Hyatt Hotels Corp - Quarter Report: 2019 June (Form 10-Q)

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	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)

150 North Riverside Plaza

8th Floor, Chicago, Illinois 60606

(Address of Principal Executive Offices) (Zip Code)

(312) 750-1234

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock	H	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	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 ☒

At July 26, 2019, there were 37,747,346 shares of the registrant's Class A common stock, $0.01 par value, outstanding and 67,115,828 shares of the registrant's Class B common stock, $0.01 par value, outstanding.

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HYATT HOTELS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2019

TABLE OF CONTENTS




	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 4.	Controls and Procedures	61

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63

Signatures		64

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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						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
REVENUES:
Owned and leased hotels	$	490		$	485		$	960		$	1,000
Management, franchise, and other fees	158			142			299			274
Amortization of management and franchise agreement assets constituting payments to customers	(6		)	(5		)	(11		)	(10		)
Net management, franchise, and other fees	152			137			288			264
Other revenues	28			9			73			20
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	619			502			1,209			958
Total revenues	1,289			1,133			2,530			2,242
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Owned and leased hotels	367			357			724			741
Depreciation and amortization	83			79			163			162
Other direct costs	30			7			75			15
Selling, general, and administrative	95			83			223			178
Costs incurred on behalf of managed and franchised properties	633			500			1,238			960
Direct and selling, general, and administrative expenses	1,208			1,026			2,423			2,056
Net gains and interest income from marketable securities held to fund rabbi trusts	11			6			41			9
Equity earnings (losses) from unconsolidated hospitality ventures	6			2			3			(11		)
Interest expense	(20		)	(19		)	(39		)	(38		)
Gains on sales of real estate	—			1			1			530
Asset impairments	(1		)	—			(4		)	—
Other income (loss), net	28			5			79			(13		)
INCOME BEFORE INCOME TAXES	105			102			188			663
PROVISION FOR INCOME TAXES	(19		)	(25		)	(39		)	(175		)
NET INCOME	86			77			149			488
NET INCOME AND ACCRETION ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			—			—
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	86		$	77		$	149		$	488
EARNINGS PER SHARE—Basic
Net income	$	0.81		$	0.67		$	1.41		$	4.19
Net income attributable to Hyatt Hotels Corporation	$	0.81		$	0.67		$	1.41		$	4.19
EARNINGS PER SHARE—Diluted
Net income	$	0.80		$	0.66		$	1.39		$	4.12
Net income attributable to Hyatt Hotels Corporation	$	0.80		$	0.66		$	1.39		$	4.12

See accompanying Notes to condensed consolidated financial statements.

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HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions of dollars)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net income	$	86		$	77		$	149		$	488
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax benefit of $- for the three and six months ended June 30, 2019 and $(1) for the three and six months ended June 30, 2018	6			(46		)	—			(23		)
Unrealized losses on derivative activity, net of tax benefit of $(3) and $(4) for the three and six months ended June 30, 2019 and $- for the three and six months ended June 30, 2018	(8		)	—			(12		)	—
Other comprehensive loss	(2		)	(46		)	(12		)	(23		)
COMPREHENSIVE INCOME	84			31			137			465
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			—			—
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	84		$	31		$	137		$	465

See accompanying Notes to condensed consolidated financial statements.

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HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars, except share and per share amounts)

(Unaudited)



	June 30, 2019			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	515		$	570
Restricted cash	32			33
Short-term investments	62			116
Receivables, net of allowances of $28 and $26 at June 30, 2019 and December 31, 2018, respectively	497			427
Inventories	13			14
Prepaids and other assets	147			149
Prepaid income taxes	38			36
Total current assets	1,304			1,345
Equity method investments	222			233
Property and equipment, net	3,615			3,608
Financing receivables, net of allowances	16			13
Operating lease right-of-use assets	505			—
Goodwill	322			283
Intangibles, net	471			628
Deferred tax assets	172			180
Other assets	1,455			1,353
TOTAL ASSETS	$	8,082		$	7,643
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	91		$	11
Accounts payable	149			151
Accrued expenses and other current liabilities	312			361
Current contract liabilities	400			388
Accrued compensation and benefits	127			150
Current operating lease liabilities	35			—
Total current liabilities	1,114			1,061
Long-term debt	1,621			1,623
Long-term contract liabilities	461			442
Long-term operating lease liabilities	406			—
Other long-term liabilities	833			840
Total liabilities	4,435			3,966
Commitments and contingencies (see Note 13)
EQUITY:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at June 30, 2019 and December 31, 2018	—			—
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 37,867,014 issued and outstanding at June 30, 2019, and Class B common stock, $0.01 par value per share, 399,110,240 shares authorized, 67,115,828 shares issued and outstanding at June 30, 2019. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,507,817 issued and outstanding at December 31, 2018, and Class B common stock, $0.01 par value per share, 399,110,240 shares authorized, 67,115,828 shares issued and outstanding at December 31, 2018	1			1
Additional paid-in capital	—			50
Retained earnings	3,853			3,819
Accumulated other comprehensive loss	(212		)	(200		)
Total stockholders' equity	3,642			3,670
Noncontrolling interests in consolidated subsidiaries	5			7
Total equity	3,647			3,677
TOTAL LIABILITIES AND EQUITY	$	8,082		$	7,643

See accompanying Notes to condensed consolidated financial statements.

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HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)



	Six Months Ended
	June 30, 2019			June 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	149		$	488
Adjustments to reconcile net income to net cash provided by operating activities:
Gains on sales of real estate	(1		)	(530		)
Depreciation and amortization	163			162
Release of contingent consideration liability	(27		)	—
Amortization of share awards	27			23
Deferred income taxes	4			(12		)
Equity (earnings) losses from unconsolidated hospitality ventures	(3		)	11
Amortization of management and franchise agreement assets constituting payments to customers	11			10
Working capital changes and other	(144		)	(122		)
Net cash provided by operating activities	179			30
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and short-term investments	(110		)	(439		)
Proceeds from marketable securities and short-term investments	165			347
Contributions to equity method and other investments	(16		)	(24		)
Return of equity method and other investments	24			13
Acquisitions, net of cash acquired	(18		)	(5		)
Capital expenditures	(146		)	(121		)
Proceeds from sales of real estate, net of cash disposed	—			992
Other investing activities	6			11
Net cash provided by (used in) investing activities	(95		)	774
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt	120			20
Repayments of debt	(42		)	(22		)
Repurchases of common stock	(147		)	(588		)
Contingent consideration paid	(24		)	—
Repayments of redeemable noncontrolling interest in preferred shares in a subsidiary	—			(10		)
Dividends paid	(40		)	(35		)
Other financing activities	(10		)	(12		)
Net cash used in financing activities	(143		)	(647		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	4			1
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, INCLUDING CASH CLASSIFIED WITHIN CURRENT ASSETS HELD FOR SALE	(55		)	158
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH RECLASSIFIED TO ASSETS HELD FOR SALE	—			(9		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(55		)	149
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR	622			752
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD	$	567		$	901

See accompanying Notes to condensed consolidated financial statements.

Supplemental disclosure of cash flow information:



	June 30, 2019		June 30, 2018
Cash and cash equivalents	$	515	$	628
Restricted cash (1)	32		254
Restricted cash included in other assets (1)	20		19
Total cash, cash equivalents, and restricted cash	$	567	$	901

(1) Restricted cash generally represents sales proceeds pursuant to like-kind exchanges, captive insurance subsidiary requirements, debt service on bonds, escrow deposits, and other arrangements.



	Six Months Ended June 30,
	2019		2018
Cash paid during the period for interest	$	41	$	37
Cash paid during the period for income taxes	$	34	$	213
Cash paid for amounts included in the measurement of operating lease liabilities	$	24	$	—
Non-cash investing and financing activities are as follows:
Non-cash contributions to equity method investments	$	5	$	53
Change in accrued capital expenditures	$	2	$	5
Non-cash right-of-use assets obtained in exchange for operating lease liabilities	$	5	$	—

See accompanying Notes to condensed consolidated financial statements.

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HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In millions of dollars)

(Unaudited)



	Total			Common Stock Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interests in Consolidated Subsidiaries
BALANCE—January 1, 2018	$	3,839		$	1	$	967		$	3,118		$	(253	)	$	6
Total comprehensive income	434			—		—			411			23			—
Repurchase of common stock	(75		)	—		(75		)	—			—			—
Employee stock plan issuance	1			—		1			—			—			—
Share-based payment activity	13			—		13			—			—			—
Cash dividends of $0.15 per share (see Note 14)	(18		)	—		—			(18		)	—			—
BALANCE—March 31, 2018	4,194			1		906			3,511			(230		)	6
Total comprehensive income	31			—		—			77			(46		)	—
Repurchase of common stock	(513		)	—		(513		)	—			—			—
Directors compensation	2			—		2			—			—			—
Employee stock plan issuance	1			—		1			—			—			—
Share-based payment activity	3			—		3			—			—			—
Cash dividends of $0.15 per share (see Note 14)	(17		)	—		—			(17		)	—			—
BALANCE—June 30, 2018	$	3,701		$	1	$	399		$	3,571		$	(276	)	$	6

BALANCE—January 1, 2019	$	3,677		$	1	$	50		$	3,819		$	(200	)	$	7
Total comprehensive income	53			—		—			63			(10		)	—
Noncontrolling interests	(1		)	—		—			—			—			(1		)
Repurchase of common stock	(102		)	—		(71		)	(31		)	—			—
Employee stock plan issuance	1			—		1			—			—			—
Share-based payment activity	20			—		20			—			—			—
Cash dividends of $0.19 per share (see Note 14)	(20		)	—		—			(20		)	—			—
BALANCE—March 31, 2019	3,628			1		—			3,831			(210		)	6
Total comprehensive income	84			—		—			86			(2		)	—
Noncontrolling interests	(1		)	—		—			—			—			(1		)
Repurchase of common stock	(45		)	—		(1		)	(44		)	—			—
Directors compensation	1			—		1			—			—			—
Employee stock plan issuance	1			—		1			—			—			—
Share-based payment activity	(1		)	—		(1		)	—			—			—
Cash dividends of $0.19 per share (see Note 14)	(20		)	—		—			(20		)	—			—
BALANCE—June 30, 2019	$	3,647		$	1	$	—		$	3,853		$	(212	)	$	5

See accompanying Notes to condensed consolidated financial statements.

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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 and other services on a worldwide basis through the development, ownership, operation, management, franchising, and licensing of hospitality and wellness-related businesses. We develop, own, operate, manage, franchise, license, or provide services to a portfolio of properties, consisting of full service hotels, select service hotels, resorts, and other properties, including branded spas and fitness studios, timeshare, fractional, and other forms of residential, vacation, and condominium ownership units. At June 30, 2019, (i) we operated or franchised 428 full service hotels, comprising 150,089 rooms throughout the world, (ii) we operated or franchised 444 select service hotels, comprising 62,948 rooms, of which 383 hotels are located in the United States, and (iii) our portfolio included 6 franchised all-inclusive Hyatt-branded resorts, comprising 2,403 rooms, and 3 destination wellness resorts, comprising 410 rooms. At June 30, 2019, our portfolio of properties operated in 63 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and which operate under other tradenames or marks owned by such hotel or licensed by third parties.

As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries, (ii) the term "properties" refers to hotels, resorts, and other properties, including branded spas and fitness studios, and residential, vacation, and condominium ownership units that we develop, own, operate, manage, franchise, or to which we provide services or license our trademarks, (iii) "Hyatt portfolio of properties" or "portfolio of properties" refers to hotels and other properties that we develop, own, operate, manage, franchise, license, or provide services to, including under the Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson, Hyatt Centric, Hyatt House, Hyatt Place, Joie de Vivre, tommie, Exhale, and Hyatt Residence Club brands, (iv) the term "worldwide hotel portfolio" includes our full and select service hotels, and (v) the term "worldwide property portfolio" includes our wellness and all-inclusive resorts, branded spas and fitness studios, and residential, vacation, and condominium ownership units in addition to our worldwide hotel portfolio.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Form 10-K").

We have eliminated all intercompany accounts and transactions in our condensed consolidated financial statements. We consolidate entities under our control, including entities where we are deemed to be the primary beneficiary.

Management believes the accompanying condensed consolidated financial statements reflect all adjustments, which are all of a normal recurring nature, considered necessary for a fair presentation of the interim periods.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Standards

Leases—In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use ("ROU") asset and lease liability with certain practical expedients available. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make fixed minimum lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of fixed minimum lease payments over the lease term, including optional periods for which it is reasonably certain the renewal option will be exercised.

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In July 2018, the FASB released Accounting Standards Update No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, providing entities with an additional optional transition method. The provisions of ASU 2016-02, and all related ASUs, are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted.

We adopted ASU 2016-02 utilizing the optional transition approach under ASU 2018-11 and applied the package of practical expedients beginning January 1, 2019. As a result of applying the optional transition approach, our reporting for periods prior to January 1, 2019 continue to be reported in accordance with Leases (Topic 840).

We elected the following additional practical expedients: (i) for office space, land, and hotel leases, we do not separate the lease and nonlease components, which primarily relate to common area maintenance and utilities, (ii) we combine lease and nonlease components for those leases where we are the lessor, and (iii) for all leases that are twelve months or less, we exclude these short-term leases from the ROU assets and lease liabilities.

For leases in place upon adoption, we used the remaining lease term as of January 1, 2019 in determining the incremental borrowing rate ("IBR"). For the initial measurement of the lease liabilities for leases commencing on or after January 1, 2019, the IBR at the lease commencement date was applied.

For operating leases, the adoption of ASU 2016-02 resulted in the initial recognition of ROU assets of $512 million and related lease liabilities of $452 million on our condensed consolidated balance sheet at January 1, 2019. Upon adoption, we reclassified $103 million of intangibles, net related to below market leases and $49 million of deferred rent and other lease liabilities to the operating ROU assets. The net tax impact upon adoption was insignificant. The adoption of ASU 2016-02 did not significantly impact our accounting for finance leases or for those leases where we are the lessor. Additionally, the adoption of ASU 2016-02 did not materially affect our condensed consolidated statements of income or our condensed consolidated statements of cash flows.

The impact on our condensed consolidated balance sheet upon adoption of ASU 2016-02 was as follows:



	December 31, 2018		January 1, 2019
	As reported		Effect of the adoption of ASU 2016-02			As adjusted
ASSETS
Prepaids and other assets	$	149	$	(2	)	$	147
Intangibles, net	628		(103		)	525
Other assets	1,353		(7		)	1,346
Operating lease right-of-use assets	—		512			512
TOTAL ASSETS	$	7,643	$	400		$	8,043
LIABILITIES AND EQUITY
Accounts payable	$	151	$	(1	)	$	150
Accrued expenses and other current liabilities	361		(2		)	359
Current operating lease liabilities	—		34			34
Long-term operating lease liabilities	—		418			418
Other long-term liabilities	840		(49		)	791
Total liabilities	3,966		400			4,366
Total equity	3,677		—			3,677
TOTAL LIABILITIES AND EQUITY	$	7,643	$	400		$	8,043

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Intangibles - Goodwill and Other - Internal-Use Software—In August 2018, the FASB released Accounting Standards Update No. 2018-15 ("ASU 2018-15"), Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of ASU 2018-15 are to be applied using a prospective or retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We early adopted ASU 2018-15 on January 1, 2019 on a prospective basis which did not materially impact our condensed consolidated financial statements.

Future Adoption of Accounting Standards

Financial Instruments - Credit Losses—In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss model, which requires an entity to recognize 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") debt securities to be recognized through an allowance for credit losses. The provisions of ASU 2016-13 are to be applied using a modified retrospective approach and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-13.

Fair Value Measurement—In August 2018, the FASB released Accounting Standards Update No. 2018-13 ("ASU 2018-13"), Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements in relation to fair value measurements. The provisions of ASU 2018-13 are to be applied using a prospective or retrospective approach, depending on the amendment and are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. ASU 2018-13 will not have a material impact on our condensed consolidated financial statements.

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3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenues

The following tables present our revenues disaggregated by the nature of the product or service:



	Three Months Ended June 30, 2019
	Owned and leased hotels		Americas management and franchising			ASPAC management and franchising			EAME/SW Asia management and franchising			Corporate and other		Eliminations			Total
Rooms revenues	$	279	$	—		$	—		$	—		$	6	$	(9	)	$	276
Food and beverage	164		—			—			—			3		—			167
Other	38		—			—			—			9		—			47
Owned and leased hotels	481		—			—			—			18		(9		)	490

Base management fees	—		61			10			9			—		(12		)	68
Incentive management fees	—		19			17			9			—		(6		)	39
Franchise fees	—		36			2			—			—		—			38
Other fees	—		1			3			1			2		—			7
License fees	—		—			—			—			6		—			6
Management, franchise, and other fees	—		117			32			19			8		(18		)	158
Amortization of management and franchise agreement assets constituting payments to customers	—		(3		)	(1		)	(2		)	—		—			(6		)
Net management, franchise, and other fees	—		114			31			17			8		(18		)	152

Other revenues	—		19			—			—			8		1			28

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		575			26			17			1		—			619

Total	$	481	$	708		$	57		$	34		$	35	$	(26	)	$	1,289

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	Six Months Ended June 30, 2019
	Owned and leased hotels		Americas management and franchising			ASPAC management and franchising			EAME/SW Asia management and franchising			Corporate and other		Eliminations			Total
Rooms revenues	$	545	$	—		$	—		$	—		$	13	$	(16	)	$	542
Food and beverage	321		—			—			—			6		—			327
Other	73		—			—			—			18		—			91
Owned and leased hotels	939		—			—			—			37		(16		)	960

Base management fees	—		118			22			17			—		(26		)	131
Incentive management fees	—		33			34			17			—		(11		)	73
Franchise fees	—		68			2			—			—		—			70
Other fees	—		1			6			3			3		—			13
License fees	—		—			—			—			12		—			12
Management, franchise, and other fees	—		220			64			37			15		(37		)	299
Amortization of management and franchise agreement assets constituting payments to customers	—		(7		)	(1		)	(3		)	—		—			(11		)
Net management, franchise, and other fees	—		213			63			34			15		(37		)	288

Other revenues	—		55			—			—			17		1			73

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		1,123			50			34			2		—			1,209

Total	$	939	$	1,391		$	113		$	68		$	71	$	(52	)	$	2,530

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	Three Months Ended June 30, 2018
	Owned and leased hotels		Americas management and franchising			ASPAC management and franchising		EAME/SW Asia management and franchising			Corporate and other		Eliminations			Total
Rooms revenues	$	275	$	—		$	—	$	—		$	6	$	(10	)	$	271
Food and beverage	169		—			—		—			3		—			172
Other	34		—			—		—			8		—			42
Owned and leased hotels	478		—			—		—			17		(10		)	485

Base management fees	—		53			10		9			—		(13		)	59
Incentive management fees	—		20			17		9			—		(8		)	38
Franchise fees	—		34			1		—			—		—			35
Other fees	—		1			2		1			1		—			5
License fees	—		—			—		—			5		—			5
Management, franchise, and other fees	—		108			30		19			6		(21		)	142
Amortization of management and franchise agreement assets constituting payments to customers	—		(3		)	—		(2		)	—		—			(5		)
Net management, franchise, and other fees	—		105			30		17			6		(21		)	137

Other revenues	—		—			—		—			8		1			9

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		461			23		17			1		—			502

Total	$	478	$	566		$	53	$	34		$	32	$	(30	)	$	1,133

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	Six Months Ended June 30, 2018
	Owned and leased hotels		Americas management and franchising			ASPAC management and franchising			EAME/SW Asia management and franchising			Corporate and other		Eliminations			Total
Rooms revenues	$	572	$	—		$	—		$	—		$	13	$	(19	)	$	566
Food and beverage	341		—			—			—			5		—			346
Other	72		—			—			—			16		—			88
Owned and leased hotels	985		—			—			—			34		(19		)	1,000

Base management fees	—		102			21			16			—		(27		)	112
Incentive management fees	—		33			34			19			—		(14		)	72
Franchise fees	—		62			1			—			—		—			63
Other fees	—		9			4			2			2		—			17
License fees	—		—			—			—			10		—			10
Management, franchise, and other fees	—		206			60			37			12		(41		)	274
Amortization of management and franchise agreement assets constituting payments to customers	—		(6		)	(1		)	(3		)	—		—			(10		)
Net management, franchise, and other fees	—		200			59			34			12		(41		)	264

Other revenues	—		—			—			—			17		3			20

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		881			43			33			1		—			958

Total	$	985	$	1,081		$	102		$	67		$	64	$	(57	)	$	2,242

Contract Balances

Our contract assets were $3 million and insignificant at June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, the contract assets were included in receivables, net. As our profitability hurdles are generally calculated on a full-year basis, we expect our contract asset balance to be insignificant at year end.

Our contract liabilities were as follows:



	June 30, 2019		December 31, 2018		$ Change		% Change
Current contract liabilities	$	400	$	388	$	12	3.0	%
Long-term contract liabilities	461		442		19		4.3	%
Total contract liabilities	$	861	$	830	$	31	3.6	%

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Contract liabilities are comprised of the following:



	June 30, 2019		December 31, 2018
Deferred revenue related to the loyalty program	$	640	$	596
Advanced deposits	68		81
Initial fees received from franchise owners	38		35
Deferred revenue related to system-wide services	9		7
Other deferred revenue	106		111
Total contract liabilities	$	861	$	830

The following table summarizes the activity in our contract liabilities:



	2019			2018
Beginning balance, January 1	$	830		$	772
Cash received and other	247			217
Revenue recognized	(228		)	(224		)
Ending balance, March 31	$	849		$	765
Cash received and other	243			216
Revenue recognized	(231		)	(217		)
Ending balance, June 30	$	861		$	764

Revenue recognized during the three months ended June 30, 2019 and June 30, 2018 included in the contract liabilities balance at the beginning of each year was $93 million and $84 million, respectively. Revenue recognized during the six months ended June 30, 2019 and June 30, 2018 included in the contract liabilities balance at the beginning of each year was $238 million and $218 million, respectively. This revenue primarily relates to the loyalty program, which is recognized net of redemption reimbursements paid to third parties, and advanced deposits.

Revenue Allocated to Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $130 million at June 30, 2019, of which we expect to recognize approximately 20% as revenue over the next 12 months and the remainder thereafter.

We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for the following:


•	Deferred revenue related to the loyalty program and revenue from base and incentive management fees as the revenue is allocated to a wholly unperformed performance obligation in a series;


•	Revenues related to royalty fees as they are considered sales-based royalty fees;


•	Revenues received for free nights granted through our co-branded credit cards as the awards are required to be redeemed within 12 months; and


•	Revenues related to advanced bookings at owned and leased hotels as each stay has a duration of 12 months or less.

4. DEBT AND EQUITY SECURITIES

Equity Method Investments

Equity method investments were $222 million and $233 million at June 30, 2019 and December 31, 2018, respectively.

During the three months ended June 30, 2019, we recognized an $8 million gain in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income resulting from the

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sale of our ownership interest in an equity method investment within our owned and leased hotels segment and received $23 million of sales proceeds.

During the three months ended June 30, 2018, we completed an asset acquisition of our partner's interest in certain unconsolidated hospitality ventures in Brazil for a net purchase price of approximately $5 million. During the six months ended June 30, 2018, we recognized $16 million of impairment charges related to these investments in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income as the carrying value was in excess of fair value. The fair value was determined to be a Level Three fair value measure, and the impairment was deemed other-than-temporary.

During the three and six months ended June 30, 2018, we recognized $2 million and $10 million of gains, respectively, in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income resulting from sales activity related to certain equity method investments within our owned and leased hotels segment. During the six months ended June 30, 2018, we received $10 million of sales proceeds.

The following table presents summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Total revenues	$	125		$	132	$	241		$	264
Gross operating profit	49			49		88			88
Income (loss) from continuing operations	(1		)	16		(11		)	(3		)
Net income (loss)	(1		)	16		(11		)	(3		)

Marketable Securities

We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. Additionally, we periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.

Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:



	June 30, 2019			December 31, 2018
Loyalty program (Note 9)	$	441		$	397
Deferred compensation plans held in rabbi trusts (Note 9 and Note 11)	426			367
Captive insurance companies	143			133
Total marketable securities held to fund operating programs	$	1,010		$	897
Less: current portion of marketable securities held to fund operating programs included in cash and cash equivalents, short-term investments, and prepaids and other assets	(213		)	(174		)
Marketable securities held to fund operating programs included in other assets	$	797		$	723

Net realized and unrealized gains (losses) and interest income from marketable securities held to fund the loyalty program are recognized in other income (loss), net on our condensed consolidated statements of income:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Loyalty program (Note 19)	$	10	$	1	$	19	$	(3	)

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Unrealized gains	$	9	$	3	$	37	$	2
Realized gains	2		3		4		7
Net gains and interest income from marketable securities held to fund rabbi trusts	$	11	$	6	$	41	$	9

Our captive insurance companies hold marketable securities which are classified as AFS debt securities and are invested in U.S. government agencies, time deposits, and corporate debt securities. We classify these investments as current or long-term, based on their contractual maturity dates, which range from 2019 through 2024.

Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at fair value and included on our condensed consolidated balance sheets, were as follows:



	June 30, 2019			December 31, 2018
Common shares of Playa N.V. (Note 9)	$	94		$	87
Interest-bearing money market funds	38			14
Time deposits	37			100
Total marketable securities held for investment purposes	$	169		$	201
Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments	(75		)	(114		)
Marketable securities held for investment purposes included in other assets	$	94		$	87

We hold common shares of Playa Hotels & Resorts N.V. ("Playa N.V.") which are accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in $1 million and $7 million of unrealized gains recognized in other income (loss), net on our condensed consolidated statements of income for the three months ended June 30, 2019 and June 30, 2018, respectively, and $7 million and insignificant unrealized gains recognized in other income (loss), net on our condensed consolidated statements of income for the six months ended June 30, 2019 and June 30, 2018, respectively (see Note 19). We did not sell any shares of common stock during the six months ended June 30, 2019.

Other Investments

Held-to-Maturity Debt Securities—At June 30, 2019 and December 31, 2018, we held $53 million and $49 million, respectively, of investments in held-to-maturity ("HTM") debt securities, which are investments in third-party entities that own certain of our hotels and are recorded within other assets on our condensed consolidated balance sheets. The securities are mandatorily redeemable between 2020 and 2025. The amortized cost of our investments approximates fair value. We estimated the fair value of our investments using internally developed discounted cash flow models based on current market inputs for similar types of arrangements. Based upon the lack of available market data, our investments are classified as Level Three within the fair value hierarchy. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.

Equity Securities Without a Readily Determinable Fair Value—At June 30, 2019 and December 31, 2018, we held $9 million of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity. These investments are recorded within other assets on our condensed consolidated balance sheets.

Due to ongoing operating cash flow shortfalls in the business underlying an equity security during the three months ended June 30, 2018, we recognized a $22 million impairment charge for our full investment balance in other income (loss), net on our condensed consolidated statements of income (see Note 19) as the carrying value

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was in excess of the fair value. The fair value was determined to be a Level Three fair value measure. Subsequent to June 30, 2018, the entity in which we held our investment disposed of its assets.

Fair Value—We measured the following financial assets at fair value on a recurring basis:



	June 30, 2019		Cash and cash equivalents		Short-term investments		Prepaids and other assets		Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest-bearing money market funds	$	144	$	144	$	—	$	—	$	—
Mutual funds	426		—		—		—		426
Common shares	94		—		—		—		94
Level Two - Significant Other Observable Inputs
Time deposits	51		—		42		—		9
U.S. government obligations	191		—		—		39		152
U.S. government agencies	49		—		1		6		42
Corporate debt securities	156		—		19		23		114
Mortgage-backed securities	23		—		—		5		18
Asset-backed securities	43		—		—		9		34
Municipal and provincial notes and bonds	2		—		—		—		2
Total	$	1,179	$	144	$	62	$	82	$	891



	December 31, 2018		Cash and cash equivalents		Short-term investments		Prepaids and other assets		Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest-bearing money market funds	$	88	$	88	$	—	$	—	$	—
Mutual funds	367		—		—		—		367
Common shares	87		—		—		—		87
Level Two - Significant Other Observable Inputs
Time deposits	113		—		104		—		9
U.S. government obligations	169		—		—		37		132
U.S. government agencies	52		—		2		7		43
Corporate debt securities	151		—		10		25		116
Mortgage-backed securities	23		—		—		5		18
Asset-backed securities	46		—		—		10		36
Municipal and provincial notes and bonds	2		—		—		—		2
Total	$	1,098	$	88	$	116	$	84	$	810

During the three and six months ended June 30, 2019 and June 30, 2018, there were no transfers between levels of the fair value hierarchy. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.

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5. FINANCING RECEIVABLES



	June 30, 2019			December 31, 2018
Unsecured financing to hotel owners	$	158		$	159
Less: current portion of financing receivables, included in receivables, net	(42		)	(45		)
Less: allowance for losses	(100		)	(101		)
Total long-term financing receivables, net of allowances	$	16		$	13

Allowance for Losses and Impairments—The following table summarizes the activity in our unsecured financing receivables allowance:



	2019			2018
Allowance at January 1	$	101		$	108
Provisions	2			2
Other adjustments	—			(1		)
Allowance at March 31	$	103		$	109
Provisions	1			1
Other adjustments	—			(1		)
Write-offs	(4		)	—
Allowance at June 30	$	100		$	109

Credit Monitoring—Our unsecured financing receivables were as follows:



	June 30, 2019
	Gross loan balance (principal and interest)		Related allowance			Net financing receivables		Gross receivables on non-accrual status
Loans	$	59	$	(1	)	$	58	$	—
Impaired loans (1)	45		(45		)	—		45
Total loans	104		(46		)	58		45
Other financing arrangements	54		(54		)	—		54
Total unsecured financing receivables	$	158	$	(100	)	$	58	$	99

(1) The unpaid principal balance was $35 million and the average recorded loan balance was $47 million at June 30, 2019.



	December 31, 2018
	Gross loan balance (principal and interest)		Related allowance			Net financing receivables		Gross receivables on non-accrual status
Loans	$	58	$	—		$	58	$	—
Impaired loans (2)	50		(50		)	—		50
Total loans	108		(50		)	58		50
Other financing arrangements	51		(51		)	—		51
Total unsecured financing receivables	$	159	$	(101	)	$	58	$	101

(2) The unpaid principal balance was $36 million and the average recorded loan balance was $54 million at December 31, 2018.

Fair Value—We estimated the fair value of financing receivables, which are classified as Level Three in the fair value hierarchy, to be approximately $60 million and $59 million at June 30, 2019 and December 31, 2018, respectively.

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6. ACQUISITIONS AND DISPOSITIONS

Acquisitions

Land—During the six months ended June 30, 2019, we acquired $15 million of land through an asset acquisition from an unrelated third party.

Two Roads Hospitality LLC—During the year ended December 31, 2018, we acquired all of the outstanding equity interests of Two Roads Hospitality LLC ("Two Roads") in a business combination for a purchase price of $405 million. The transaction also included potential additional consideration including (i) up to $96 million if the sellers completed specific actions with respect to certain of the acquired management agreements within 120 days from the date of acquisition and (ii) up to $8 million in the event of the execution of certain potential new management agreements related to the development of certain potential new deals previously identified and generated by the sellers or affiliates of the sellers within one year of the closing of the transaction. One of the sellers is indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman.

We closed on the transaction on November 30, 2018 and paid cash of $415 million, net of $37 million cash acquired. Cash paid at closing was inclusive of a $36 million payment of the aforementioned additional consideration and a $4 million receipt of other purchase price adjustments. Related to the $68 million of potential additional consideration, we recorded a $57 million contingent liability in accrued expenses and other current liabilities on our condensed consolidated balance sheet at December 31, 2018, which represented our estimate of the remaining expected consideration to be paid.

Net assets acquired were determined as follows:



Cash paid, net of cash acquired	$	415
Cash acquired	37
Contingent consideration liability	57
Net assets acquired at December 31, 2018	$	509
Post-acquisition working capital adjustments	(2		)
Net assets acquired at June 30, 2019	$	507

As it relates to the $57 million contingent consideration liability recorded at December 31, 2018, of which $6 million remains at June 30, 2019, the following occurred during the six months ended June 30, 2019:


•	The sellers completed the aforementioned specific actions with respect to certain management agreements, and we paid $24 million of additional consideration to the sellers.


•	For those management agreements where the specific actions were not completed, we released $2 million and $27 million of the contingent liability to other income (loss), net on our condensed consolidated statements of income during the three and six months ended June 30, 2019, respectively (see Note 19).

The acquisition includes management and license agreements for operating and pipeline hotels primarily across North America and Asia under five hospitality brands. Our condensed consolidated balance sheets at June 30, 2019 and December 31, 2018 reflect preliminary estimates of the fair value of the assets acquired and liabilities assumed. The fair values, which are classified as Level Three in the fair value hierarchy, are based on information that was available as of the date of acquisition and are estimated using discounted future cash flow models and relief from royalty method, including revenue projections based on the expected contract terms and long-term growth rates.

During 2019, the estimated fair values of assets and liabilities were revised as we refined our analysis of contract terms and renewal assumptions which affected the underlying cash flows in the valuation. This resulted in a $34 million reduction in intangibles, net with an offsetting increase in goodwill on our condensed consolidated balance sheet at June 30, 2019. We continue to evaluate the underlying inputs and assumptions used in our valuation and accordingly, these estimates are subject to change during the one year measurement period.

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The following table summarizes the preliminary fair value of the identifiable net assets acquired at June 30, 2019:



Cash	$	32
Receivables	20
Other current assets	2
Equity method investment	2
Property and equipment	2
Indefinite-lived intangibles (1)	96
Management agreement intangibles (2)	209
Goodwill (3)	194
Other assets (4)	25
Total assets	$	582

Advanced deposits	$	20
Other current liabilities	22
Other long-term liabilities (4)	33
Total liabilities	75
Total net assets acquired	$	507

(1) Includes intangibles attributable to the Destination, Alila, and Thompson brands.

(2) Amortized over useful lives of 1 to 19 years, with a weighted-average useful life of approximately 12 years.

(3) The goodwill, of which $154 million is tax deductible, is attributable to the growth opportunities Hyatt expects to realize by expanding into new markets and enhancing guest experiences through a distinctive collection of lifestyle brands and recorded in the Americas management and franchising segment.

(4) Includes $13 million of prior year tax liabilities relating to certain foreign filing positions, including $4 million of interest and penalties. We recorded an offsetting indemnification asset which we expect to collect under contractual arrangements.

Dispositions

Grand Hyatt San Francisco, Andaz Maui at Wailea Resort, and Hyatt Regency Coconut Point Resort and Spa—During the six months ended June 30, 2018, we sold Grand Hyatt San Francisco, Andaz Maui at Wailea Resort together with adjacent land, and Hyatt Regency Coconut Point Resort and Spa to an unrelated third party as a portfolio for approximately $992 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. We entered into long-term management agreements for the properties upon sale. The sale resulted in a $531 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income during the six months ended June 30, 2018. The operating results and financial position of these hotels prior to the sale remain within our owned and leased hotels segment. Although we concluded the disposal of these properties did not qualify as discontinued operations, the disposal was considered to be material. Pre-tax net income attributable to the three properties was $15 million during the six months ended June 30, 2018.

Land Held for Development—A wholly owned subsidiary held undeveloped land in Los Cabos, Mexico. During the three months ended June 30, 2018, an unrelated third party invested in the subsidiary in exchange for a 50% ownership interest resulting in derecognition of the subsidiary. Our remaining interest was recorded at a fair value of $45 million as an equity method investment.

Like-Kind Exchange Agreements

Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary and are unavailable for our use until released. The proceeds are recorded as restricted cash on our condensed consolidated balance sheets and released (i) if they are utilized as part of a like-kind exchange agreement, (ii) if we do not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.

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In conjunction with the sale of Hyatt Regency Coconut Point Resort and Spa during the six months ended June 30, 2018, $221 million of proceeds were held as restricted for use in a potential like-kind exchange. Subsequently, $198 million of these proceeds were utilized to acquire two properties in 2018 and the remaining $23 million were released.

In conjunction with the sale of Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch during the year ended December 31, 2017, proceeds of $207 million were initially held as restricted for use in a potential like-kind exchange. However, we did not acquire the identified replacement property within the specified 180 day period and the proceeds were released during the three months ended June 30, 2018.

7. LEASES

Lessee—We primarily lease land, buildings, office space, spas and fitness centers, and equipment. We determine if an arrangement is an operating or finance lease at inception. For our hotel management agreements, we apply judgment in order to determine whether the contract is accounted for as a lease or management agreement based on the specific facts and circumstances of each agreement. In evaluating whether an agreement constitutes a lease, we review the contractual terms to determine which party obtains both the economic benefits and control of the assets. In arrangements where we control the assets and obtain the economic benefits, we account for the contract as a lease.

Certain of our leases include options to extend the lease term by 1 to 99 years. We include lease extension options in our operating ROU assets and lease liabilities when it is reasonably certain that we will exercise the options. The range of extension options included in our operating ROU assets and lease liabilities is approximately 1 to 20 years. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.

As our leases do not provide an implicit borrowing rate, we use our estimated IBR to determine the present value of our lease payments and apply a portfolio approach. We apply judgment in estimating the IBR including factors related to currency risk and our credit risk. We also give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our IBR.

Our operating leases may include the following terms: (i) fixed minimum lease payments, (ii) variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, (iii) lease payments equal to the greater of a minimum or variable lease payments based on a percentage of the hotel's profitability measure, as defined in the lease, or (iv) lease payments adjusted for changes in an index or market value. Future lease payments that are contingent are not included in the measurement of the operating lease liability or in the future maturities table below.

Total lease expense related to short-term leases and finance leases was insignificant for the three and six months ended June 30, 2019. A summary of operating lease expense is as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019
Minimum rentals	$	14	$	25
Contingent rentals	24		56
Total operating lease expense	$	38	$	81

Supplemental balance sheet information related to finance leases is as follows:



	June 30, 2019
Property and equipment, net (1)	$	9
Current maturities of long-term debt	2
Long-term debt	9
Total finance lease liabilities	$	11
(1) Finance lease assets are net of $14 million of accumulated amortization.

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Weighted-average remaining lease terms and discount rates are as follows:



	June 30, 2019
Weighted-average remaining lease term in years
Operating leases (1)	21
Finance leases	7

Weighted-average discount rate
Operating leases	3.7	%
Finance leases	1.0	%
(1) Certain of our hotel and land leases have nominal or contingent rental payments. As such, this results in a lower weighted-average remaining lease term.

The maturities of lease liabilities in accordance with Leases (Topic 842) in each of the next five years and thereafter at June 30, 2019 are as follows:



	Operating leases			Finance leases
2019 (remaining)	$	25		$	1
2020	47			3
2021	44			2
2022	42			2
2023	39			2
Thereafter	456			5
Total minimum lease payments	$	653		$	15
Less: amount representing interest	(212		)	(4		)
Present value of minimum lease payments	$	441		$	11

The future minimum lease payments from our 2018 Form 10-K as filed in accordance with Leases (Topic 840) in each of the next five years and thereafter are as follows:



Years ending December 31,	Operating leases		Capital leases
2019	$	46	$	3
2020	42		3
2021	42		2
2022	38		2
2023	35		2
Thereafter	448		5
Total minimum lease payments	$	651	$	17
Less: amount representing interest			(5		)
Present value of minimum lease payments			$	12

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Lessor—We lease retail space under operating leases at our owned hotel locations. Rental payments are primarily fixed with certain variable payments based on a contractual percentage of revenues. We recognized rental income within owned and leased hotels revenues on our condensed consolidated statements of income as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Rental income	$	6	$	6	$	13	$	13

The future minimum lease receipts in accordance with Leases (Topic 842) scheduled to be received in each of the next five years and thereafter at June 30, 2019 are as follows:




2019 (remaining)	$	13
2020	21
2021	18
2022	16
2023	14
Thereafter	49
Total minimum lease receipts	$	131

The future minimum lease receipts from our 2018 Form 10-K as filed in accordance with Leases (Topic 840) scheduled to be received in each of the next five years and thereafter are as follows:



Years ending December 31,
2019	$	22
2020	18
2021	16
2022	15
2023	11
Thereafter	48
Total minimum lease receipts	$	130

8. INTANGIBLES, NET



	June 30, 2019			Weighted- average useful lives in years	December 31, 2018
Management and franchise agreement intangibles	$	382		18	$	390
Lease related intangibles	—			—	121
Brand and other indefinite-lived intangibles	149			—	180
Advanced booking intangibles	14			6	14
Other definite-lived intangibles	8			6	8
Intangibles	553				713
Less: accumulated amortization	(82		)		(85		)
Intangibles, net	$	471			$	628



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Amortization expense	$	7	$	4	$	10	$	7

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9. OTHER ASSETS



	June 30, 2019		December 31, 2018
Marketable securities held to fund rabbi trusts (Note 4)	$	426	$	367
Management and franchise agreement assets constituting payments to customers (1)	392		396
Marketable securities held to fund the loyalty program (Note 4)	324		303
Long-term investments	110		112
Common shares of Playa N.V. (Note 4)	94		87
Other	109		88
Total other assets	$	1,455	$	1,353
(1) Includes cash consideration as well as other forms of consideration provided, such as debt repayment or performance guarantees.

10. DEBT

Long-term debt, net of current maturities was $1,621 million and $1,623 million at June 30, 2019 and December 31, 2018, respectively.

Revolving Credit Facility—During the six months ended June 30, 2018, we refinanced our $1.5 billion senior unsecured revolving credit facility with a syndicate of lenders, extending the maturity of the facility to January 2023. During the six months ended June 30, 2019, we borrowed $120 million and repaid $40 million on our revolving credit facility. The weighted-average interest rate on these borrowings was 3.53% at June 30, 2019. At June 30, 2019 and December 31, 2018, we had $80 million and no balance outstanding, respectively. At June 30, 2019, we had $1.4 billion available on our revolving credit facility.

Fair Value—We estimated the fair value of debt, excluding finance leases, which consists of $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), $350 million of 3.375% senior notes due 2023 (the "2023 Notes"), $400 million of 4.850% senior notes due 2026 (the "2026 Notes"), and $400 million of 4.375% senior notes due 2028 (the "2028 Notes"), collectively referred to as the "Senior Notes," bonds, and other long-term debt. Our Senior Notes and bonds are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. We estimated the fair value of other debt instruments using a discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the lack of available market data, we have classified our revolving credit facility and other debt instruments as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.



	June 30, 2019
	Carrying value		Fair value		Quoted prices in active markets for identical assets (Level One)		Significant other observable inputs (Level Two)		Significant unobservable inputs (Level Three)
Debt (1)	$	1,716	$	1,809	$	—	$	1,664	$	145

(1) Excludes $11 million of finance lease obligations and $15 million of unamortized discounts and deferred financing fees.



	December 31, 2018
	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)	$	1,638	$	1,651	$	—	$	1,584	$	67

(2) Excludes $12 million of capital lease obligations and $16 million of unamortized discounts and deferred financing fees.

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Interest Rate Locks—At June 30, 2019, we had outstanding interest rate locks with $275 million notional value and mandatory settlement dates of 2021. The interest rate locks hedge a portion of the risk of changes in the benchmark interest rate associated with long-term debt we anticipate issuing in the future. The outstanding derivative instruments are designated as cash flow hedges and deemed highly effective both at inception and at June 30, 2019. At June 30, 2019 and December 31, 2018, we had $21 million and $4 million of liabilities related to these derivative instruments, respectively, recorded in other long-term liabilities on our condensed consolidated balance sheets.

11. OTHER LONG-TERM LIABILITIES



	June 30, 2019		December 31, 2018
Deferred compensation plans funded by rabbi trusts (Note 4)	$	426	$	367
Income taxes payable	135		131
Self-insurance liabilities (Note 13)	77		78
Deferred income taxes	48		54
Guarantee liabilities (Note 13)	38		76
Other	109		134
Total other long-term liabilities	$	833	$	840

12. INCOME TAXES

The effective income tax rates for the three months ended June 30, 2019 and June 30, 2018 were 18.4% and 24.3%, respectively. Our effective tax rate decreased for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, primarily due to a non-recurring benefit related to prior years recognized as a result of an agreement reached by the United States and Swiss tax authorities on Advanced Pricing Agreement terms during the three months ended June 30, 2019. The Advanced Pricing Agreement terms cover tax years 2012 to 2021.

The effective income tax rates for the six months ended June 30, 2019 and June 30, 2018 were 20.7% and 26.4%, respectively. Our effective tax rate decreased for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, due to the aforementioned Advanced Pricing Agreement benefit and a benefit recognized in the first quarter of 2019 to adjust certain deferred tax liabilities.

We are currently under field exam by the Internal Revenue Service ("IRS") for tax years 2015 through 2017. U.S. tax years 2009 through 2011 are before the U.S. Tax Court concerning the tax treatment of the loyalty program. Additionally, U.S. tax years 2012 through 2014 are pending the outcome of the issue currently in U.S. Tax Court. If the IRS' position to include loyalty program contributions as taxable income to the Company is upheld, it would result in an income tax payment of $185 million (including $41 million of estimated interest, net of federal tax benefit) for all assessed years that would be partially offset by a deferred tax asset. As future tax benefits will be recognized at the reduced U.S. corporate income tax rate, $66 million of the payment and related interest would have an impact on the effective tax rate, if recognized. We believe we have an adequate uncertain tax liability recorded in connection with this matter.

13. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements, which are discussed below:

Commitments—At June 30, 2019, we are committed, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures up to $420 million, net of any related letters of credit, including a commitment to purchase land and a hotel under construction in Portland, Oregon from the developer for a remaining purchase price of approximately $141 million upon substantial completion of construction.

Performance Guarantees—Certain of our contractual agreements with third-party hotel owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels.

Our most significant performance guarantee relates to four managed hotels in France that we began managing in the second quarter of 2013 ("the four managed hotels in France"), which has a term of seven years and approximately one year remaining. This guarantee has a maximum cap, but does not have an annual cap. The remaining maximum exposure related to our performance guarantees at June 30, 2019 was $263 million, of which

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€180 million ($205 million using exchange rates at June 30, 2019) was related to the four managed hotels in France.

We had $23 million and $47 million of total net performance guarantee liabilities at June 30, 2019 and December 31, 2018, respectively, which included $5 million and $25 million recorded in other long-term liabilities and $18 million and $22 million in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively.



	The four managed hotels in France						Other performance guarantees						All performance guarantees
	2019			2018			2019			2018			2019			2018
Beginning balance, January 1	$	36		$	58		$	11		$	13		$	47		$	71
Initial guarantee obligation liability	—			—			1			—			1			—
Amortization of initial guarantee obligation liability into income	(4		)	(4		)	—			(1		)	(4		)	(5		)
Performance guarantee expense, net	20			27			1			1			21			28
Net payments during the period	(16		)	(23		)	(3		)	(1		)	(19		)	(24		)
Foreign currency exchange, net	—			2			—			—			—			2
Ending balance, March 31	$	36		$	60		$	10		$	12		$	46		$	72
Amortization of initial guarantee obligation liability into income	(4		)	(4		)	(1		)	(1		)	(5		)	(5		)
Performance guarantee expense (recovery), net	4			9			(1		)	(2		)	3			7
Net payments during the period	(20		)	(27		)	(1		)	(4		)	(21		)	(31		)
Foreign currency exchange, net	—			(2		)	—			—			—			(2		)
Ending balance, June 30	$	16		$	36		$	7		$	5		$	23		$	41

Additionally, we enter into certain management contracts where we have the right, but not an obligation, to make payments to certain hotel owners if their hotels do not achieve specified levels of operating profit. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management contract. At June 30, 2019 and December 31, 2018, there were no amounts recognized on our condensed consolidated balance sheets related to these performance test clauses.

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Debt Repayment and Other Guarantees—We enter into various debt repayment and other guarantees in order to assist property owners and unconsolidated hospitality ventures in obtaining third-party financing or to obtain more favorable borrowing terms. Included within debt repayment and other guarantees are the following:



Property description	Maximum potential future payments		Maximum exposure net of recoverability from third parties		Other long-term liabilities recorded at June 30, 2019		Other long-term liabilities recorded at December 31, 2018		Year of guarantee expiration
Hotel properties in India (1)	$	174	$	174	$	7	$	10	2020
Hotel and residential properties in Brazil (2), (3)	95		40		3		3		various, through 2023
Hotel property in Massachusetts (2), (4)	68		17		7		8		various, through 2022
Hotel property in Oregon (2), (4)	40		8		3		4		various, through 2022
Hotel properties in California (2)	31		13		4		4		various, through 2021
Hotel properties in Tennessee (2)	30		13		6		2		various, through 2023
Hotel property in Arizona (2), (3)	25		—		—		1		2019
Other (2), (5)	10		5		3		19		2022
Total	$	473	$	270	$	33	$	51

(1) Debt repayment guarantee is denominated in Indian rupees and translated using exchange rates at June 30, 2019. We have the contractual right to recover amounts funded from an unconsolidated hospitality venture, which is a related party. We expect our maximum exposure to be $87 million, taking into account our partner's 50% ownership interest in the unconsolidated hospitality venture. Under certain events or conditions, we have the right to force the sale of the properties in order to recover amounts funded.

(2) We have agreements with our unconsolidated hospitality venture partners, the respective hotel owners, or other third parties to recover certain amounts funded under the debt repayment guarantee; the recoverability mechanism may be in the form of cash, financing receivable, or HTM debt security.

(3) If certain funding thresholds are met or if certain events occur, we have the ability to assume control of the property. With respect to properties in Brazil, this right only exists for the residential property.

(4) In conjunction with the debt repayment guarantees, we are subject to completion guarantees 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 partial recovery in the form of cash. At June 30, 2019, the maximum potential future payments for the property in Massachusetts and the property in Oregon are $41 million and $24 million, respectively. After consideration of recoverability from third parties, our maximum exposure is $3 million and $2 million for the property in Massachusetts and the property in Oregon, respectively, at June 30, 2019.

(5) At December 31, 2018, other-long term liabilities included a debt repayment guarantee for a hotel property in Washington State. During the six months ended June 30, 2019, the debt was refinanced, and we are no longer a guarantor. As a result, we recognized a $15 million release of our debt repayment guarantee liability in other income (loss), net on our condensed consolidated statements of income for the six months ended June 30, 2019 (see Note 19).

At June 30, 2019, we are not aware of, nor have we received notification that hotel owners are not current on their debt service obligations where we have provided a debt repayment guarantee.

Guarantee Liabilities Fair Value—We estimated the fair value of our guarantees to be $114 million and $128 million at June 30, 2019 and December 31, 2018, respectively. Based upon the lack of available market data, we have classified our guarantees as Level Three in the fair value hierarchy.

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Insurance—We obtain commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property, cyber risk, 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. Reserves for losses in our captive insurance companies to be paid within 12 months are $40 million and $38 million at June 30, 2019 and December 31, 2018, respectively, and are classified within accrued expenses and other current liabilities on our condensed consolidated balance sheets, while reserves for losses in our captive insurance companies to be paid in future periods are $77 million and $78 million at June 30, 2019 and December 31, 2018, respectively, and are included in other long-term liabilities on our condensed consolidated balance sheets.

Collective Bargaining Agreements—At June 30, 2019, approximately 22% 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 $38 million at June 30, 2019 and primarily relate to workers' compensation, taxes, licenses, construction liens, and utilities related to our lodging operations.

Letters of Credit—Letters of credit outstanding on our behalf at June 30, 2019 were $288 million, which relate to our ongoing operations, hotel properties under development in the U.S., collateral for estimated insurance claims, and securitization of our performance under our debt repayment guarantees associated with the hotel properties in India and the residential property in Brazil, which are only called upon if we default on our guarantees. The letters of credit outstanding do not reduce the available capacity under our revolving credit facility (see Note 10).

Capital Expenditures—As part of our ongoing business operations, significant expenditures are required to complete renovation projects that have been approved.

Other—We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender's recourse to security interests in assets financed and/or other assets of the partnership(s) and/or the general partner(s) thereof.

In conjunction with financing obtained for our unconsolidated hospitality ventures, certain managed hotels, and other properties, 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 partners, respective hotel owners, or other third parties.

As a result of certain dispositions, we have agreed to provide customary indemnifications to third-party purchasers for certain liabilities incurred prior to sale and for breach of certain representations and warranties made during the sales process, such as representations of valid title, authority, and environmental issues that may not be limited by a contractual monetary amount. These indemnification agreements survive until the applicable statutes of limitation expire or until the agreed upon contract terms expire.

We are subject, from time to time, to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under our current insurance programs, subject to deductibles. 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 to have a material effect on our condensed consolidated financial statements.

During the year ended December 31, 2018, we received a notice from the Indian tax authorities assessing additional service tax on our operations in India. We appealed this decision and do not believe a loss is probable, and therefore, we have not recognized a liability in connection with this matter. At June 30, 2019, our maximum exposure is not expected to exceed $18 million.

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14. EQUITY

Accumulated Other Comprehensive Loss



	Balance at April 1, 2019			Current period other comprehensive income (loss) before reclassification			Amount reclassified from accumulated other comprehensive loss		Balance at June 30, 2019
Foreign currency translation adjustments	$	(197	)	$	6		$	—	$	(191	)
Unrecognized pension cost	(5		)	—			—		(5		)
Unrealized losses on derivative instruments	(8		)	(8		)	—		(16		)
Accumulated other comprehensive loss	$	(210	)	$	(2	)	$	—	$	(212	)

	Balance at January 1, 2019			Current period other comprehensive income (loss) before reclassification			Amount reclassified from accumulated other comprehensive loss		Balance at June 30, 2019
Foreign currency translation adjustments	$	(191	)	$	—		$	—	$	(191	)
Unrecognized pension cost	(5		)	—			—		(5		)
Unrealized losses on derivative instruments	(4		)	(12		)	—		(16		)
Accumulated other comprehensive loss	$	(200	)	$	(12	)	$	—	$	(212	)

	Balance at April 1, 2018			Current period other comprehensive income (loss) before reclassification			Amount reclassified from accumulated other comprehensive loss (a)		Balance at June 30, 2018
Foreign currency translation adjustments	$	(220	)	$	(61	)	$	15	$	(266	)
Unrecognized pension cost	(7		)	—			—		(7		)
Unrealized losses on derivative instruments	(3		)	—			—		(3		)
Accumulated other comprehensive loss	$	(230	)	$	(61	)	$	15	$	(276	)
(a) The amount reclassified from accumulated other comprehensive loss was included in the net loss recognized upon derecognition of a wholly owned subsidiary in gains on sales of real estate (see Note 6).

	Balance at January 1, 2018			Current period other comprehensive income (loss) before reclassification			Amount reclassified from accumulated other comprehensive loss (b)		Balance at June 30, 2018
Foreign currency translation adjustments	$	(243	)	$	(38	)	$	15	$	(266	)
Unrecognized pension cost	(7		)	—			—		(7		)
Unrealized losses on derivative instruments	(3		)	—			—		(3		)
Accumulated other comprehensive loss	$	(253	)	$	(38	)	$	15	$	(276	)
(b) The amount reclassified from accumulated other comprehensive loss was included in the net loss recognized upon derecognition of a wholly owned subsidiary in gains on sales of real estate (see Note 6).

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Share Repurchase—During 2018 and 2017, our board of directors authorized the repurchase of up to $750 million and $1,250 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 or an accelerated share repurchase transaction, 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 and 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.

During the six months ended June 30, 2019, we repurchased 2,052,536 shares of common stock. The shares of common stock were repurchased at a weighted-average price of $71.85 per share for an aggregate purchase price of $147 million, excluding related insignificant expenses. The shares repurchased during the six months ended June 30, 2019 represented approximately 2% of our total shares of common stock outstanding at December 31, 2018.

During the six months ended June 30, 2018, we entered into the following accelerated share repurchase ("ASR") program with a third-party financial institution to repurchase Class A shares:



	Total number of shares repurchased (1)	Weighted-average price per share		Total cash paid
May 2018 ASR	2,481,341	$	80.60	$	200
(1) The delivery of shares resulted in a reduction in weighted-average common shares outstanding for basic and diluted earnings per share.

During the six months ended June 30, 2018, we repurchased 7,715,794 shares of common stock, including settlement of the May 2018 ASR and 244,260 shares representing the settlement of an ASR program entered into during the fourth quarter of 2017 ("November 2017 ASR"). The shares of common stock were repurchased at a weighted-average price of $78.45 per share and an aggregate purchase price of $608 million, excluding related insignificant expenses. The aggregate purchase price includes $20 million of shares delivered in the settlement of the November 2017 ASR in 2018, for which payment was made during 2017. The shares repurchased during the six months ended June 30, 2018 represented approximately 6% of our total shares of common stock outstanding at December 31, 2017.

The shares of Class A common stock repurchased on the open market were retired and returned to the status of authorized and unissued shares. At June 30, 2019, we had $521 million remaining under the share repurchase authorization.

Dividend—The following tables summarize dividends paid to Class A and Class B shareholders of record:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Class A common stock	$	7	$	7	$	14	$	14
Class B common stock	13		10		26		21
Total cash dividends paid	$	20	$	17	$	40	$	35



Date declared	Dividend per share amount for Class A and Class B		Date of record	Date paid
February 13, 2019	$	0.19	February 27, 2019	March 11, 2019
May 17, 2019	$	0.19	May 29, 2019	June 10, 2019
February 14, 2018	$	0.15	March 22, 2018	March 29, 2018
May 16, 2018	$	0.15	June 19, 2018	June 28, 2018

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15. STOCK-BASED COMPENSATION

As part of our Long-Term Incentive Plan ("LTIP"), we award Stock Appreciation Rights ("SARs"), Restricted Stock Units ("RSUs"), and Performance Share Units ("PSUs") to certain employees. Compensation expense and unearned compensation presented below exclude amounts related to employees of our managed hotels and other employees whose payroll is reimbursed, as this expense has been and will continue to be reimbursed by our third-party hotel owners and is recognized within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties and costs incurred on behalf of managed and franchised properties on our condensed consolidated statements of income. Stock-based compensation expense included in selling, general, and administrative expense on our condensed consolidated statements of income related to these awards was as follows: