Hyatt Hotels Corp - Quarter Report: 2020 September (Form 10-Q)

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 September 30, 2020


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

For the transition period from to

Commission File No. 001-34521

HYATT HOTELS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

20-1480589

(State or Other Jurisdiction of
Incorporation or Organization)

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

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

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 October 30, 2020, there were 38,479,041 shares of the registrant's Class A common stock, $0.01 par value, outstanding and 62,696,948 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 SEPTEMBER 30, 2020

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	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	63

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68

Signatures		69

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In millions of dollars, except per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
REVENUES:
Owned and leased hotels	$	80	$	430	$	422	$	1,390
Management, franchise, and other fees	52		148		180		447
Amortization of management and franchise agreement assets constituting payments to customers	(7)		(5)		(20)		(16)
Net management, franchise, and other fees	45		143		160		431
Other revenues	7		25		45		98
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	267		617		1,015		1,826
Total revenues	399		1,215		1,642		3,745
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Owned and leased hotels	131		346		495		1,070
Depreciation and amortization	80		85		233		248
Other direct costs	9		28		50		103
Selling, general, and administrative	69		83		217		306
Costs incurred on behalf of managed and franchised properties	278		633		1,068		1,871
Direct and selling, general, and administrative expenses	567		1,175		2,063		3,598
Net gains and interest income from marketable securities held to fund rabbi trusts	22		—		23		41
Equity losses from unconsolidated hospitality ventures	(20)		(5)		(45)		(2)
Interest expense	(35)		(19)		(87)		(58)
Gains on sales of real estate	—		373		8		374
Asset impairments	—		(9)		(52)		(13)
Other income (loss), net	(19)		25		(114)		104
INCOME (LOSS) BEFORE INCOME TAXES	(220)		405		(688)		593
BENEFIT (PROVISION) FOR INCOME TAXES	59		(109)		188		(148)
NET INCOME (LOSS)	(161)		296		(500)		445
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—		—		—		—
NET INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	(161)	$	296	$	(500)	$	445
EARNINGS (LOSSES) PER SHARE—Basic
Net income (loss)	$	(1.59)	$	2.84	$	(4.93)	$	4.23
Net income (loss) attributable to Hyatt Hotels Corporation	$	(1.59)	$	2.84	$	(4.93)	$	4.23
EARNINGS (LOSSES) PER SHARE—Diluted
Net income (loss)	$	(1.59)	$	2.80	$	(4.93)	$	4.17
Net income (loss) attributable to Hyatt Hotels Corporation	$	(1.59)	$	2.80	$	(4.93)	$	4.17

See accompanying Notes to condensed consolidated financial statements.

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HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions of dollars)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Net income (loss)	$	(161)	$	296	$	(500)	$	445
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax expense (benefit) of $1 for the three and nine months ended September 30, 2020 and $(1) for the three and nine months ended September 30, 2019, respectively	15		(27)		(17)		(27)
Unrealized gains (losses) on derivative activity, net of tax benefit of $— and $(9) for the three and nine months ended September 30, 2020 and $(3) and $(7) for the three and nine months ended September 30, 2019, respectively	2		(9)		(24)		(21)
Other comprehensive income (loss)	17		(36)		(41)		(48)
COMPREHENSIVE INCOME (LOSS)	(144)		260		(541)		397
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—		—		—		—
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	(144)	$	260	$	(541)	$	397

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)


	September 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,778	$	893
Restricted cash	12		150
Short-term investments	310		68
Receivables, net of allowances of $46 and $32 at September 30, 2020 and December 31, 2019, respectively	322		421
Inventories	14		12
Prepaids and other assets	42		134
Prepaid income taxes	160		28


Total current assets	2,638		1,706
Equity method investments	260		232
Property and equipment, net	3,178		3,456
Financing receivables, net of allowances of $107 and $100 at September 30, 2020 and December 31, 2019, respectively	32		35
Operating lease right-of-use assets	485		493
Goodwill	288		326
Intangibles, net	412		437
Deferred tax assets	243		144
Other assets	1,689		1,588
TOTAL ASSETS	$	9,225	$	8,417
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	260	$	11
Accounts payable	101		150
Accrued expenses and other current liabilities	228		304
Current contract liabilities	246		445
Accrued compensation and benefits	103		144
Current operating lease liabilities	32		32
Total current liabilities	970		1,086
Long-term debt	2,981		1,612
Long-term contract liabilities	643		475
Long-term operating lease liabilities	390		393
Other long-term liabilities	888		884
Total liabilities	5,872		4,450
Commitments and contingencies (see Note 13)

EQUITY:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of September 30, 2020 and December 31, 2019	—		—
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 38,466,898 issued and outstanding at September 30, 2020, and Class B common stock, $0.01 par value per share, 394,691,360 shares authorized, 62,696,948 shares issued and outstanding at September 30, 2020. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 36,109,179 issued and outstanding at December 31, 2019, and Class B common stock, $0.01 par value per share, 397,457,686 shares authorized, 65,463,274 shares issued and outstanding at December 31, 2019	1		1
Additional paid-in capital	7		—
Retained earnings	3,592		4,170
Accumulated other comprehensive loss	(250)		(209)
Total stockholders' equity	3,350		3,962
Noncontrolling interests in consolidated subsidiaries	3		5
Total equity	3,353		3,967
TOTAL LIABILITIES AND EQUITY	$	9,225	$	8,417

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)


	Nine Months Ended
	September 30, 2020		September 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(500)	$	445
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gains on sales of real estate	(8)		(374)
Depreciation and amortization	233		248
Release of contingent consideration liability	—		(29)
Amortization of share awards	24		32
Amortization of operating lease right-of-use assets	23		28
Deferred income taxes	(59)		32
Asset impairments	52		13

Equity losses from unconsolidated hospitality ventures	45		2



Amortization of management and franchise agreement assets constituting payments to customers	20		16

Unrealized (gains) losses, net	36		(23)

Working capital changes and other	(329)		(116)
Net cash provided by (used in) operating activities	(463)		274
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and short-term investments	(622)		(196)
Proceeds from marketable securities and short-term investments	399		255
Contributions to equity method and other investments	(57)		(39)
Return of equity method and other investments	5		26
Acquisitions, net of cash acquired	—		(18)
Capital expenditures	(104)		(244)

Proceeds from sales of real estate, net of cash disposed	78		461
Proceeds from financing receivables	—		46


Other investing activities	(17)		7
Net cash provided by (used in) investing activities	(318)		298
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of issuance costs of $15 and $— for the nine months ended September 30, 2020 and September 30, 2019, respectively	2,035		180

Repayments of debt	(405)		(187)
Repurchases of common stock	(69)		(280)
Contingent consideration paid	—		(24)
Dividends paid	(20)		(60)
Other financing activities	(14)		(9)
Net cash provided by (used in) financing activities	1,527		(380)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	1		6


NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	747		198
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR	1,063		622

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD	$	1,810	$	820

See accompanying Notes to condensed consolidated financial statements.

Supplemental disclosure of cash flow information:



	September 30, 2020		September 30, 2019
Cash and cash equivalents	$	1,778	$	660
Restricted cash (1)	12		140
Restricted cash included in other assets (1)	20		20
Total cash, cash equivalents, and restricted cash	$	1,810	$	820

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



	Nine Months Ended
	September 30, 2020		September 30, 2019
Cash paid during the period for interest	$	73	$	78
Cash paid during the period for income taxes	$	54	$	52
Cash paid for amounts included in the measurement of operating lease liabilities	$	32	$	38

Non-cash investing and financing activities are as follows:
Non-cash contributions to equity method and other investments (see Note 7, Note 13)	$	33	$	8

Change in accrued capital expenditures	$	(7)	$	11
Non-cash right-of-use assets obtained in exchange for operating lease liabilities (see Note 7)	$	14	$	8

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 except share and per share amounts)

(Unaudited)


	Common Shares Outstanding		Common Stock Amount				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests in Consolidated Subsidiaries		Total
	Class A	Class B	Class A		Class B
BALANCE—January 1, 2019	39,507,817	67,115,828	$	1	$	—	$	50	$	3,819	$	(200)	$	7	$	3,677
Total comprehensive income	—	—	—		—		—		63		(10)		—		53
Noncontrolling interests	—	—	—		—		—		—		—		(1)		(1)
Repurchase of common stock	(1,452,858)	—	—		—		(71)		(31)		—		—		(102)
Employee stock plan issuance	19,245	—	—		—		1		—		—		—		1
Share-based payment activity	326,972	—	—		—		20		—		—		—		20
Cash dividends of $0.19 per share (see Note 14)	—	—	—		—		—		(20)		—		—		(20)
BALANCE—March 31, 2019	38,401,176	67,115,828	1		—		—		3,831		(210)		6		3,628
Total comprehensive income	—	—	—		—		—		86		(2)		—		84
Noncontrolling interests	—	—	—		—		—		—		—		(1)		(1)
Repurchase of common stock	(599,678)	—	—		—		(1)		(44)		—		—		(45)
Directors compensation	—	—	—		—		1		—		—		—		1
Employee stock plan issuance	20,523	—	—		—		1		—		—		—		1
Share-based payment activity	44,993	—	—		—		(1)		—		—		—		(1)
Cash dividends of $0.19 per share (see Note 14)	—	—	—		—		—		(20)		—		—		(20)
BALANCE—June 30, 2019	37,867,014	67,115,828	1		—		—		3,853		(212)		5		3,647
Total comprehensive income	—	—	—		—		—		296		(36)		—		260

Repurchase of common stock	(1,099,507)	(677,384)	—		—		(7)		(126)		—		—		(133)

Employee stock plan issuance	20,026	—	—		—		2		—		—		—		2
Share-based payment activity	23,841	—	—		—		5		—		—		—		5
Cash dividends of $0.19 per share (see Note 14)	—	—	—		—		—		(20)		—		—		(20)
BALANCE—September 30, 2019	36,811,374	66,438,444	$	1	—		$	—	$	4,003	$	(248)	$	5	$	3,761

BALANCE—December 31, 2019	36,109,179	65,463,274	$	1	$	—	$	—	$	4,170	$	(209)	$	5	$	3,967
Cumulative effect of accounting changes, net of tax (see Note 3)	—	—	—		—		—		(1)		—		—		(1)
BALANCE—January 1, 2020	36,109,179	65,463,274	$	1	$	—	$	—	$	4,169	$	(209)	$	5	$	3,966
Total comprehensive loss	—	—	—		—		—		(103)		(76)		—		(179)
Noncontrolling interests	—	—	—		—		—		—		—		(2)		(2)
Repurchase of common stock	(827,643)	—	—		—		(12)		(57)		—		—		(69)

Employee stock plan issuance	16,654	—	—		—		1		—		—		—		1
Share-based payment activity	271,863	—	—		—		11		—		—		—		11
Cash dividends of $0.20 per share (see Note 14)	—	—	—		—		—		(20)		—		—		(20)
BALANCE—March 31, 2020	35,570,053	65,463,274	1		—		—		3,989		(285)		3		3,708
Total comprehensive loss	—	—	—		—		—		(236)		18		—		(218)



Employee stock plan issuance	35,338	—	—		—		2		—		—		—		2
Share-based payment activity	74,047	—	—		—		1		—		—		—		1
Class share conversions	2,435,243	(2,435,243)	—		—		—		—		—		—		—

BALANCE—June 30, 2020	38,114,681	63,028,031	1		—		3		3,753		(267)		3		3,493
Total comprehensive loss	—	—	—		—		—		(161)		17		—		(144)


Share-based payment activity	9,506	—	—		—		4		—		—		—		4
Employee stock plan issuance	11,628	—	—		—		—		—		—		—		—
Class share conversions	331,083	(331,083)	—		—		—		—		—		—		—

BALANCE—September 30, 2020	38,466,898	62,696,948	$	1	$	—	$	7	$	3,592	$	(250)	$	3	$	3,353

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 September 30, 2020, (i) we operated or franchised 462 full service hotels, comprising 158,731 rooms throughout the world, (ii) we operated or franchised 493 select service hotels, comprising 70,562 rooms, of which 418 hotels are located in the United States, and (iii) we franchised 8 all-inclusive Hyatt-branded resorts, comprising 3,153 rooms. At September 30, 2020, our portfolio of properties operated in 67 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and operate under other tradenames or marks owned by such hotel or licensed by third parties.

As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries, (ii) the term "properties" refers to hotels, resorts, and other properties, including branded spas and fitness studios, and residential, vacation, and condominium ownership units that we develop, own, operate, manage, franchise, or to which we provide services or license our trademarks, (iii) "Hyatt portfolio of properties" or "portfolio of properties" refers to hotels, resorts, and other properties that we develop, own, operate, manage, franchise, license, or provide services to, including under the Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson Hotels, Hyatt Centric, Caption by Hyatt, Joie de Vivre, Hyatt House, Hyatt Place, tommie, Hyatt Residence Club, and Exhale brands, (iv) the term "worldwide hotel portfolio" includes our full service hotels, including our wellness resorts, and our select service hotels, (v) the term "worldwide property portfolio" includes our all-inclusive resorts, branded spas and fitness studios, and residential, vacation, and condominium ownership units in addition to our worldwide hotel portfolio, and (vi) the term "hospitality ventures" refers to entities in the hospitality industry in which we own less than a 100% equity interest.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Form 10-K").

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

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

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2. IMPACT OF THE COVID-19 PANDEMIC

Overview

The COVID-19 pandemic and related travel restrictions and containment efforts have had a significant impact on the travel industry and, as a result, on our business. The impact began in the first quarter of 2020 and has continued throughout 2020. As a result, our financial results for the current interim period, and for the foreseeable future, are not comparable to past performance or indicative of long-term future performance.

Financial Impact

We evaluate our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year and at interim dates, if indicators of impairment exist. Given the impact the COVID-19 pandemic is having on our industry, we concluded that indicators of impairment existed during the nine months ended September 30, 2020 for certain goodwill reporting units and indefinite-lived intangibles, and we updated our previous cash flow assumptions based on the current demand trends, historical experiences, and our future expectations for these reporting units and indefinite-lived intangibles. Our assumptions are subject to inherent risk and uncertainty due to the ongoing impact of the COVID-19 pandemic on the hospitality industry. Based on our discounted cash flow analyses, the carrying values of certain reporting units were in excess of the fair values, which were determined to be Level Three fair value measurements, and we recognized $38 million of goodwill impairment charges during the nine months ended September 30, 2020 (see Note 8). The impairment charges were recognized in asset impairments on our condensed consolidated statements of income (loss) within the owned and leased hotels segment. We concluded that there were no impairments of indefinite-lived intangible assets during the nine months ended September 30, 2020. We will continue to monitor the impact the COVID-19 pandemic is having on our business and the valuations of our goodwill and indefinite-lived intangible assets.

We evaluate property and equipment, operating lease right-of-use assets, definite-lived intangible assets, and equity method investments for impairment quarterly. For the nine months ended September 30, 2020, we assessed the recoverability of the net book value of property and equipment, operating lease right-of-use assets, and definite-lived intangible assets and determined that the carrying value of certain assets were not fully recoverable. We then estimated the fair value of these assets and determined that the carrying values were in excess of the fair values. Our analyses incorporated cash flow assumptions based on current economic trends, historical experience, and future growth projections, and the fair value measurements were determined to be Level Three fair value measurements. Based on our analyses and contract terminations, during the nine months ended September 30, 2020, we recognized $14 million of impairment charges related to property and equipment, operating lease right-of-use assets, and management agreement intangibles. The impairment charges were recognized in asset impairments on our condensed consolidated statements of income (loss), primarily within corporate and other. For our equity method investments, we considered the impact of the COVID-19 pandemic on the underlying operations of the investments to determine whether there were any indications that the declines in value were other than temporary and none were identified.

In assessing our financial assets for credit losses, we considered the impact of the COVID-19 pandemic. As a result of our analyses, during the three and nine months ended September 30, 2020, we recognized $6 million and $19 million, respectively, of accounts receivable reserves in selling, general, and administrative expenses on our condensed consolidated statements of income (loss). During the three and nine months ended September 30, 2020, we recognized $7 million and $12 million, respectively, of credit losses related to certain of our held-to-maturity ("HTM") debt securities and financing receivables, of which $1 million and $6 million was offset by interest income recognized in the same periods (see Notes 5 and 6). The credit losses and interest income were both recognized in other income (loss), net on our condensed consolidated statements of income (loss). During the three and nine months ended September 30, 2020, we recognized $1 million and $14 million, respectively, in credit losses related to a debt repayment guarantee, which has not been funded, in other income (loss), net on our condensed consolidated statements of income (loss) (see Note 13). We will continue to monitor our financial assets for potential credit risk as the impact of the COVID-19 pandemic evolves.

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3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Summary of Significant Accounting Policies

Our significant accounting policies are detailed in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 2 to our Consolidated Financial Statements" within the 2019 Form 10-K. Upon adoption of Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, our accounting policies have been updated as follows:

Debt and Equity Securities—Excluding equity method investments, debt and equity securities consist of various investments:

•Equity securities consist of interest-bearing money market funds, mutual funds, common shares, and preferred shares. Equity securities with a readily determinable fair value are recorded at fair value on our condensed consolidated balance sheets based on listed market prices or dealer quotations where available. Equity securities without a readily determinable fair value are recorded at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Net gains and losses, both realized and unrealized, and impairment charges on equity securities are recognized in other income (loss), net on our condensed consolidated statements of income (loss).

•Debt securities include preferred shares, time deposits, and fixed income securities, including U.S. government obligations, obligations of other government agencies, corporate debt, mortgage-backed and asset-backed securities, and municipal and provincial notes and bonds. Debt securities are classified as trading, available-for-sale ("AFS"), or held-to-maturity.

•Trading securities—recorded at fair value based on listed market prices or dealer price quotations, where available. Net gains and losses, both realized and unrealized, on trading securities are recognized in net gains and interest income from marketable securities held to fund rabbi trusts or other income (loss), net, depending on the nature of the investment, on our condensed consolidated statements of income (loss).

•AFS securities—recorded at fair value based on listed market prices or dealer price quotations, where available. Unrealized gains and losses on AFS debt securities are recognized in accumulated other comprehensive loss on our condensed consolidated balance sheets. Realized gains and losses on AFS debt securities are recognized in other income (loss), net on our condensed consolidated statements of income (loss). AFS securities are assessed quarterly for expected credit losses which are recognized in other income (loss), net on our condensed consolidated statements of income (loss). In determining the reserve for credit losses, we evaluate AFS securities at the individual security level and consider our investment strategy, current market conditions, financial strength of the underlying investments, term to maturity, credit rating, and our intent and ability to sell the securities.

•HTM securities—investments that we have the intent and ability to hold until maturity are recorded at amortized cost, net of expected credit losses. HTM securities are assessed for expected credit losses quarterly, and credit losses are recognized in other income (loss), net on our condensed consolidated statements of income (loss). We evaluate HTM securities individually when determining the reserve for credit losses due to the unique risks associated with each security. In determining the reserve for credit losses, we consider the financial strength of the underlying assets including the current and forecasted performance of the property, term to maturity, credit quality of the owner, and current market conditions.

We classify debt securities as current or long-term, based on their contractual maturity dates and our intent and ability to hold.

Our preferred shares earn a return that is recognized as interest income in other income (loss), net.

For additional information about debt and equity securities, see Note 5.

Financing Receivables—Financing receivables represent contractual rights to receive money either on demand or on fixed or determinable dates and are recorded on our condensed consolidated balance sheets at

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amortized cost, net of expected credit losses. We recognize interest as earned and include accrued interest in the amortized cost basis of the asset.

Our financing receivables are composed of individual, unsecured loans and other types of unsecured financing arrangements provided to hotel owners. These financing receivables generally have stated maturities and interest rates, but the repayment terms vary and may be dependent on future cash flows of the hotel. We individually assess all financing receivables for credit losses quarterly and establish a reserve to reflect the net amount expected to be collected. We estimate credit losses based on an analysis of several factors, including current economic conditions, industry trends, and specific risk characteristics of the financing receivable, including capital structure, loan performance, market factors, and the underlying hotel performance. Adjustments to credit losses on financing receivables are recognized in other income (loss), net on our condensed consolidated statements of income (loss).

We evaluate accrued interest allowances separately from the financing receivable assets. On an ongoing basis, we monitor the credit quality of our financing receivables based on historical and expected future payment activity. We determine our financing to hotel owners to be non-performing if interest or principal is greater than 90 days past due based on the contractual terms of the individual financing receivables or if an allowance has been established for our other financing arrangements with that borrower. If we consider a financing receivable to be non-performing, we place the financing receivable on non-accrual status.

For financing receivables on non-accrual status, we recognize interest income in other income (loss), net in our condensed consolidated statements of income (loss) when cash is received. Accrual of interest income is resumed and potential reversal of any associated allowance for credit loss occurs when the receivable becomes contractually current and collection doubts are removed.

After an allowance for credit losses has been established, we may determine the receivable balance is uncollectible when all commercially reasonable means of recovering the receivable balance have been exhausted. We write off uncollectible balances by reversing the financing receivable and the related allowance for credit losses. For additional information about financing receivables, see Note 6.

Accounts Receivables—Our accounts receivables primarily consist of trade receivables due from guests for services rendered at our owned and leased properties and from hotel owners with whom we have management and franchise agreements for services rendered and for reimbursements of costs incurred on behalf of managed and franchised properties. We assess all accounts receivables for credit losses quarterly and establish a reserve to reflect the net amount expected to be collected. The credit loss reserve is based on an assessment of historical collection activity, the nature of the receivable, geographic considerations, and the current business environment. The allowance for credit losses is recognized in owned and leased hotels expense or selling, general, and administrative expenses on our condensed consolidated statements of income (loss), based on the nature of the receivable.

Guarantees—We enter into performance guarantees related to certain hotels we manage. We also enter into debt repayment and other guarantees with respect to unconsolidated hospitality ventures, certain managed hotels, and other properties. We record a liability for the fair value of these guarantees at their inception date. In order to estimate the fair value, we use a Monte Carlo simulation to model the probability of possible outcomes. The valuation methodology requires that we make certain assumptions and judgments regarding discount rates, volatility, hotel operating results, and hotel property sales prices. The fair value is not re-valued due to future changes in assumptions. The corresponding offset depends on the circumstances in which the guarantee was issued and is recorded to equity method investments, other assets, or expenses. We amortize the liability for the fair value of a guarantee into income over the term of the guarantee using a systematic and rational, risk-based approach. Guarantees related to our managed hotels and other properties are amortized into income in other income (loss), net in our condensed consolidated statements of income (loss). Guarantees related to our unconsolidated hospitality ventures are amortized into equity earnings (losses) from unconsolidated hospitality ventures in our condensed consolidated statements of income (loss).

•Performance and other guarantees—On a quarterly basis, we evaluate the likelihood of funding under a guarantee. To the extent we determine an obligation to fund is both probable and estimable based on performance during the period, we record a separate contingent liability with the offset recognized in other income (loss), net.

•Debt repayment guarantees—At inception of the guarantee and on a quarterly basis, we evaluate the risk of funding under a guarantee. We assess credit risk based on the current and forecasted performance of the underlying property, whether the property owner is current on debt service, the historical performance of the

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underlying property, and the current market, and we record a separate liability with an offset recognized in other income (loss), net or equity earnings (losses) from unconsolidated hospitality ventures as necessary.

For additional information about guarantees, see Note 13.

Adopted Accounting Standards

Financial Instruments—Credit Losses—In June 2016, the Financial Accounting Standards Board ("FASB") released ASU 2016-13. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss model to a current expected credit loss model, which requires an entity to recognize allowances for credit losses equal to its current estimate of all contractual cash flows the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to AFS debt securities to be recognized through an allowance for credit losses. We adopted ASU 2016-13 on January 1, 2020 utilizing the modified retrospective approach. Upon adoption, we recorded an adjustment of $1 million, net of tax, to opening retained earnings related to our credit loss for accounts receivables, a $12 million increase to our HTM debt securities, and a corresponding $12 million credit loss allowance on our condensed consolidated balance sheets. The adoption of ASU 2016-03 did not materially affect our condensed consolidated statements of income (loss) or our condensed consolidated statements of cash flows, and the adoption adjustments do not reflect the impact of the COVID-19 pandemic, see Note 2.

Future Adoption of Accounting Standards

Reference Rate Reform—In March 2020, the FASB issued Accounting Standards Update No. 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions that we can elect to adopt, subject to meeting certain criteria, regarding contract modifications, hedging relationships, and other transactions that reference the London interbank offered rate for deposits of U.S. dollars ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The relief provided in ASU 2020-04 is applicable to all entities, but is only available through December 31, 2022. We are still assessing the impact of adopting ASU 2020-04.

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4. 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 September 30, 2020
	Owned and leased hotels		Americas management and franchising		ASPAC management and franchising		EAME/SW Asia management and franchising		Corporate and other		Eliminations		Total
Rooms revenues	$	43	$	—	$	—	$	—	$	—	$	(2)	$	41
Food and beverage	20		—		—		—		—		—		20
Other	19		—		—		—		—		—		19

Owned and leased hotels	82		—		—		—		—		(2)		80

Base management fees	—		12		7		2		—		(2)		19
Incentive management fees	—		—		5		2		—		(1)		6
Franchise fees	—		15		—		—		—		—		15
Other fees	—		1		4		1		1		—		7
License fees	—		1		1		—		3		—		5

Management, franchise, and other fees	—		29		17		5		4		(3)		52
Amortization of management and franchise agreement assets constituting payments to customers	—		(5)		—		(2)		—		—		(7)
Net management, franchise, and other fees	—		24		17		3		4		(3)		45

Other revenues	—		4		—		—		3		—		7

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		234		18		14		1		—		267

Total	$	82	$	262	$	35	$	17	$	8	$	(5)	$	399

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	Nine Months Ended September 30, 2020
	Owned and leased hotels		Americas management and franchising		ASPAC management and franchising		EAME/SW Asia management and franchising		Corporate and other		Eliminations		Total
Rooms revenues	$	236	$	—	$	—	$	—	$	—	$	(10)	$	226
Food and beverage	128		—		—		—		—		—		128
Other	68		—		—		—		—		—		68

Owned and leased hotels	432		—		—		—		—		(10)		422

Base management fees	—		60		16		10		—		(12)		74
Incentive management fees	—		1		8		4		—		(1)		12
Franchise fees	—		47		1		—		—		—		48
Other fees	—		3		8		3		2		—		16
License fees	—		10		9		—		11		—		30

Management, franchise, and other fees	—		121		42		17		13		(13)		180
Amortization of management and franchise agreement assets constituting payments to customers	—		(13)		(2)		(5)		—		—		(20)
Net management, franchise, and other fees	—		108		40		12		13		(13)		160

Other revenues	—		33		—		—		12		—		45

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		904		62		46		3		—		1,015

Total	$	432	$	1,045	$	102	$	58	$	28	$	(23)	$	1,642

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	Three Months Ended September 30, 2019
	Owned and leased hotels (a)		Americas management and franchising (a)		ASPAC management and franchising		EAME/SW Asia management and franchising		Corporate and other (a)		Eliminations (a)		Total
Rooms revenues	$	263	$	—	$	—	$	—	$	—	$	(11)	$	252
Food and beverage	134		—		—		—		—		—		134
Other	44		—		—		—		—		—		44
Owned and leased hotels	441		—		—		—		—		(11)		430

Base management fees	—		56		11		10		—		(13)		64
Incentive management fees	—		13		17		9		—		(6)		33
Franchise fees	—		36		1		—		—		—		37
Other fees	—		2		3		2		1		—		8
License fees	—		1		—		—		5		—		6

Management, franchise, and other fees	—		108		32		21		6		(19)		148
Amortization of management and franchise agreement assets constituting payments to customers	—		(4)		—		(1)		—		—		(5)
Net management, franchise, and other fees	—		104		32		20		6		(19)		143

Other revenues	—		16		—		—		9		—		25

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		565		30		20		2		—		617

Total	$	441	$	685	$	62	$	40	$	17	$	(30)	$	1,215
(a) Amounts presented have been adjusted for changes within the segments effective on January 1, 2020 (see Note 17).

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	Nine Months Ended September 30, 2019
	Owned and leased hotels (a)		Americas management and franchising (a)		ASPAC management and franchising		EAME/SW Asia management and franchising		Corporate and other (a)		Eliminations (a)		Total
Rooms revenues	$	821	$	—	$	—	$	—	$	—	$	(27)	$	794
Food and beverage	461		—		—		—		—		—		461
Other	135		—		—		—		—		—		135

Owned and leased hotels	1,417		—		—		—		—		(27)		1,390

Base management fees	—		175		33		27		—		(40)		195
Incentive management fees	—		46		51		26		—		(17)		106
Franchise fees	—		104		3		—		—		—		107
Other fees	—		3		9		5		4		—		21
License fees	—		3		—		—		15		—		18

Management, franchise, and other fees	—		331		96		58		19		(57)		447
Amortization of management and franchise agreement assets constituting payments to customers	—		(11)		(1)		(4)		—		—		(16)
Net management, franchise, and other fees	—		320		95		54		19		(57)		431

Other revenues	—		71		—		—		26		1		98

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	—		1,688		80		54		4		—		1,826

Total	$	1,417	$	2,079	$	175	$	108	$	49	$	(83)	$	3,745
(a) Amounts presented have been adjusted for changes within the segments effective on January 1, 2020 (see Note 17).

Contract Balances

Our contract assets, included in receivables, net on our condensed consolidated balance sheets, were insignificant both at September 30, 2020 and December 31, 2019. As our profitability hurdles are generally calculated on a full-year basis, we expect our contract assets to be insignificant through year end.

Contract liabilities are comprised of the following:


	September 30, 2020		December 31, 2019
Deferred revenue related to the loyalty program	$	723	$	671
Advanced deposits	38		77
Initial fees received from franchise owners	41		41
Deferred revenue related to system-wide services	7		5
Other deferred revenue	80		126
Total contract liabilities	$	889	$	920

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The following table summarizes the activity in our contract liabilities:


	2020		2019
Beginning balance, January 1	$	920	$	830
Cash received and other	311		490
Revenue recognized	(336)		(459)
Ending balance, June 30	895		861
Cash received and other	114		265
Revenue recognized	(120)		(251)
Ending balance, September 30	$	889	$	875

Revenue recognized during the three months ended September 30, 2020 and September 30, 2019 included in the contract liabilities balance at the beginning of each year was $57 million and $80 million, respectively. Revenue recognized during the nine months ended September 30, 2020 and September 30, 2019 included in the contract liabilities balance at the beginning of the year was $215 million and $318 million, respectively. This revenue primarily relates to the loyalty program, which is recognized net of redemption reimbursements paid to third parties.

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 $125 million at September 30, 2020, of which we expect to recognize approximately 10% 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 have an original duration of 12 months; and

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

5. DEBT AND EQUITY SECURITIES

Equity Method Investments

Equity method investments were $260 million and $232 million at September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2019, we recognized $8 million of gains in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income (loss) resulting from sales activity related to certain equity method investments within our owned and leased hotels segment. During the three and nine months ended September 30, 2019, we received $2 million and $25 million of related sales proceeds, respectively.

During the three and nine months ended September 30, 2019, we recognized $6 million and $7 million of impairment charges, respectively, primarily related to one unconsolidated hospitality venture in equity losses from unconsolidated hospitality ventures on our condensed consolidated statements of income (loss) 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.

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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,
	2020		2019		2020		2019
Total revenues	$	27	$	130	$	211	$	371
Gross operating profit (loss)	(11)		51		34		139
Income (loss) from continuing operations	(57)		9		(143)		(2)
Net income (loss)	(57)		9		(143)		(2)

The information above is based on the most recently available financial statements, which are reported on a lag of up to three months for certain of our equity method investments.

Marketable Securities

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

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


	September 30, 2020		December 31, 2019
Loyalty program (Note 9)	$	556	$	483
Deferred compensation plans held in rabbi trusts (Note 9 and Note 11)	464		450
Captive insurance companies (Note 9)	158		180
Total marketable securities held to fund operating programs	1,178		1,113
Less: current portion of marketable securities held to fund operating programs included in cash and cash equivalents, short-term investments, and prepaids and other assets	(182)		(219)
Marketable securities held to fund operating programs included in other assets	$	996	$	894

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loyalty program (Note 19)	$	3	$	5	$	26	$	24

Net realized and unrealized gains (losses) 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 (loss):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Unrealized gains (losses)	$	16	$	(2)	$	11	$	35
Realized gains	6		2		12		6
Net gains and interest income from marketable securities held to fund rabbi trusts	$	22	$	—	$	23	$	41

Our captive insurance companies hold marketable securities which include AFS debt securities that are invested in U.S. government agencies, time deposits, and corporate debt securities and have contractual maturity dates ranging from 2020 through 2025.

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Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes are recorded at cost or fair value, depending on the nature of the investment, and are included on our condensed consolidated balance sheets as follows:


	September 30, 2020		December 31, 2019
Interest-bearing money market funds (a)	$	763	$	147
Time deposits (a)	288		37
Common shares of Playa N.V. (Note 9)	51		102

Total marketable securities held for investment purposes	1,102		286
Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments	(1,051)		(184)
Marketable securities held for investment purposes included in other assets	$	51	$	102
(a) A portion of proceeds from our senior notes issuances during the nine months ended September 30, 2020 were reinvested in interest-bearing money market funds and time deposits at September 30, 2020 (see Note 10).

We hold common shares of Playa Hotels & Resorts N.V. ("Playa N.V.") which are accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. The fair value of the common shares is classified as Level One in the fair value hierarchy as we are able to obtain market available pricing information. The remeasurement of our investment at fair value resulted in $7 million and $1 million of unrealized gains for the three months ended September 30, 2020 and September 30, 2019, respectively, and $51 million of unrealized losses and $8 million of unrealized gains for the nine months ended September 30, 2020 and September 30, 2019, respectively, recognized in other income (loss), net on our condensed consolidated statements of income (loss) (see Note 19). We did not sell any shares of common stock during the nine months ended September 30, 2020 or September 30, 2019.

Other Investments

HTM Debt Securities—At September 30, 2020 and December 31, 2019, we held $80 million and $58 million, respectively, of investments in HTM debt securities, net of allowances, which are investments in third-party entities that own or are developing certain of our hotels and are recorded within other assets on our condensed consolidated balance sheets. The securities are mandatorily redeemable between 2021 and 2027. At September 30, 2020, our investments were net of allowances of $20 million. The carrying value of our investments approximates fair value. We estimated the fair value of our investments using internally developed discounted cash flow models based on current market inputs for similar types of arrangements. Based on the lack of available market data, our investments are classified as Level Three within the fair value hierarchy. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.

Equity Securities Without a Readily Determinable Fair Value—At September 30, 2020 and December 31, 2019, we held $12 million and $7 million of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity.

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


	September 30, 2020		Cash and cash equivalents		Short-term investments		Prepaids and other assets		Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest-bearing money market funds	$	920	$	920	$	—	$	—	$	—
Mutual funds	530		—		—		—		530
Common shares	51		—		—		—		51
Level Two - Significant Other Observable Inputs
Commercial paper	1		1		—		—		—
Time deposits	294		2		287		—		5
U.S. government obligations	204		—		6		—		198
U.S. government agencies	52		—		2		—		50
Corporate debt securities	168		—		15		—		153
Mortgage-backed securities	23		—		—		—		23
Asset-backed securities	32		—		—		—		32
Municipal and provincial notes and bonds	5		—		—		—		5
Total	$	2,280	$	923	$	310	$	—	$	1,047


	December 31, 2019		Cash and cash equivalents		Short-term investments		Prepaids and other assets		Other assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest-bearing money market funds	$	269	$	269	$	—	$	—	$	—
Mutual funds	502		—		—		—		502
Common shares	102		—		—		—		102
Level Two - Significant Other Observable Inputs
Time deposits	47		—		41		—		6
U.S. government obligations	202		—		4		31		167
U.S. government agencies	50		—		3		6		41
Corporate debt securities	161		—		20		18		123
Mortgage-backed securities	23		—		—		4		19
Asset-backed securities	39		—		—		6		33
Municipal and provincial notes and bonds	4		—		—		1		3
Total	$	1,399	$	269	$	68	$	66	$	996

During the three and nine months ended September 30, 2020 and September 30, 2019, there were no transfers between levels of the fair value hierarchy. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.

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6. FINANCING RECEIVABLES


	September 30, 2020		December 31, 2019
Unsecured financing to hotel owners	$	143	$	135
Less: current portion of financing receivables, included in receivables, net	(1)		—
Less: allowance for losses	(110)		(100)
Total long-term financing receivables, net of allowances	$	32	$	35

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


	2020		2019
Allowance at January 1	$	100	$	101




Provisions	5		3
Write-offs	—		(4)

Allowance at June 30	105		100
Provisions	5		1
Foreign currency exchange, net	—		(1)

Allowance at September 30	$	110	$	100

Credit Monitoring—Our unsecured financing receivables were as follows:


	September 30, 2020
	Gross loan balance (principal and interest)		Related allowance		Net financing receivables		Gross receivables on non-accrual status
Loans	$	32	$	(1)	$	31	$	—
Impaired loans (1)	46		(46)		—		46
Total loans	78		(47)		31		46
Other financing arrangements	65		(63)		2		61
Total unsecured financing receivables	$	143	$	(110)	$	33	$	107

(1) The unpaid principal balance was $36 million and the average recorded loan balance was $45 million at September 30, 2020.


	December 31, 2019
	Gross loan balance (principal and interest)		Related allowance		Net financing receivables		Gross receivables on non-accrual status
Loans	$	33	$	(1)	$	32	$	—
Impaired loans (2)	43		(43)		—		43
Total loans	76		(44)		32		43
Other financing arrangements	59		(56)		3		56
Total unsecured financing receivables	$	135	$	(100)	$	35	$	99

(2) The unpaid principal balance was $33 million and the average recorded loan balance was $46 million at December 31, 2019.

Fair Value—The carrying value of our financing receivables approximates fair value. The fair values, which are classified as Level Three in the fair value hierarchy, are estimated using discounted cash flow models. The principal inputs used are projected future cash flows and the discount rate, which is generally the effective interest rate of the loan.

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7. ACQUISITIONS AND DISPOSITIONS

Acquisitions

Land—During the nine months ended September 30, 2019, we acquired $15 million of land through an asset acquisition from an unrelated third party to develop a hotel in Austin, Texas and subsequently sold the land and related construction in progress through an asset disposition during the year ended December 31, 2019.

Dispositions

Property Under Development—During the nine months ended September 30, 2020, an unrelated third-party invested in certain of our subsidiaries that are developing a hotel, parking, and retail space in Philadelphia, Pennsylvania in exchange for a 60% ownership interest, resulting in the derecognition of the non-financial assets of the subsidiaries. As a result of the transaction, we received $72 million of proceeds, recorded our 40% ownership interest as an equity method investment, and recognized a $4 million pre-tax gain in gains on sales of real estate on our condensed consolidated statements of income (loss) during the nine months ended September 30, 2020. Our $22 million equity method investment was recorded at fair value based on the value contributed by our partner to the unconsolidated hospitality venture. As additional consideration, we received a $5 million investment in an equity security without a readily determinable fair value.

Building—During the nine months ended September 30, 2020, we sold a commercial building in Omaha, Nebraska for $6 million, net of closing costs and proration adjustments. In conjunction with the sale, we entered into a lease for a portion of the building and accounted for the transaction as a sale and leaseback, for which a $4 million operating lease right-of-use asset and related lease liability were recorded on our condensed consolidated balance sheet. The sale resulted in a $4 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income (loss) during the nine months ended September 30, 2020. The operating lease has a weighted-average remaining term of 9 years and a weighted-average discount rate of 3.25%. The lease includes an option to extend the lease term by 5 years.

Hyatt Regency Atlanta—During the three months ended September 30, 2019, we sold Hyatt Regency Atlanta to an unrelated third party for approximately $346 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. We entered into a long-term management agreement for the property upon sale. The sale resulted in a $272 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income (loss) during the three and nine months ended September 30, 2019. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.

Land and Lease Assignment—During the three months ended September 30, 2019, we sold the property adjacent to Grand Hyatt San Francisco and assigned the related Apple store lease to an unrelated third party for approximately $115 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. The sale resulted in a $101 million pre-tax gain which was recognized in gains on sales of real estate on our condensed consolidated statements of income (loss) during the three and nine months ended September 30, 2019. The operating results and financial position of this property prior to the sale remain within our owned and leased hotels segment.

Like-Kind Exchange Agreements

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

In conjunction with the sale of the property adjacent to Grand Hyatt San Francisco during the three months ended September 30, 2019, $115 million of proceeds were held as restricted for use in a potential like-kind exchange. However, we did not acquire the identified replacement property within the specified 180 day period, and the proceeds were released during the nine months ended September 30, 2020.

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8. GOODWILL AND INTANGIBLES, NET


	September 30, 2020		December 31, 2019
Goodwill	$	288	$	326

During the nine months ended September 30, 2020, we recognized $38 million of goodwill impairment charges related to two reporting units (see Note 2). During the nine months ended September 30, 2019, we did not recognize any goodwill impairment charges.


	September 30, 2020		Weighted- average useful lives in years	December 31, 2019
Management and franchise agreement intangibles	$	362	18	$	367

Brand and other indefinite-lived intangibles	144		—	144
Advanced booking intangibles	6		3	14
Other definite-lived intangibles	8		6	8
Intangibles	520			533
Less: accumulated amortization	(108)			(96)
Intangibles, net	$	412		$	437


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization expense	$	7	$	8	$	21	$	18

During the nine months ended September 30, 2020, we recognized $4 million of impairment charges related to management agreement intangibles for contracts that terminated. During the three and nine months ended September 30, 2019, we recognized $9 million and $13 million of impairment charges related to management agreement intangibles, respectively, for contracts that terminated. The impairment charges were recognized in asset impairments on our condensed consolidated statements of income (loss), primarily within our Americas management and franchising segment.

9. OTHER ASSETS


	September 30, 2020		December 31, 2019
Marketable securities held to fund rabbi trusts (Note 5)	$	464	$	450
Management and franchise agreement assets constituting payments to customers (1)	448		423
Marketable securities held to fund the loyalty program (Note 5)	434		347
Marketable securities held for captive insurance companies (Note 5)	98		97
Long-term investments (Note 5)	92		65
Common shares of Playa N.V. (Note 5)	51		102
Other	102		104
Total other assets	$	1,689	$	1,588
(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 $2,981 million and $1,612 million at September 30, 2020 and December 31, 2019, respectively.

Senior Notes—During the three months ended September 30, 2020, we issued $750 million of three-month LIBOR plus 3.000% senior notes due 2022 (the "2022 Notes") at par. We received approximately $745 million of net proceeds from the sale, after deducting $5 million of underwriting discounts and other offering expenses, which we intend to use for general corporate purposes. Interest on the 2022 Notes is payable quarterly on March 1, June 1, September 1, and December 1 of each year, beginning on December 1, 2020.

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During the nine months ended September 30, 2020, we issued $450 million of 5.375% senior notes due 2025 (the "2025 Notes") and $450 million of 5.750% senior notes due 2030 (the "2030 Notes") at par. We received approximately $890 million of net proceeds from the sale, after deducting $10 million of underwriting discounts and other offering expenses. We used a portion of the proceeds from the issuance of the 2025 Notes and the 2030 Notes to repay all outstanding borrowings on our revolving credit facility and settle the outstanding interest rate locks, and we intend to use the remainder for general corporate purposes. Interest on the 2025 Notes and 2030 Notes is payable semi-annually on April 23 and October 23 of each year, beginning on October 23, 2020.

Revolving Credit Facility—During the nine months ended September 30, 2020, we entered into a Second Amendment to the Second Amended and Restated Credit Agreement (the "Revolver Amendment"). Terms of the Revolver Amendment include, but are not limited to, waivers on certain covenants and modifications to negative covenants and other terms, including the interest rate. The terms of the Revolver Amendment also restrict our ability to repurchase shares and pay dividends through the first quarter of 2021.

During the nine months ended September 30, 2020, we had $400 million of borrowings and repayments on our revolving credit facility. The weighted-average interest rate on these borrowings was 1.71% at September 30, 2020. At September 30, 2020 and December 31, 2019, we had no balance outstanding. At September 30, 2020, we had $1,499 million of borrowing capacity available under our revolving credit facility, net of letters of credit outstanding.

Fair Value—We estimated the fair value of debt, excluding finance leases, which consists of $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), the 2022 Notes, $350 million of 3.375% senior notes due 2023 (the "2023 Notes"), the 2025 Notes, $400 million of 4.850% senior notes due 2026 (the "2026 Notes"), $400 million of 4.375% senior notes due 2028 (the "2028 Notes"), and the 2030 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 on the lack of available market data, we have classified our revolving credit facility and other debt instruments as Level Three. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.


	September 30, 2020
	Carrying value		Fair value		Quoted prices in active markets for identical assets (Level One)		Significant other observable inputs (Level Two)		Significant unobservable inputs (Level Three)
Debt (1)	$	3,259	$	3,435	$	—	$	3,395	$	40

(1) Excludes $9 million of finance lease obligations and $27 million of unamortized discounts and deferred financing fees.


	December 31, 2019
	Carrying value		Fair value		Quoted prices in active markets for identical assets (Level One)		Significant other observable inputs (Level Two)		Significant unobservable inputs (Level Three)
Debt (2)	$	1,627	$	1,740	$	—	$	1,680	$	60

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

Interest Rate Locks—At December 31, 2019, we had outstanding interest rate locks with $275 million in notional value and mandatory settlement dates of 2021. The interest rate locks hedged a portion of the risk of changes in the benchmark interest rate associated with long-term debt we anticipated issuing in the future. These derivative instruments were designated as cash flow hedges and deemed highly effective both at inception and upon settlement, as discussed below.

At December 31, 2019, we had $24 million related to these instruments recorded in other long-term liabilities on our condensed consolidated balance sheets. We estimated the fair values of interest rate locks, which were classified as Level Two in the fair value hierarchy, using discounted cash flow models. The primary sensitivities in these models were the forward and discount curves.

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During the nine months ended September 30, 2020, we settled the aforementioned interest rate locks for $61 million upon issuance of the 2030 Notes. The $61 million, which was recorded to accumulated other comprehensive loss, is amortized over the term of the 2030 Notes to interest expense on our condensed consolidated statements of income (loss). As a result, we recognized $2 million and $3 million of interest expense during the three and nine months ended September 30, 2020 (see Note 14). The $61 million settlement is reflected as a cash outflow from operating activities on the condensed consolidated statement of cash flows for the nine months ended September 30, 2020, as our policy is to classify cash flows from derivative instruments in the same category as the item being hedged.

During the three and nine months ended September 30, 2020, we recognized $0 and $37 million of pre-tax losses, respectively, in unrealized gains (losses) on derivative activity on our condensed consolidated statements of comprehensive income (loss).

During the three and nine months ended September 30, 2019, we recognized $13 million and $30 million of pre-tax losses, respectively, in unrealized gains (losses) on derivative activity on our condensed consolidated statements of comprehensive income (loss).

11. OTHER LONG-TERM LIABILITIES


	September 30, 2020		December 31, 2019
Deferred compensation plans funded by rabbi trusts (Note 5)	$	464	$	450
Income taxes payable	169		147
Self-insurance liabilities (Note 13)	74		80
Deferred income taxes (Note 12)	49		47
Guarantee liabilities (Note 13)	32		46
Other	100		114
Total other long-term liabilities	$	888	$	884

12. TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. The provisions include, but are not limited to, allowing net operating loss carrybacks, modifying the net interest deduction limitations, providing technical corrections to tax depreciation methods for qualified improvement property, allowing refundable payroll tax credits, and deferring employer social security deposits. Specifically, net operating losses incurred in 2020 may be carried back to each of the preceding five years to offset prior year taxable income generating a refund in future periods when the tax returns are filed and the cash is received.

During the three months ended September 30, 2020, we recognized a $7 million benefit related to the employee retention credit created under the CARES Act, of which $3 million was recognized as a reduction of owned and leased hotels expense and $4 million was recognized as a reduction of costs incurred on behalf of managed and franchised properties on our condensed consolidated statements of income (loss). During the nine months ended September 30, 2020, we recognized a $25 million benefit related to the employee retention credit created under the CARES Act, of which $7 million was recognized as a reduction of owned and leased hotels expense and $18 million was recognized as a reduction of costs incurred on behalf of managed and franchise properties on our condensed consolidated statements of income (loss). In both periods, the reduction of costs incurred on behalf of managed properties was offset by a reduction in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties with no impact to net income (loss) on our condensed consolidated statements of income (loss).

The effective income tax rates for the three months ended September 30, 2020 and September 30, 2019 were 26.8% and 26.9%, respectively. The effective income tax rates for the nine months ended September 30, 2020 and September 30, 2019 were 27.3% and 25.0%, respectively. Our effective tax rate increased for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to U.S. net operating losses that will be benefited at the 35% tax rate in accordance with the terms of the CARES Act, partially offset by a $23 million valuation allowance recorded on foreign tax credits not expected to be realized within the carryforward period. In addition, in 2019, we recognized a non-recurring benefit as a result of an agreement reached by the United States and Swiss tax authorities on Advanced Pricing Agreement terms covering the years 2012 through 2021.

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We are subject to audits by federal, state, and foreign tax authorities. We are currently under field exam by the Internal Revenue Service ("IRS") for tax years 2015 through 2017. U.S. tax years 2009 through 2011 are before the U.S. Tax Court concerning the tax treatment of the loyalty program. Additionally, U.S. tax years 2012 through 2014 are pending the outcome of the issue currently in U.S. Tax Court. If the IRS' position to include loyalty program contributions as taxable income to the Company is upheld, it would result in an income tax payment of $198 million (including $54 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, $74 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.

Commitments—At September 30, 2020, we are committed, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures up to $282 million, net of any related letters of credit.

Performance Guarantees—Certain of our contractual agreements with third-party hotel owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At September 30, 2020, the remaining maximum exposure under our performance guarantees was $52 million. Our most significant performance guarantee, relating to four managed hotels in France, expired on April 30, 2020.

We had $33 million of total net performance guarantee liabilities both at September 30, 2020 and December 31, 2019, respectively, which included $7 million and $14 million recorded in other long-term liabilities and $26 million and $19 million recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively.


	Four managed hotels in France (1)				Other performance guarantees				All performance guarantees
	2020		2019		2020		2019		2020		2019
Beginning balance, January 1	$	20	$	36	$	13	$	11	$	33	$	47
Initial guarantee obligation liability	—		—		—		1		—		1
Amortization of initial guarantee obligation liability into income	(4)		(8)		(2)		(1)		(6)		(9)
Performance guarantee expense, net	26		24		13		—		39		24
Net payments during the period	(15)		(36)		(11)		(4)		(26)		(40)
Foreign currency exchange, net	(1)		—		—		—		(1)		—
Ending balance, June 30	26		16		13		7		39		23

Amortization of initial guarantee obligation liability into income	—		(4)		(1)		(1)		(1)		(5)
Performance guarantee expense (recovery), net	—		(1)		8		2		8		1
Net payments during the period	(7)		(3)		(7)		(2)		(14)		(5)
Foreign currency exchange, net	1		(1)		—		—		1		(1)
Ending balance, September 30	$	20	$	7	$	13	$	6	$	33	$	13

(1) Based on payment terms, we expect to settle the liability by December 31, 2020.

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, 2020 and December 31, 2019, there were no amounts recorded 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.

We had $39 million and $32 million of total debt repayment and other guarantees liabilities at September 30, 2020 and December 31, 2019, respectively, which included $25 million and $32 million recorded in other long-term liabilities and $14 million and $0 recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively.


Property description	Maximum potential future payments		Maximum exposure net of recoverability from third parties		Total liabilities recorded at September 30, 2020		Total liabilities recorded at December 31, 2019		Year of guarantee expiration
Hotel properties in India (1)	$	168	$	168	$	1	$	5	2021
Hotel and residential properties in Brazil (2), (3)	90		38		17		3		various, through 2023
Hotel properties in Tennessee (2)	44		20		6		8		various, through 2023
Hotel properties in California (2)	38		15		2		3		various, through 2021
Hotel property in Massachusetts (2), (4)	30		16		4		6		various, through 2022
Hotel property in Pennsylvania (2), (4)	27		11		1		—		various, through 2023
Hotel properties in Georgia (2)	27		13		4		2		various, through 2024
Hotel property in Oregon (2), (4)	21		8		2		3		various, through 2022
Other (2), (3)	19		5		2		2		various, through 2022
Total	$	464	$	294	$	39	$	32

(1) Debt repayment guarantee is denominated in Indian rupees and translated using exchange rates at September 30, 2020. 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 $84 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 September 30, 2020, the maximum potential future payments are $4 million, and the maximum exposure net of recoverability from third parties is $2 million.

As a result of existing economic conditions, in part due to the COVID-19 pandemic, and the developer's inability to complete construction and meet its debt service, we recognized $1 million and $14 million of credit losses related to a debt repayment guarantee for the residential property in Brazil in other income (loss), net on our condensed consolidated statements of income (loss) during the three and nine months ended September 30, 2020, respectively (see Note 19).

At September 30, 2020, we are not aware of, nor have we received notification that our unconsolidated hospitality ventures or hotel owners are not current on their debt service obligations where we have provided a debt repayment guarantee.

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Guarantee Liabilities Fair Value—We estimated the fair value of our guarantees to be $79 million and $62 million at September 30, 2020 and December 31, 2019, respectively. Based on the lack of 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, 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 $38 million and $41 million at September 30, 2020 and December 31, 2019, respectively, and are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Reserves for losses in our captive insurance companies to be paid in future periods are $74 million and $80 million at September 30, 2020 and December 31, 2019, respectively, and are recorded in other long-term liabilities on our condensed consolidated balance sheets.

Collective Bargaining Agreements—At September 30, 2020, approximately 27% 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 $50 million at September 30, 2020 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 September 30, 2020 were $264 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. Of the letters of credit outstanding, $1 million reduces the available capacity under our revolving credit facility (see Note 10).

Capital Expenditures—As part of our ongoing business operations, 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 recorded a liability in connection with this matter. At September 30, 2020, our maximum exposure is not expected to exceed $18 million.

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14. EQUITY

Accumulated Other Comprehensive Loss


	Balance at July 1, 2020		Current period other comprehensive income (loss) before reclassification		Amount reclassified from accumulated other comprehensive loss (a)		Balance at September 30, 2020
Foreign currency translation adjustments	$	(215)	$	15	$	—	$	(200)
Unrecognized gains on AFS debt securities	1		—		—		1
Unrecognized pension cost	(9)		—		—		(9)
Unrealized losses on derivative instruments	(44)		—		2		(42)
Accumulated other comprehensive loss	$	(267)	$	15	$	2	$	(250)
(a) The amount reclassified from accumulated other comprehensive loss includes realized losses recognized in interest expense, net of insignificant tax impacts, related to the settlement of interest rate locks (see Note 10).

	Balance at January 1, 2020		Current period other comprehensive income (loss) before reclassification		Amount reclassified from accumulated other comprehensive loss (b)		Balance at September 30, 2020
Foreign currency translation adjustments	$	(183)	$	(17)	$	—	$	(200)
Unrecognized gains on AFS debt securities	1		—		—		1
Unrecognized pension cost	(9)		—		—		(9)
Unrealized losses on derivative instruments	(18)		(27)		3		(42)
Accumulated other comprehensive loss	$	(209)	$	(44)	$	3	$	(250)
(b) The amount reclassified from accumulated other comprehensive loss includes realized losses recognized in interest expense, net of insignificant tax impacts, related to the settlement of interest rate locks (see Note 10). We expect to reclassify $6 million of losses over the next 12 months.

	Balance at July 1, 2019		Current period other comprehensive income (loss) before reclassification		Amount reclassified from accumulated other comprehensive loss		Balance at September 30, 2019
Foreign currency translation adjustments	$	(191)	$	(27)	$	—	$	(218)

Unrecognized pension cost	(5)		—		—		(5)
Unrealized losses on derivative instruments	(16)		(9)		—		(25)
Accumulated other comprehensive loss	$	(212)	$	(36)	$	—	$	(248)


	Balance at January 1, 2019		Current period other comprehensive income (loss) before reclassification		Amount reclassified from accumulated other comprehensive loss		Balance at September 30, 2019
Foreign currency translation adjustments	$	(191)	$	(27)	$	—	$	(218)
Unrecognized pension cost	(5)		—		—		(5)
Unrealized losses on derivative instruments	(4)		(21)		—		(25)
Accumulated other comprehensive loss	$	(200)	$	(48)	$	—	$	(248)

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Share Repurchase—During 2019 and 2018, our board of directors authorized the repurchase of up to $750 million and $750 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 nine months ended September 30, 2020, we repurchased 827,643 shares of common stock. The shares of common stock were repurchased at a weighted-average price of $84.08 per share for an aggregate purchase price of $69 million, excluding related insignificant expenses. The shares repurchased during the nine months ended September 30, 2020 represented approximately 1% of our total shares of common stock outstanding at December 31, 2019.

During the nine months ended September 30, 2019, we repurchased 3,829,427 shares of common stock. The shares of common stock were repurchased at a weighted-average price of $73.08 per share for an aggregate purchase price of $280 million, excluding related insignificant expenses. The shares repurchased during the nine months ended September 30, 2019 represented approximately 4% of our total shares of common stock outstanding at December 31, 2018.

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 retired (see Note 16). At September 30, 2020, we had $928 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Class A common stock	$	—	$	8	$	7	$	22
Class B common stock	—		12		13		38
Total cash dividends paid	$	—	$	20	$	20	$	60

Date declared

Dividend per share amount
for Class A and Class B

Date of record

Date paid

February 13, 2020

0.20

February 26, 2020

March 9, 2020

February 13, 2019

0.19

February 27, 2019

March 11, 2019

May 17, 2019

0.19

May 29, 2019

June 10, 2019

July 31, 2019

0.19

August 27, 2019

September 9, 2019

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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 and non-employee directors. In addition, non-employee directors may elect to receive their annual fees and/or annual equity retainers in the form of shares of our Class A common stock. 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 (loss). Stock-based compensation expense included in selling, general, and administrative expenses on our condensed consolidated statements of income (loss) related to these awards was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
SARs	$	—	$	1	$	10	$	11
RSUs	3		2		17		13
PSUs	—		1		(7)		4
Total	$	3	$	4	$	20	$	28

The nine months ended September 30, 2020 includes a reversal of previously recognized stock-based compensation expense based on our current assessment of the expected achievement relative to the applicable performance targets related to certain PSU awards.

SARs—During the nine months ended September 30, 2020, we granted 1,250,434 SARs to employees with a weighted-average grant date fair value of $8.88. During the nine months ended September 30, 2019, we granted 643,989 SARs to employees with a weighted-average grant date fair value of $17.11.

RSUs—During the nine months ended September 30, 2020, we granted 628,407 RSUs to employees with a weighted-average grant date fair value of $49.33. During the nine months ended September 30, 2019, we granted 355,774 RSUs to employees with a weighted-average grant date fair value of $72.05.

PSUs—During the nine months ended September 30, 2020, we did not grant any PSUs under our LTIP. During the nine months ended September 30, 2019, we granted 120,720 PSUs to employees with a weighted-average grant date fair value of $77.95.

Our total unearned compensation for our stock-based compensation programs at September 30, 2020 was $2 million for SARs, $18 million for RSUs, and $0 for PSUs, which will primarily be recognized in stock-based compensation expense over a weighted-average period of three years.

16. RELATED-PARTY TRANSACTIONS

In addition to those included elsewhere in the Notes to our condensed consolidated financial statements, related-party transactions entered into by us are summarized as follows:

Legal Services—A partner in a law firm that provided services to us throughout the nine months ended September 30, 2020 and September 30, 2019 is the brother-in-law of our Executive Chairman. We incurred $2 million of legal fees with this firm during each of the three months ended September 30, 2020 and September 30, 2019. We incurred $7 million and $5 million of legal fees with this firm during the nine months ended September 30, 2020 and September 30, 2019, respectively. At September 30, 2020 and December 31, 2019, we had $1 million and insignificant amounts due to the law firm, respectively.

Equity Method Investments—We have equity method investments in entities that own properties for which we receive management or franchise fees. We recognized $1 million and $5 million of fees for the three months ended September 30, 2020 and September 30, 2019, respectively. We recognized $5 million and $15 million of fees for the nine months ended September 30, 2020 and September 30, 2019, respectively. In addition, in some cases we provide loans (see Note 6) or guarantees (see Note 13) to these entities. During each of the three months ended September 30, 2020 and September 30, 2019, we recognized $1 million of income related to these guarantees. During each of the nine months ended September 30, 2020 and September 30, 2019, we recognized $3 million of income related to these guarantees. At September 30, 2020 and December 31, 2019, we had $15 million and $17

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million of receivables due from these properties, respectively. Our ownership interest in these unconsolidated hospitality ventures varies from 24% to 50%. See Note 5 for further details regarding these investments.

Other Services—The brother of our Executive Chairman is affiliated with a limited partnership which has ownership interests in hotels from which we recognized $1 million and $2 million of management and franchise fees during the three months ended September 30, 2020 and September 20, 2019, respectively. We recognized $1 million and $4 million of management and franchise fees during the nine months ended September 30, 2020 and September 30, 2019, respectively. At September 30, 2020 and December 31, 2019, we had $1 million and insignificant receivables due from these properties, respectively.

Class B Share Conversion—During the three and nine months ended September 30, 2020, 331,083 and 2,766,326 shares of Class B common stock, respectively, were converted on a share-for-share basis into shares of our Class A common stock, $0.01 par value per share. The shares of Class B common stock that were converted into shares of Class A common stock have been retired, thereby reducing the shares of Class B common stock authorized and outstanding.

Class B Share Repurchase—During the three and nine months ended September 30, 2019, we repurchased 677,384 shares of Class B common stock for a weighted-average price of $74.21 per share, for an aggregate purchase price of approximately $50 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 or limited partnerships owned indirectly by trusts for the benefit of certain Pritzker family members or private charitable organizations affiliated with certain Pritzker family members and were retired, thereby reducing the shares of Class B common stock authorized and outstanding by the repurchased share amount.

17. 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 ("CODM") to assess performance and make decisions regarding the allocation of resources. Our CODM is our President and Chief Executive Officer. Effective January 1, 2020, we changed the strategic and operational oversight for our Miraval properties, which were previously evaluated as a distinct business by our CODM. The management fees from Miraval properties are now reported in the Americas management and franchising segment, and the operating results and financial position of underlying hotel results are now reported in our owned and leased hotels segment; the results of Miraval properties were previously reported in corporate and other. In addition, the license fees we receive from Hyatt Residence Club are now reported within our Americas management and franchising segment due to changes in the strategic oversight for these license agreements. The segment changes have been reflected retrospectively to the three and nine months ended September 30, 2019. We define our reportable segments as follows:

•Owned and leased hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations and for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture. Adjusted EBITDA includes intercompany expenses related to management fees paid to the Company's management and franchising segments, which are eliminated in consolidation. Intersegment revenues relate to promotional award redemptions earned by our owned and leased hotels related to our co-branded credit cards and 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 as well as revenues from residential management operations. This segment's revenues also include the reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to payroll at managed properties where the Company is the employer, as well as costs associated with sales, reservations, technology, and marketing services (collectively, "system-wide services") and the loyalty program operated on behalf of owners of managed and franchised properties. The intersegment revenues relate to management fees earned from the Company's owned and leased hotels and 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, Greater China, Australia, South Korea, Japan, and Micronesia. This segment's revenues also include the

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reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to system-wide services and the loyalty program operated on behalf of owners of managed and franchised properties. The intersegment revenues relate to management fees earned from the Company's owned hotel, which was sold during the year ended December 31, 2019, and are eliminated in consolidation.

•EAME/SW Asia management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Europe, Africa, the Middle East, India, Central Asia, and Nepal. This segment's revenues also include the reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to system-wide services and the loyalty program operated on behalf of owners of managed and franchised properties. The intersegment revenues relate to management fees earned from the Company's owned and leased hotels and are eliminated in consolidation.

Our CODM evaluates performance based on owned and leased hotels revenues, management, franchise, and other fees revenues, and Adjusted EBITDA. Adjusted EBITDA, as we define it, is a non-GAAP measure. We define Adjusted EBITDA as net income (loss) attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated owned and leased hospitality ventures Adjusted EBITDA based on our ownership percentage of each owned and leased venture, adjusted to exclude interest expense; benefit (provision) for income taxes; depreciation and amortization; amortization of management and franchise agreement assets constituting payments to customers ("Contra revenue"); revenues for the reimbursement of costs incurred on behalf of managed and franchised properties; costs incurred on behalf of managed and franchised properties; equity earnings (losses) from unconsolidated hospitality ventures; stock-based compensation expense; gains (losses) on sales of real estate; asset impairments; and other income (loss), net.

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The table below shows summarized consolidated financial information by segment. Included within corporate and other are the results of Exhale, results related to our co-branded credit cards, and unallocated corporate expenses.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Owned and leased hotels
Owned and leased hotels revenues	$	82	$	441	$	432	$	1,417

Intersegment revenues (a)	2		11		10		27
Adjusted EBITDA	(56)		73		(100)		291
Depreciation and amortization	63		66		182		196
Americas management and franchising
Management, franchise, and other fees revenues	29		108		121		331
Contra revenue	(5)		(4)		(13)		(11)
Other revenues	4		16		33		71
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	234		565		904		1,688
Intersegment revenues (a)	3		15		12		49
Adjusted EBITDA	16		93		81		288
Depreciation and amortization	5		6		15		18
ASPAC management and franchising
Management, franchise, and other fees revenues	17		32		42		96
Contra revenue	—		—		(2)		(1)
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	18		30		62		80
Intersegment revenues (a)	—		1		—		1
Adjusted EBITDA	9		19		15		59
Depreciation and amortization	1		1		3		3
EAME/SW Asia management and franchising
Management, franchise, and other fees revenues	5		21		17		58
Contra revenue	(2)		(1)		(5)		(4)
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	14		20		46		54
Intersegment revenues (a)	—		3		1		7
Adjusted EBITDA	(2)		12		(12)		33
Depreciation and amortization	1		1		1		1
Corporate and other
Revenues	7		15		25		45
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	1		2		3		4
Intersegment revenues (a)	—		—		—		(1)
Adjusted EBITDA	(15)		(33)		(65)		(110)
Depreciation and amortization	10		11		32		30
Eliminations
Revenues (a)	(5)		(30)		(23)		(83)
Adjusted EBITDA	—		(1)		2		2
TOTAL
Revenues	$	399	$	1,215	$	1,642	$	3,745
Adjusted EBITDA	(48)		163		(79)		563
Depreciation and amortization	80		85		233		248

(a)Intersegment revenues are included in management, franchise, and other fees revenues, owned and leased hotels revenues, and other revenues and eliminated in Eliminations.

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The table below provides a reconciliation of our net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to our consolidated Adjusted EBITDA:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss) attributable to Hyatt Hotels Corporation	$	(161)	$	296	$	(500)	$	445
Interest expense	35		19		87		58
(Benefit) provision for income taxes	(59)		109		(188)		148
Depreciation and amortization	80		85		233		248
EBITDA	(105)		509		(368)		899
Contra revenue	7		5		20		16
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties	(267)		(617)		(1,015)		(1,826)
Costs incurred on behalf of managed and franchised properties	278		633		1,068		1,871
Equity losses from unconsolidated hospitality ventures	20		5		45		2
Stock-based compensation expense (Note 15)	3		4		20		28
Gains on sales of real estate (Note 7)	—		(373)		(8)		(374)
Asset impairments	—		9		52		13
Other (income) loss, net (Note 19)	19		(25)		114		(104)
Pro rata share of unconsolidated owned and leased hospitality ventures Adjusted EBITDA	(3)		13		(7)		38
Adjusted EBITDA	$	(48)	$	163	$	(79)	$	563

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18. EARNINGS (LOSSES) PER SHARE

The calculation of basic and diluted earnings (losses) per share, including a reconciliation of the numerator and denominator, are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net income (loss)	$	(161)	$	296	$	(500)	$	445
Net income (loss) attributable to noncontrolling interests	—		—		—		—
Net income (loss) attributable to Hyatt Hotels Corporation	$	(161)	$	296	$	(500)	$	445
Denominator:
Basic weighted-average shares outstanding	101,277,404		104,349,157		101,312,741		105,226,587
Share-based compensation	—		1,569,736		—		1,553,693
Diluted weighted-average shares outstanding	101,277,404		105,918,893		101,312,741		106,780,280
Basic Earnings (Losses) Per Share:
Net income (loss)	$	(1.59)	$	2.84	$	(4.93)	$	4.23
Net income (loss) attributable to noncontrolling interests	—		—		—		—
Net income (loss) attributable to Hyatt Hotels Corporation	$	(1.59)	$	2.84	$	(4.93)	$	4.23
Diluted Earnings (Losses) Per Share:
Net income (loss)	$	(1.59)	$	2.80	$	(4.93)	$	4.17
Net income (loss) attributable to noncontrolling interests	—		—		—		—
Net income (loss) attributable to Hyatt Hotels Corporation	$	(1.59)	$	2.80	$	(4.93)	$	4.17

The computations of diluted net income (loss) per share for the three and nine months ended September 30, 2020 and September 30, 2019 do not include the following shares of Class A common stock assumed to be issued as stock-settled SARs and RSUs because they are anti-dilutive.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
SARs	390,900	14,800	706,600	14,400
RSUs	540,200	—	499,200	—

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19. OTHER INCOME (LOSS), NET


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Restructuring expenses	$	(22)	$	—	$	(69)	$	—
Performance guarantee expense, net (Note 13)	(8)		(1)		(47)		(25)
Credit losses (Note 2 and Note 13)	(8)		—		(26)		—

Release of contingent consideration liability	—		2		—		29
Release and amortization of debt repayment guarantee liability	—		1		1		18
Realized gains (Note 5)	1		1		5		1
Performance guarantee liability amortization (Note 13)	1		5		7		14
Depreciation recovery	6		7		18		19
Interest income (Note 5)	6		6		23		18
Unrealized gains (losses), net (Note 5)	8		3		(36)		23



Other, net	(3)		1		10		7
Other income (loss), net	$	(19)	$	25	$	(114)	$	104

During the three and nine months ended September 30, 2020, we recognized $22 million and $69 million, respectively, of restructuring expenses, including severance, insurance benefits, outplacement, and other related costs, due to operational changes as a result of the COVID-19 pandemic.

During the nine months ended September 30, 2019, we released $29 million of contingent consideration liability for management agreements previously acquired in conjunction with Two Roads Hospitality LLC ("Two Roads") in which specific actions were not completed or payment was no longer probable.

During the nine months ended September 30, 2019, we recognized a $15 million release of our debt repayment guarantee liability for a hotel property in Washington State as the debt was refinanced, and we are no longer guarantor.

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 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020; the short and longer-term effects of the COVID-19 pandemic, including on the demand for travel, transient and group business, and levels of consumer confidence; actions that governments, businesses, and individuals take in response to the COVID-19 pandemic or any resurgence, including limiting or banning travel; the impact of the COVID-19 pandemic, and actions taken in response to the COVID-19 pandemic or any resurgence, on global and regional economies, travel, and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; the ability of third-party owners, franchisees, or hospitality venture partners to successfully navigate the impacts of the COVID-19 pandemic; the duration of the COVID-19 pandemic and the pace of recovery following the pandemic or any resurgence; 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; domestic and international political and geopolitical conditions, including political or civil unrest or changes in trade policy; 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,