other revenues from managed properties in both the
three and nine month periods werewas driven by a higher volume of reimbursements paid to us by our managed properties for increased member participation in our Hyatt Gold Passport program.loyalty program and increased technology expenses.
| | | Three Months Ended September 30, | Three Months Ended March 31, |
| RevPAR | | Occupancy | | ADR | RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better (Worse) Constant $ | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2017 | | 2016 | | Change in Occ % pts | | 2017 | | 2016 | | Better / (Worse) | | Better (Worse) Constant $ |
ASPAC Full Service | $ | 149 |
| | $ | 143 |
| | 4.4 | % | | 1.8 | % | | 73.1 | % | | 70.1 | % | | 3.0 | % | | $ | 204 |
| | $ | 204 |
| | 0.1 | % | | (2.4 | )% | $ | 139 |
| | $ | 133 |
| | 5.0 | % | | 5.2 | % | | 68.7 | % | | 63.5 | % | | 5.2 | % | | $ | 203 |
| | $ | 209 |
| | (3.0 | )% | | (2.8 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better (Worse) Constant $ |
ASPAC Full Service | $ | 144 |
| | $ | 142 |
| | 1.0 | % | | 1.7 | % | | 69.6 | % | | 67.2 | % | | 2.4 | % | | $ | 207 |
| | $ | 212 |
| | (2.6 | )% | | (2.0 | )% |
Excluding the favorablenet unfavorable currency impact, the increase in comparable full service RevPAR during the three months ended September 30, 2016March 31, 2017, compared to the same period in 20152016, was driven by increased occupancy inacross the region, primarily China, Hong Kong, South Korea and Southeast Asia. These increases were partially offset by decreased occupancy in Japan and decreased ADR in Hong Kongmost areas of the region.
During the three months ended March 31, 2017, no properties were removed from the comparable ASPAC full service systemwide hotels.
ASPAC management and franchising segment Adjusted EBITDA.
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 15 |
| | $ | 12 |
| | $ | 3 |
| | 27.6 | % |
Adjusted EBITDA, which included an insignificant net unfavorable currency impact in the three months ended March 31, 2017, compared to the three months ended March 31, 2016, increased due to the aforementioned increase in management, franchise and other fees.
EAME/SW Asia management and franchising segment revenues.
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment revenues | | | | | | | |
Management, franchise and other fees | $ | 16 |
| | $ | 16 |
| | $ | — |
| | 2.2 | % |
Other revenues from managed properties | 17 |
| | 15 |
| | 2 |
| | 10.4 | % |
Total segment revenues | $ | 33 |
| | $ | 31 |
| | $ | 2 |
| | 6.1 | % |
EAME/SW Asia management and franchising total revenues included an insignificant net unfavorable currency impact in the three months ended March 31, 2017, compared to the three months ended March 31, 2016. Management, franchise and other fees were flat for the three months ended March 31, 2017, compared to the same period in the prior year, as increased fees from certain properties in Germany were offset by decreased performance in Switzerland and renovation activity at our hotels in Southeast Asia. France.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2017 | | 2016 | | Change in Occ % pts | | 2017 | | 2016 | | Better / (Worse) | | Better / (Worse) Constant $ |
EAME/SW Asia Full Service | $ | 114 |
| | $ | 113 |
| | 1.0 | % | | 3.1 | % | | 66.1 | % | | 62.5 | % | | 3.6 | % | | $ | 173 |
| | $ | 181 |
| | (4.5 | )% | | (2.5 | )% |
EAME/SW Asia Select Service | $ | 70 |
| | $ | 65 |
| | 7.8 | % | | 8.6 | % | | 69.5 | % | | 63.0 | % | | 6.5 | % | | $ | 100 |
| | $ | 103 |
| | (2.3 | )% | | (1.6 | )% |
Excluding the net unfavorable currency impact, the increase in comparable full service RevPAR during the ninethree months ended September 30, 2016March 31, 2017, compared to the same period in 20152016, was driven by increased occupancy and ADR in most areas of China, South Koreathe United Kingdom, Germany and Southeast Asia.India. These increases were partially offset by decreased ADR and occupancy in ChinaSwitzerland and certain hotels in Southeast Asia.Turkey.
During the three months ended September 30, 2016, no properties were removed from the comparable ASPAC full service systemwide hotels. During the nine months ended September 30, 2016, we removed two properties from the comparable ASPAC full service systemwide hotels,March 31, 2017, one as a result of a significant renovation and one that left the chain.
ASPAC management and franchising segment Adjusted EBITDA.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 14 |
| | $ | 12 |
| | $ | 2 |
| | 16.7 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 38 |
| | $ | 37 |
| | $ | 1 |
| | 2.7 | % |
Adjusted EBITDA included an insignificant and $1 million net unfavorable currency impact in the three and nine months ended September 30, 2016, respectively, compared to the three and nine months ended September 30, 2015. The increase in Adjusted EBITDA in the three and nine months ended September 30, 2016 compared to the same periods in prior year,property was primarily driven by an increase in management, franchise and other fees. The increase in management, franchise and other fees in the nine months ended September 30, 2016 was partially offset by an increase in payroll and related costs.
EAME/SW Asia management segment revenues.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management and Other Fees | $ | 15 |
| | $ | 16 |
| | $ | (1 | ) | | (6.3 | )% |
Other Revenues from Managed Properties | 15 |
| | 12 |
| | 3 |
| | 25.0 | % |
Total Segment Revenues | $ | 30 |
| | $ | 28 |
| | $ | 2 |
| | 7.1 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Revenues | | | | | | | |
Management and Other Fees | $ | 47 |
| | $ | 49 |
| | $ | (2 | ) | | (4.1 | )% |
Other Revenues from Managed Properties | 47 |
| | 40 |
| | 7 |
| | 17.5 | % |
Total Segment Revenues | $ | 94 |
| | $ | 89 |
| | $ | 5 |
| | 5.6 | % |
EAME/SW Asia management total revenues included an insignificant and $1 million net unfavorable currency impact, respectively, in the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015. Excluding the unfavorable currency impact, the increase in both periods was primarily driven by an increase in other revenues from managed properties.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
EAME/SW Asia Full Service | $ | 121 |
| | $ | 134 |
| | (9.7 | )% | | (7.8 | )% | | 64.6 | % | | 63.8 | % | | 0.8 | % | | $ | 187 |
| | $ | 210 |
| | (10.7 | )% | | (8.8 | )% |
EAME/SW Asia Select Service | $ | 66 |
| | $ | 63 |
| | 4.7 | % | | 5.0 | % | | 73.9 | % | | 66.8 | % | | 7.1 | % | | $ | 89 |
| | $ | 94 |
| | (5.3 | )% | | (5.1 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| RevPAR | | Occupancy | | ADR |
(Comparable Systemwide Hotels) | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ | | 2016 | | 2015 | | Change in Occ % pts | | 2016 | | 2015 | | Better / (Worse) | | Better / (Worse) Constant $ |
EAME/SW Asia Full Service | $ | 120 |
| | $ | 132 |
| | (8.4 | )% | | (5.4 | )% | | 63.2 | % | | 63.6 | % | | (0.4 | )% | | $ | 190 |
| | $ | 207 |
| | (7.9 | )% | | (4.9 | )% |
EAME/SW Asia Select Service | $ | 69 |
| | $ | 62 |
| | 10.5 | % | | 11.2 | % | | 71.0 | % | | 62.6 | % | | 8.4 | % | | $ | 97 |
| | $ | 99 |
| | (2.6 | )% | | (2.0 | )% |
Excluding the unfavorable currency impact, the decrease in comparable full service RevPAR during the three and nine months ended September 30, 2016 compared to the same periods in 2015, was driven by decreased ADR and occupancy in France, Switzerland and Turkey. These decreases were partially offset by increased ADR and occupancy in Eastern Europe and India. The nine months ended September 30, 2016 compared to the same period in 2015 also included decreased ADR and occupancy in Africa.
During the three and nine months ended September 30, 2016, two properties were removed from the comparable EAME/SW Asia full service systemwide hotel results as a result of significant renovations and no properties were removed from the comparable EAME/SW Asia select service systemwide hotel results. One of the properties removed from the comparable systemwide hotel results, Hyatt Regency Paris Étoile, was removed this quarter as the renovation will take longer than originally anticipated. Removing this hotel from the comparable hotel results yielded an increase in EAME/SW Asia full service RevPAR of 300 basis points.
EAME/SW Asia management and franchising segment Adjusted EBITDA.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 8 |
| | $ | 7 |
| | $ | 1 |
| | 14.3 | % |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 8 |
| | $ | 8 |
| | $ | — |
| | 3.7 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Segment Adjusted EBITDA | $ | 24 |
| | $ | 23 |
| | $ | 1 |
| | 4.3 | % |
Adjusted EBITDA included an insignificant and $1 million net unfavorable currency impact duringwas flat for the three and nine months ended September 30, 2016, respectively,March 31, 2017, compared to the three and nine months ended September 30, 2015. The increaseMarch 31, 2016, which included an insignificant net unfavorable currency impact.
Corporate and other.
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 | | Better / (Worse) |
Corporate and other revenues | $ | 26 |
| | $ | 9 |
| | $ | 17 |
| | 174.6 | % |
Corporate and other Adjusted EBITDA | $ | (29 | ) | | $ | (33 | ) | | $ | 4 |
| | 14.2 | % |
Corporate and other revenues increased in Adjusted EBITDA during the three and nine months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily driven by a decrease$16 million increase in payrollowned and related costs.
Corporate and other. Corporate and other included unallocated corporate expenses, license fees related to Hyatt Residence Club, andleased hotels revenues on our condensed consolidated statements of income from the resultsacquisition of our co-branded credit card.
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Corporate and other revenues | $ | 12 |
| | $ | 10 |
| | $ | 2 |
| | 20.0 | % |
Corporate and other Adjusted EBITDA | $ | (27 | ) | | $ | (32 | ) | | $ | 5 |
| | 15.6 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in millions, except percentages) | 2016 | | 2015 | | Better / (Worse) |
Corporate and other revenues | $ | 34 |
| | $ | 29 |
| | $ | 5 |
| | 17.2 | % |
Corporate and other Adjusted EBITDA | $ | (91 | ) | | $ | (92 | ) | | $ | 1 |
| | 1.1 | % |
Miraval.The increase in Adjusted EBITDA during the three months ended September 30, 2016,March 31, 2017, compared to the same period in the prior year, iswas primarily driven by a $4 million decrease in adjusted selling, general, and administrative costs, primarily in professional fees, due to certain initiatives completed during 2015. The increase in Adjusted EBITDA during the nine months ended September 30, 2016, compared to the same period in the prior year is driven by a $5 million increase in revenues related to our co-branded credit card, partially offset by a corresponding $3 million increase in other direct costs.acquisition of Miraval.
Non-GAAP Measures
Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and EBITDA
We use the terms Adjusted EBITDA and EBITDA throughout this quarterly report. Adjusted EBITDA and EBITDA, as we define them, are non-GAAP measures. We define consolidated 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 the following items:
interest expense;
provision for income taxes;
depreciation and amortization;
equity earnings (losses) from unconsolidated hospitality ventures;
stock-based compensation expense;
asset impairments;
gains (losses) on sales of real estate; and
other income (loss), net;
depreciation and amortization;
interest expense; and
provision for income taxes.
Effective January 1, 2016, our definitions of Adjusted EBITDA and Adjusted selling, general, and administrative expenses, as defined below, have been updated to exclude stock-based compensation expense, to facilitate comparison with our competitors. We have applied this change in the definition of Adjusted EBITDA to 2015 historical results to allow for comparability between the periods presented.net.
We calculate consolidated Adjusted EBITDA by adding the Adjusted EBITDA of each of our reportable segments and eliminations to corporate and other Adjusted EBITDA.
Our board of directors and executive management team focus on Adjusted EBITDA as a key performance and compensation measure both on a segment and on a consolidated basis. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performanceoperations both on a segment and on a consolidated basis. Our President and Chief Executive Officer, who is our chief operating decision maker, also evaluates the performance of each of our reportable segments and determines how to allocate resources to those segments, in significant part, by assessing the Adjusted EBITDA of each segment. In addition, the compensation committee of our board of directors determines the annual variable compensation for certain members of our management based in part on consolidated Adjusted EBITDA, segment Adjusted EBITDA or some combination of both.
We believe Adjusted EBITDA is useful to investors because it provides investors the same information that we use internally for purposes of assessing our operating performance and making compensation decisions.
Adjusted EBITDA and EBITDA are not substitutes for net income attributable to Hyatt Hotels Corporation, net income cash flows from operating activities or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as Adjusted EBITDA and EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income generated by our business or discretionary cash available to us to invest in the growth of our business. Our management compensates for these limitations by reference to our GAAP results and using Adjusted EBITDA supplementally. See our condensed consolidated statements of income and condensed consolidated statements of cash flows in our condensed consolidated financial statements included elsewhere in this quarterly report.
See below for a reconciliation of our consolidated Adjusted EBITDAnet income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporation.consolidated Adjusted EBITDA.
Adjusted selling, general, and administrative expenses
Adjusted selling, general, and administrative expenses, as we define it, is a non-GAAP measure. Adjusted selling, general, and administrative expenses excludes the impact of expenses related to benefit programs funded through rabbi trusts and stock-based compensation expense. Adjusted selling, general, and administrative expenses assist us in comparing our performance over various reporting periods on a consistent basis since it removes from our operating results the impact of items that do not reflect our core operating performance,operations, both on a segment and consolidated basis. See "—Results of Operations" above for a reconciliation of Adjusted selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
Constant dollar currency
We report the results of our operations both on an as reported basis, as well as on a constant dollar basis. Constant dollar currency, which is a non-GAAP measure, excludes the effects of movements in foreign currency exchange rates between comparative periods. We believe constant dollar analysis provides valuable information regarding our results as it removes currency fluctuations from our operating results. We calculate constant dollar
currency by restating prior-period local currency financial results at the current period’s exchange rates. These adjusted amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.
The charts below illustrate Adjusted EBITDA by segment for the three and nine months ended September 30, 2016March 31, 2017 and September 30, 2015.March 31, 2016:
*Consolidated Adjusted EBITDA for the three months ended September 30, 2016March 31, 2017 included Corporateeliminations of $1 million and corporate and other Adjusted EBITDA of $(27) million$(29) million.
**Consolidated Adjusted EBITDA for the three months ended September 30, 2015March 31, 2016 included Corporatecorporate and other Adjusted EBITDA of $(32) million
*Consolidated Adjusted EBITDA for the nine months ended September 30, 2016 included Corporate and other Adjusted EBITDA of $(91) million
**Consolidated Adjusted EBITDA for the nine months ended September 30, 2015 included Corporate and other Adjusted EBITDA of $(92) million
$(33) million.
The table below provides a reconciliation of our consolidated Adjusted EBITDAnet income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporationconsolidated Adjusted EBITDA for the three and nine months ended September 30, 2016March 31, 2017 and September 30, 2015:March 31, 2016:
| | (in millions) | Three Months Ended September 30, | |
2016 | | 2015 | | Better / (Worse) | |
Adjusted EBITDA | $ | 192 |
| | $ | 171 |
| | $ | 21 |
| | 12.3 | % | |
Equity earnings (losses) from unconsolidated hospitality ventures | 25 |
| | (17 | ) | | 42 |
| | 247.1 | % | |
Stock-based compensation expense | (1 | ) | | 1 |
| | (2 | ) | | (200.0 | )% | |
Asset impairments | — |
| | (5 | ) | | 5 |
| | 100.0 | % | |
Other income (loss), net | 4 |
| | 11 |
| | (7 | ) | | (63.6 | )% | |
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | (23 | ) | | (21 | ) | | (2 | ) | | (9.5 | )% | |
EBITDA | 197 |
| | 140 |
| | 57 |
| | 40.7 | % | |
Depreciation and amortization | (87 | ) | | (78 | ) | | (9 | ) | | (11.5 | )% | |
| | Three Months Ended March 31, |
| 2017 | | 2016 | | Change |
Net income attributable to Hyatt Hotels Corporation | | $ | 70 |
| | $ | 34 |
| | $ | 36 |
| | 104.8 | % |
Interest expense | (20 | ) | | (17 | ) | | (3 | ) | | (17.6 | )% | 21 |
| | 17 |
| | 4 |
| | 22.0 | % |
Provision for income taxes | (28 | ) | | (20 | ) | | (8 | ) | | (40.0 | )% | 41 |
| | 16 |
| | 25 |
| | 158.7 | % |
Net income attributable to Hyatt Hotels Corporation | $ | 62 |
| | $ | 25 |
| | $ | 37 |
| | 148.0 | % | |
Depreciation and amortization | | 91 |
| | 81 |
| | 10 |
| | 12.7 | % |
EBITDA | | 223 |
| | 148 |
| | 75 |
| | 50.8 | % |
Equity (earnings) losses from unconsolidated hospitality ventures | | 3 |
| | (2 | ) | | 5 |
| | 222.1 | % |
Stock-based compensation expense | | 16 |
| | 16 |
| | — |
| | (2.0 | )% |
Other (income) loss, net | | (40 | ) | | 4 |
| | (44 | ) | | NM |
|
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | | 26 |
| | 28 |
| | (2 | ) | | (8.6 | )% |
Adjusted EBITDA | | $ | 228 |
| | $ | 194 |
| | $ | 34 |
| | 17.8 | % |
|
| | | | | | | | | | | | | | |
(in millions) | Nine Months Ended September 30, |
2016 | | 2015 | | Better / (Worse) |
Adjusted EBITDA | $ | 613 |
| | $ | 571 |
| | $ | 42 |
| | 7.4 | % |
Equity earnings (losses) from unconsolidated hospitality ventures | 46 |
| | (46 | ) | | 92 |
| | 200.0 | % |
Stock-based compensation expense | (21 | ) | | (20 | ) | | (1 | ) | | (5.0 | )% |
Asset impairments | — |
| | (5 | ) | | 5 |
| | 100.0 | % |
Gains (losses) on sales of real estate | (21 | ) | | 9 |
| | (30 | ) | | (333.3 | )% |
Other income (loss), net | 1 |
| | (3 | ) | | 4 |
| | 133.3 | % |
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | (79 | ) | | (63 | ) | | (16 | ) | | (25.4 | )% |
EBITDA | 539 |
| | 443 |
| | 96 |
| | 21.7 | % |
Depreciation and amortization | (254 | ) | | (233 | ) | | (21 | ) | | (9.0 | )% |
Interest expense | (57 | ) | | (51 | ) | | (6 | ) | | (11.8 | )% |
Provision for income taxes | (65 | ) | | (72 | ) | | 7 |
| | 9.7 | % |
Net income attributable to Hyatt Hotels Corporation | $ | 163 |
| | $ | 87 |
| | $ | 76 |
| | 87.4 | % |
Liquidity and Capital Resources
Overview
We finance our business primarily with existing cash, short-term investments, and cash generated from our operations. As part of our business strategy, we also recycle capital by using net proceeds from dispositions to support our acquisitions and new investment opportunities. When appropriate, we borrow cash under our revolving credit facility or from other third-party sources, and may also raise funds by issuing debt or equity securities as necessary. We maintain a cash investment policy that emphasizes preservation of capital. At September 30, 2016March 31, 2017 and December 31, 2015,2016, we had cash and cash equivalents and short-term investments of $590$426 million and $503$538 million,, respectively. We believe that our cash position, short-term investments and cash from operations, together with borrowing capacity under our revolving credit facility and our access to the capital markets, will be adequate to meet all of our funding requirements and capital deployment objectives for the foreseeable future.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to a Rule 10b5-1 plan. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.
Recent Transactions Affecting our Liquidity and Capital Resources
During the ninethree months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015, several transactions impacted our liquidity. See "—Sources and Uses of Cash."
Sources and Uses of Cash
| | (in millions) | Nine Months Ended September 30, | |
2016 | | 2015 | |
| | Three Months Ended March 31, |
| 2017 | | 2016 |
Cash provided by (used in): | | | | | | |
Operating activities | $ | 351 |
| | $ | 396 |
| $ | 150 |
| | $ | 51 |
|
Investing activities | (94 | ) | | 24 |
| (94 | ) | | (12 | ) |
Financing activities | (185 | ) | | (534 | ) | (165 | ) | | 264 |
|
Effect of exchange rate changes on cash | 15 |
| | (2 | ) | 1 |
| | 11 |
|
Net increase (decrease) in cash and cash equivalents | $ | 87 |
| | $ | (116 | ) | |
Net (decrease) increase in cash and cash equivalents | | $ | (108 | ) | | $ | 314 |
|
Cash Flows from Operating Activities
Cash provided by operating activities decreased $45increased $99 million for the ninethree months ended September 30, 2016,March 31, 2017, compared to the ninethree months ended September 30, 2015, as 2015 includedMarch 31, 2016,primarily due to $94 million of interest income received upon the release of restricted cash from oneredemption of our captive insurance companies which was invested in marketable securities. Additionally, the timing of certain accruals also contributed to the decrease, which was partially offset by a decrease in income tax payments.Playa preferred shares.
Cash Flows from Investing Activities
During the ninethree months ended September 30, 2016:March 31, 2017:
We acquired Thompson Miami BeachMiraval for approximately $238 million.$239 million, subject to working capital adjustments.
Capital expenditures were $140$50 million (see "—Capital Expenditures" below)).
We acquired Royal Palms Resort and Spa for a net purchase price of approximately $86 million.
We invested $31$8 million in unconsolidated hospitality ventures.
We sold Andaz 5th Avenue for approximately $240 million, net of closing costs and proration adjustments.
We received distributions of $78$196 million fromrelated to the redemption of our Playa preferred shares.
During the three months ended March 31, 2016:
Capital expenditures were $38 million (see "—Capital Expenditures").
We invested $15 million in unconsolidated hospitality ventures.
We sold the sharesfunded $12 million into escrow related to our acquisition of the company that owns Hyatt Regency Birmingham (U.K.) for approximately $49 million, net of closing costs and proration adjustments.Thompson Miami Beach.
We released $29 million from restricted cash related to the finalization from the Canada Revenue Agency in connection with the 2014 disposition of Park Hyatt Toronto.
During the nine months ended September 30, 2015:
We released $143 million from escrow to cash and cash equivalents related to release of proceeds from like-kind exchanges.
We received net proceedsdistributions of $75$23 million from the maturity of time deposits.
We sold Hyatt Regency Indianapolis for approximately $69 million.
We received proceeds of $28 million from financing receivables.
We released $19 million from restricted cash related to the development of a hotel in Brazil.
We sold land and construction in progress for approximately $14 million and received $12 million in cash.
We sold a Hyatt House hotel for approximately $5 million.
Capital expenditures were $185 million (see "—Capital Expenditures" below).
We had net purchases of $114 million of marketable securities and short-term investments related to Hyatt Gold Passport and our captive insurance companies.
We invested $29 million in unconsolidated hospitality ventures.
Cash Flows from Financing Activities
During the ninethree months ended September 30,March 31, 2017, we repurchased 5,480,636 shares of common stock at a weighted-average price of $52.48 per share for an aggregate purchase price of $288 million. Included in the repurchases are 4,596,822 shares repurchased under the 2017 ASR at a price of $52.21 per share for an aggregate purchase price of $240 million. At March 31, 2017, the remaining $60 million of shares under the 2017 ASR have not yet settled. During the three months ended March 31, 2016, we repurchased 5,556,4241,527,750 shares of common stock for an aggregate purchase price of $268$63 million. During the nine months ended September 30, 2015, we repurchased 9,614,463 shares of common stock for an aggregate purchase price of $539 million.
During the ninethree months ended September 30,March 31, 2017, we drew $180 million on our revolving credit facility. During the three months ended March 31, 2016, we drew and subsequently repaid $30 million on our revolving credit facility.
During the three months ended March 31, 2017, the Miraval Venture issued $9 million of redeemable noncontrolling interest in preferred shares of a subsidiary in connection with our acquisition of Miraval.
No long-term debt was issued or redeemed in the three months ended March 31, 2017. During the three months ended March 31, 2016, we issued our 2026 Notes and received net proceeds of $396 million, after deducting discounts and offering expenses of approximately $4 million. During the nine months ended September 30, 2016, all of our outstanding 2016 Notes were redeemed for $250 million.
During the nine months ended September 30, 2016,million, and we repaid the senior secured term loan of $64 million related to Hyatt Regency Lost Pines Resort and Spa.
During the nine months ended September 30, 2016, we drew and subsequently repaid $110 million on our revolving credit facility. During the nine months ended September 30, 2015, we did not draw on our revolving credit facility.
We define net debt as total debt less the total of cash and cash equivalents and short-term investments. We consider net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy. Net debt is a non-GAAP measure and may not be computed the same as similarly titled measures used by other companies. The following table provides a summary of our debt to capital ratios:
| | (in millions, except percentages) | September 30, 2016 | | December 31, 2015 | |
| | March 31, 2017 | | December 31, 2016 |
Consolidated debt (1) | $ | 1,466 |
| | $ | 1,370 |
| $ | 1,744 |
| | $ | 1,564 |
|
Stockholders’ equity | 3,913 |
| | 3,991 |
| 3,714 |
| | 3,903 |
|
Total capital | 5,379 |
| | 5,361 |
| 5,458 |
| | 5,467 |
|
Total debt to total capital | 27.3 | % | | 25.6 | % | 32.0 | % | | 28.6 | % |
Consolidated debt (1) | 1,466 |
| | 1,370 |
| 1,744 |
| | 1,564 |
|
Less: Cash and cash equivalents and short-term investments | 590 |
| | 503 |
| 426 |
| | 538 |
|
Net consolidated debt | $ | 876 |
| | $ | 867 |
| $ | 1,318 |
| | $ | 1,026 |
|
Net debt to total capital | 16.3 | % | | 16.2 | % | 24.1 | % | | 18.8 | % |
| |
(1) | Excludes approximately $799$557 million and $692$745 million of our share of unconsolidated hospitality venture indebtedness at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, substantially all of which is non-recourse to us and a portion of which we guarantee pursuant to separate agreements. The decrease from December 31, 2016 is primarily attributable to Playa, which is no longer an unconsolidated hospitality venture as discussed in Part I, Item 1 "Financial Statements—Note 4 to the Condensed Consolidated Financial Statements." |
Capital Expenditures
We routinely make capital expenditures to enhance our business. We classify our capital expenditures into maintenance, enhancements to existing properties, and investment in new properties under development or recently opened. We have been and will continue to be prudent with respect to our capital spending, taking into account our cash flow from operations.
The following is a summary of our capital expenditures during the nine months ended September 30, 2016 and September 30, 2015:expenditures:
| | (in millions) | September 30, 2016 | | September 30, 2015 | |
| | March 31, 2017 | | March 31, 2016 |
Maintenance | $ | 42 |
| | $ | 81 |
| $ | 13 |
| | $ | 11 |
|
Enhancements to existing properties | 44 |
| | 35 |
| 22 |
| | 11 |
|
Investment in new properties under development or recently opened | 54 |
| | 69 |
| 15 |
| | 16 |
|
Total capital expenditures | $ | 140 |
| | $ | 185 |
| $ | 50 |
| | $ | 38 |
|
The decrease in maintenance expenditures in 2016 compared to 2015 is driven by decreased technology spending and decreased spending at domestic and international owned full service properties. The increase in enhancements to existing properties is driven by increased renovation activity at domestican international owned full service propertiesproperty and expenditures related to our new corporate office. Expenditures related to investments in new properties under development or recently opened are primarily driven by construction spending on our development of a hotel in Brazil, which opened in early 2016, andfor two new select service hotels and one full service hotel under development in the United States.States, and investment spending for Grand Hyatt Rio de Janeiro and acquired Miraval properties.
Senior Notes
The table below sets forth the outstanding principal balance of our Senior Notes at September 30, 2016.March 31, 2017. Interest on the Senior Notes is payable semi-annually.
| | Description | Principal Amount (in millions) | Principal Amount |
2019 Notes | $ | 196 |
| $ | 196 |
|
2021 Notes | 250 |
| 250 |
|
2023 Notes | 350 |
| 350 |
|
2026 Notes | 400 |
| 400 |
|
Total | $ | 1,196 |
| $ | 1,196 |
|
We are in compliance with all applicable covenants under the indenture governing our Senior Notes as of September 30, 2016.at March 31, 2017.
Revolving Credit Facility
There was noan outstanding balance on our revolving credit facility of $280 million and $100 million at September 30, 2016 orMarch 31, 2017 and December 31, 2015.2016, respectively. At September 30, 2016,March 31, 2017, we had available borrowing capacity of approximately $1.5$1.2 billion under our revolving credit facility, net of outstanding undrawn letters of credit.
We are in compliance with all applicable covenants under the revolving credit facility at September 30, 2016.March 31, 2017.
Letters of Credit
We issue letters of credit either under the revolving credit facility or directly with financial institutions. At September 30, 2016 and December 31, 2015 weWe had a total of $238$236 million and $228$230 million respectively, in letters of credit issued directly with financial institutions.institutions outstanding at March 31, 2017 and December 31, 2016, respectively. These letters of credit had weighted-average fees of 9998 basis points at September 30, 2016. Theand a range of maturity on these letters of credit was up to fiveapproximately four years at September 30, 2016March 31, 2017.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our 20152016 Form 10-K. Since the date of our 20152016 Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates. In certain situations, we seek to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged. We enter into derivative financial arrangements to the extent they meet the objectives described above, and we do not use derivatives for trading or speculative purposes. At September 30, 2016March 31, 2017 and December 31, 2015,, we were a party to hedging transactions, including the use of derivative financial instruments, as discussed below.
Interest Rate Risk
In the normal course of business, we are exposed to the impact of interest rate changes due to our borrowing activities. Our objective is to manage the risk of interest rate changes on the results of operations, cash flows, and the market value of our debt by creating an appropriate balance between our fixed and floating-rate debt. We enter into interest rate derivative transactions from time to time, including interest rate swaps, in order to maintain a level of exposure to interest rate variability that we deem acceptable. At September 30, 2016March 31, 2017 and December 31, 20152016, we held nodid not hold any interest rate swap contracts.
The following table sets forth the contractual maturities and the total fair values at March 31, 2017 for our financial instruments materially affected by interest rate risk:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturities by Period | | | | |
| 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total Carrying Amount (1) | | Total Fair Value |
Fixed-rate debt | $ | 4 |
| | $ | 4 |
| | $ | 200 |
| | $ | 5 |
| | $ | 255 |
| | $ | 918 |
| | $ | 1,386 |
| | $ | 1,462 |
|
Average interest rate (2) | | | | | | | | | | | | | 4.89 | % | | |
Floating-rate debt (3) | $ | 289 |
| | $ | 14 |
| | $ | 14 |
| | $ | 14 |
| | $ | 14 |
| | $ | 14 |
| | $ | 359 |
| | $ | 372 |
|
Average interest rate (2) | | | | | | | | | | | | | 3.53 | % | | |
(1) Excludes capital lease obligations of $15 million and unamortized discounts and deferred financing fees of $16 million.
(2) Average interest rate as of March 31, 2017.
(3) Includes the Grand Hyatt Rio de Janeiro construction loan which had a 9.07% interest rate at March 31, 2017.
Foreign Currency Exposures and Exchange Rate Instruments
We transact business in various foreign currencies and utilize foreign currency forward contracts to offset our exposure associated with the fluctuations of certain foreign currencies. These foreign currency exposures typically arise from third-party debt, debt repayment guarantees and intercompany transactions.
The U.S. dollar equivalents of the notional amounts of the outstanding forward contracts, the majority of which relate to intercompany transactions, with terms of less than one year, were as follows (in U.S. dollars):
|
| | | | | | | |
(in millions) | September 30, 2016 | | December 31, 2015 |
Pound sterling | $ | 142 |
| | $ | 170 |
|
Korean won | 34 |
| | 33 |
|
Canadian dollar | 33 |
| | 61 |
|
Swiss franc | 21 |
| | 9 |
|
Indian rupee | — |
| | 27 |
|
Brazilian real | — |
| | 4 |
|
Total notional amount of forward contracts | $ | 230 |
| | $ | 304 |
|
$184 million and $204 million at March 31, 2017 and December 31, 2016, respectively.We intend to offset the gains and losses related to our third-party debt, debt repayment guarantees, and intercompany transactions with gains or losses on our foreign currency forward contracts such that there is a negligible effect on net income. TheOur exposure to market risk has not materially changed from what we previously disclosed in our 2016 Form 10-K.
For the three months ended March 31, 2017 and March 31, 2016, the effect of these derivativesderivative instruments within other income (loss), net on our condensed consolidated statements of income were gainsa loss of $3$5 million and $16 million for the three and nine months ended September 30, 2016,an insignificant gain, respectively. For the three and nine months ended September 30, 2015, the effect of these derivative instruments within other income (loss), net were gains of $12 million and $16 million, respectively. We expect to continue this practice relating to our intercompany transactions, and may also begin to manage the risks associated with other transactional foreign currency volatility within our business.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures. We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in various claims and lawsuits arising in the normal course of business, including proceedings involving tort and other general liability claims, workers' compensation and other employee claims, intellectual property claims and claims related to our management of certain hotel properties. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. We recognize a liability when we believe the loss is probable and reasonably estimable. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material effect on our consolidated financial position, results of operations or liquidity.
Item 1A. Risk Factors.
At September 30, 2016March 31, 2017, there have been no material changes from the risk factors previously disclosed in response to Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 20152016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of Class A and Class B common stock during the quarter ended September 30, 2016March 31, 2017:
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| | | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Weighted Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Program |
July 1 to July 31, 2016 | | 399,249 |
| | $ | 50.09 |
| | 399,249 |
| | $ | 227,969,499 |
|
August 1 to August 31, 2016 | | 2,208,185 |
| | $ | 52.98 |
| | 2,208,185 |
| | $ | 110,972,257 |
|
September 1 to September 30, 2016 | | — |
| | $ | — |
| | — |
| | $ | 110,972,257 |
|
Total | | 2,607,434 |
| | $ | 52.54 |
| | 2,607,434 |
| | |
|
| | | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Weighted Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Program |
January 1 to January 31, 2017 | | 267,532 |
| | $ | 55.12 |
| | 267,532 |
| | $ | 341,969,508 |
|
February 1 to February 28, 2017 | | 350,423 |
| | $ | 54.41 |
| | 350,423 |
| | $ | 322,903,370 |
|
March 1 to March 31, 2017 | | 4,862,681 |
| | $ | 52.19 |
| | 4,862,681 |
| | $ | 9,119,281 |
|
Total | | 5,480,636 |
| | $ | 52.48 |
| | 5,480,636 |
| | |
| |
(1) | On each of February 18, 2016 and December 13, 2016, we announced the approvalapprovals of an expansionexpansions of our share repurchase program pursuant to which we are authorized to purchase up to an additional $250 million of Class A and Class B common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan. The repurchase program does not have an expiration date. At September 30, 2016March 31, 2017, we had approximately $111$9 million remaining under our current share repurchase authorization. During the period, we entered into the 2017 ASR to repurchase $300 million of our Class A common stock. At March 31, 2017, there are $60 million of shares that have not yet settled. On May 3, 2017, our board of directors authorized the repurchase of up to an additional $500 million of the Company's Class A and Class B common stock. At May 4, 2017, we had approximately $509 million remaining under our current share repurchase authorization. See Note 18 for further details regarding the 2017 share repurchase plan. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
On November 1, 2016,May 3, 2017, we filed a Certificate of Retirement with the Secretary of State of the State of Delaware to retire 500,000539,370 shares of Class B common stock, $0.01 par value per share, of the Company (the "Class B Common Stock"). All 500,000539,370 shares of Class B Common Stock were converted into shares of Class A common stock, $0.01 par value per share, of the Company (the "Class A Common Stock"), in connection with the sale of 500,000 shares of Class B Common Stock by certain selling stockholders into the public market pursuant to an automatic shelf registration statement on Form S-3 (File No. 333-196372) filed with the SEC on May 29, 2014.. Our Amended and Restated Certificate of Incorporation requires that any shares of Class B Common Stock that are converted into shares of Class A Common Stock be retired and may not be reissued.
Effective upon filing, the Certificate of Retirement amended our Amended and Restated Certificate of Incorporation to reduce the total authorized number of shares of capital stock of the Company by 500,000539,370 shares. The total number of authorized shares of the Company is now 1,449,241,738,1,432,318,251, such shares consisting of 1,000,000,000 shares designated Class A Common Stock, 439,241,738422,318,251 shares designated Class B Common Stock, and 10,000,000 shares designated Preferred Stock, par value $0.01 per share. A copy of the Certificate of Retirement is attached as Exhibit 3.33.1 to this Quarterly Report on Form 10-Q.
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| |
Exhibit Number | Exhibit Description |
| |
3.1 | Amended and Restated Certificate of Incorporation of Hyatt Hotels Corporation |
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3.2 | Amended and Restated Bylaws of Hyatt Hotels Corporation (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K (File No. 001-34521) filed with the Securities and Exchange Commission on September 11, 2014) |
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3.3 | Certificate of Retirement of 500,000 shares of Class B Common Stock |
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10.1 | Hyatt Hotels Corporation AmendedExecutive Officer Severance and RestatedChange in Control Plan and Summary of Non-Employee Director Compensation (Effective January 1,Plan Description (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-34521) filed with the Securities and Exchange Commission on March 22, 2017) |
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31.1 | Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS | XBRL Instance Document |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | |
| | Hyatt Hotels Corporation |
| | | |
Date: | November 3, 2016May 4, 2017 | By: | /s/ Mark S. Hoplamazian |
| | | Mark S. Hoplamazian |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned, in his capacity as the principal financial officer of the registrant.
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| | | |
| | Hyatt Hotels Corporation |
| | | |
Date: | November 3, 2016May 4, 2017 | By: | /s/ Patrick J. Grismer |
| | | Patrick J. Grismer |
| | | Executive Vice President, Chief Financial Officer |
| | | (Principal Financial Officer) |