Edgar Filing: Hyatt Hotels Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2016



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

For the transition period from to

Commission File No. 001-34521

HYATT HOTELS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)



Delaware		20-1480589
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

71 South Wacker Drive 12th Floor, Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

(312) 750-1234

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 29, 2016, there were 23,404,633 shares of the registrant’s Class A common stock, $0.01 par value, outstanding and 109,628,962 shares of the registrant’s Class B common stock, $0.01 par value, outstanding.

HYATT HOTELS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2016

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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51

Signatures		52

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions of dollars, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
REVENUES:
Owned and leased hotels	$	559		$	540		$	1,075		$	1,049
Management and franchise fees	115			112			222			217
Other revenues	11			9			20			16
Other revenues from managed properties	480			451			937			884
Total revenues	1,165			1,112			2,254			2,166
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Owned and leased hotels	413			391			802			775
Depreciation and amortization	86			76			167			155
Other direct costs	9			7			15			12
Selling, general, and administrative	75			73			163			167
Other costs from managed properties	480			451			937			884
Direct and selling, general, and administrative expenses	1,063			998			2,084			1,993
Net gains and interest income from marketable securities held to fund operating programs	7			1			8			9
Equity earnings (losses) from unconsolidated hospitality ventures	19			(23		)	21			(29		)
Interest expense	(20		)	(17		)	(37		)	(34		)
Gains (losses) on sales of real estate	(21		)	1			(21		)	9
Other income (loss), net	1			4			(3		)	(14		)
INCOME BEFORE INCOME TAXES	88			80			138			114
PROVISION FOR INCOME TAXES	(21		)	(40		)	(37		)	(52		)
NET INCOME	67			40			101			62
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			—			—
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	67		$	40		$	101		$	62
EARNINGS PER SHARE—Basic
Net income	$	0.50		$	0.28		$	0.75		$	0.43
Net income attributable to Hyatt Hotels Corporation	$	0.50		$	0.28		$	0.75		$	0.43
EARNINGS PER SHARE—Diluted
Net income	$	0.49		$	0.27		$	0.74		$	0.42
Net income attributable to Hyatt Hotels Corporation	$	0.49		$	0.27		$	0.74		$	0.42

See accompanying notes to condensed consolidated financial statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions of dollars)

(Unaudited)



	Three Months Ended					Six Months Ended
	June 30, 2016			June 30, 2015		June 30, 2016		June 30, 2015
Net income	$	67		$	40	$	101	$	62
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax (benefit) expense of $- for the three and six months ended June 30, 2016 and $(2) for the three and six months ended June 30, 2015	(9		)	8		15		(47		)
Unrealized gains on available for sale securities, net of tax expense of $8 and $4 for the three months ended and $5 and $4 for the six months ended June 30, 2016 and June 30, 2015, respectively	12			4		8		6
Other comprehensive income (loss)	3			12		23		(41		)
COMPREHENSIVE INCOME	70			52		124		21
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—		—		—
COMPREHENSIVE INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION	$	70		$	52	$	124	$	21

See accompanying notes to condensed consolidated financial statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)



	June 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	642		$	457
Restricted cash	77			96
Short-term investments	49			46
Receivables, net of allowances of $17 and $15 at June 30, 2016 and December 31, 2015, respectively	330			298
Inventories	16			12
Prepaids and other assets	188			152
Prepaid income taxes	45			63
Total current assets	1,347			1,124
Investments	308			327
Property and equipment, net	3,959			4,031
Financing receivables, net of allowances	21			20
Goodwill	128			129
Intangibles, net	541			547
Deferred tax assets	298			301
Other assets	1,104			1,112
TOTAL ASSETS	$	7,706		$	7,591
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	19		$	328
Accounts payable	144			141
Accrued expenses and other current liabilities	551			516
Accrued compensation and benefits	110			122
Total current liabilities	824			1,107
Long-term debt	1,455			1,042
Other long-term liabilities	1,419			1,447
Total liabilities	3,698			3,596
Commitments and contingencies (see Note 11)
EQUITY:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of June 30, 2016 and December 31, 2015	—			—
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 23,776,676 issued and outstanding at June 30, 2016, and Class B common stock, $0.01 par value per share, 441,623,374 shares authorized, 109,628,962 shares issued and outstanding at June 30, 2016. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 26,604,687 issued and outstanding at December 31, 2015, and Class B common stock, $0.01 par value per share, 441,623,374 shares authorized, 109,628,962 shares issued and outstanding at December 31, 2015	1			1
Additional paid-in capital	1,820			1,931
Retained earnings	2,390			2,289
Accumulated other comprehensive loss	(207		)	(230		)
Total stockholders’ equity	4,004			3,991
Noncontrolling interests in consolidated subsidiaries	4			4
Total equity	4,008			3,995
TOTAL LIABILITIES AND EQUITY	$	7,706		$	7,591

See accompanying notes to condensed consolidated financial statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)



	Six Months Ended
	June 30, 2016			June 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	101		$	62
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	167			155
Deferred income taxes	(2		)	(7		)
Equity (earnings) losses from unconsolidated hospitality ventures and distributions received	(7		)	41
Foreign currency (gains) losses	(3		)	7
(Gains) losses on sales of real estate	21			(9		)
Working capital changes and other	(38		)	(65		)
Net cash provided by operating activities	239			184
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities and short-term investments	(226		)	(297		)
Proceeds from marketable securities and short-term investments	232			320
Contributions to investments	(17		)	(27		)
Return of investment	52			4
Acquisitions, net of cash acquired	(238		)	—
Capital expenditures	(85		)	(122		)
Proceeds from sales of real estate, net of cash disposed	240			86
Sales proceeds transferred from escrow to cash and cash equivalents	29			143
(Increase) decrease in restricted cash	(6		)	17
Other investing activities	(4		)	(13		)
Net cash (used in) provided by investing activities	(23		)	111
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of issuance costs of $4 and $0 as of June 30, 2016 and June 30, 2015, respectively	519			11
Repayments of long-term debt	(428		)	(1		)
Repurchase of common stock	(131		)	(344		)
Other financing activities	(7		)	(10		)
Net cash used in financing activities	(47		)	(344		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	16			8
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	185			(41		)
CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR	457			685
CASH AND CASH EQUIVALENTS—END OF PERIOD	$	642		$	644
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	37		$	34
Cash paid during the period for income taxes	$	28		$	82
Non-cash investing activities are as follows:
Change in accrued capital expenditures	$	6		$	(4	)

See accompanying notes to condensed consolidated financial statements.

HYATT HOTELS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in millions of dollars, unless otherwise indicated)

(Unaudited)

1. ORGANIZATION

Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provide hospitality services on a worldwide basis through the development, ownership, operation, management, franchising and licensing of hospitality related businesses. We develop, own, operate, manage, franchise, license or provide services to a portfolio of properties consisting of full service hotels, select service hotels, resorts and other properties, including timeshare, fractional and other forms of residential or vacation properties. As of June 30, 2016, (i) we operated or franchised 301 full service hotels, comprising 119,200 rooms throughout the world, (ii) we operated or franchised 326 select service hotels, comprising 45,183 rooms, of which 301 hotels are located in the United States, and (iii) our portfolio of properties included 6 franchised all inclusive Hyatt-branded resorts, comprising 2,401 rooms. As of June 30, 2016, our portfolio of properties operated in 54 countries around the world.

As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Company," "HHC," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries and (ii) the term "portfolio of properties" refers to hotels and other properties or residential ownership units that we develop, own, operate, manage, franchise, license or provide services to, including under our Park Hyatt, Grand Hyatt, Hyatt Regency, Hyatt, Andaz, Hyatt Centric, The Unbound Collection by Hyatt, Hyatt Place, Hyatt House, Hyatt Ziva, Hyatt Zilara and Hyatt Residence Club brands.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 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 that the accompanying condensed consolidated financial statements reflect all adjustments, which are all of a normal recurring nature, considered necessary for a fair presentation of the interim periods.

2. RECENTLY ISSUED ACCOUNTING STANDARDS

Adopted Accounting Standards—In April 2015, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update No. 2015-03 ("ASU 2015-03"), Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The provisions of ASU 2015-03 are effective for interim periods and fiscal years beginning after December 15, 2015. We adopted the standard on January 1, 2016, and as a result we reclassified $5 million of debt issuance costs previously included in other assets to long-term debt on our condensed consolidated balance sheets as of December 31, 2015.

Future Adoption of Accounting Standards—In May 2014, the FASB released Accounting Standards Update No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single, comprehensive revenue recognition model for contracts with customers. In August 2015, the FASB released Accounting Standards Update No. 2015-14 ("ASU 2015-14"), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU 2015-14 delays the effective date of ASU 2014-09 by one year, making it effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted as of the original effective date. The Company is currently evaluating the impact of adopting ASU 2014-09.

In January 2016, the FASB released Accounting Standards Update No. 2016-01 ("ASU 2016-01"), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 are effective for interim periods and fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of adopting ASU 2016-01.

In February 2016, the FASB released Accounting Standards Update No. 2016-02 ("ASU 2016-02"), Leases (Topic 842). ASU 2016-02 requires lessees to record lease contracts on the balance sheet by recognizing a right-of-use asset and lease liability. The provisions of ASU 2016-02 are effective for interim periods and fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02.

In March 2016, the FASB released Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions of ASU 2016-09 are effective for interim periods and fiscal years beginning after December 15, 2016, with early adoption permitted. Upon adoption, ASU 2016-09 is not expected to materially impact our condensed consolidated financial statements.

In June 2016, the FASB released Accounting Standards Update No. 2016-13 ("ASU 2016-13"), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the existing impairment model for most financial assets from an incurred loss impairment model to a current expected credit loss (“CECL”) model, which requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect. ASU 2016-13 also requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses. The provisions of ASU 2016-13 are effective for interim periods and fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-13.

3. EQUITY AND COST METHOD INVESTMENTS

We have investments that are recorded under both the equity and cost methods. These investments are considered to be an integral part of our business and are strategically and operationally important to our overall results. Our equity and cost method investment balances recorded at June 30, 2016 and December 31, 2015 are as follows:



	June 30, 2016		December 31, 2015
Equity method investments	$	301	$	304
Cost method investments	7		23
Total investments	$	308	$	327

We recorded $3 million and $2 million of net losses from our cost method investments for the three and six months ended June 30, 2016, respectively. Gains or losses from cost method investments are recorded within other income (loss), net on our condensed consolidated statements of income.

During the three and six months ended June 30, 2016, we recorded a $2 million impairment charge in equity earnings (losses) from unconsolidated hospitality ventures related to one equity method investment.

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



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Total revenues	$	342	$	301		$	626	$	545
Gross operating profit	132		88			202		148
Income (loss) from continuing operations	58		(3		)	78		(16		)
Net income (loss)	58		(3		)	78		(16		)

4. MARKETABLE SECURITIES

We hold marketable securities to fund certain operating programs and for investment purposes. We periodically transfer cash and cash equivalents to time deposits, highly liquid and transparent commercial paper, corporate notes and bonds, and U.S. government obligations and obligations of other government agencies for investment purposes.

Marketable Securities Held to Fund Operating Programs—At June 30, 2016 and December 31, 2015, total marketable securities held to fund operating programs, which are recorded at fair value and included on the condensed consolidated balance sheets, were as follows:



	June 30, 2016			December 31, 2015
Marketable securities held by the Hyatt Gold Passport Fund	$	400		$	384
Marketable securities held to fund deferred compensation plans (Note 9)	337			333
Marketable securities held to fund our captive insurance company	82			82
Total marketable securities held to fund operating programs	$	819		$	799
Less current portion of marketable securities held for operating programs included in cash and cash equivalents, short-term investments, and prepaids and other assets	(163		)	(121		)
Marketable securities held to fund operating programs included in other assets	$	656		$	678

Net gains and interest income from marketable securities held to fund operating programs on the condensed consolidated statements of income includes realized and unrealized gains and losses and interest income related to the following:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Hyatt Gold Passport Fund	$	2	$	—	$	3	$	1
Deferred compensation plans	5		1		5		8
Total net gains and interest income from marketable securities held to fund operating programs	$	7	$	1	$	8	$	9

Our captive insurance company holds marketable securities which have been classified as available for sale ("AFS") and are invested in U.S. government agencies, time deposits and corporate debt securities. We have classified these investments as current or long-term, based on their contractual maturity dates, which range from 2016 through 2021. During the three and six months ended June 30, 2016, we recorded $1 million in unrealized gains related to these AFS securities on the condensed consolidated balance sheets through other comprehensive income (loss).

Marketable Securities Held for Investment Purposes—At June 30, 2016 and December 31, 2015, our total marketable securities held for investment purposes, which are recorded at fair value and included on the condensed consolidated balance sheets, were as follows:



	June 30, 2016			December 31, 2015
Interest bearing money market funds	$	117		$	5
Time deposits	30			30
Preferred shares	347			335
Total marketable securities held for investment purposes	$	494		$	370
Less current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments	(147		)	(35		)
Marketable securities held for investment purposes included in other assets	$	347		$	335

Fair Value—As of June 30, 2016 and December 31, 2015, we had the following financial assets measured at fair value on a recurring basis:



	June 30, 2016		Cash and Cash Equivalents		Short-term Investments		Prepaids and Other Assets		Other Assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest bearing money market funds	$	138	$	138	$	—	$	—	$	—
Mutual funds	337		—		—		—		337
Level Two - Significant Other Observable Inputs
Time deposits	45		—		34		—		11
U.S. government obligations	137		—		—		43		94
U.S. government agencies	68		—		14		13		41
Corporate debt securities	186		—		1		50		135
Mortgage-backed securities	26		—		—		8		18
Asset-backed securities	26		—		—		8		18
Municipal and provincial notes and bonds	3		—		—		1		2
Level Three - Significant Unobservable Inputs
Preferred shares	347		—		—		—		347
Total	$	1,313	$	138	$	49	$	123	$	1,003



	December 31, 2015		Cash and Cash Equivalents		Short-term Investments		Prepaids and Other Assets		Other Assets
Level One - Quoted Prices in Active Markets for Identical Assets
Interest bearing money market funds	$	18	$	18	$	—	$	—	$	—
Mutual funds	333		—		—		—		333
Level Two - Significant Other Observable Inputs
Time deposits	45		—		38		—		7
U.S. government obligations	131		—		—		32		99
U.S. government agencies	83		—		6		10		67
Corporate debt securities	168		—		2		36		130
Mortgage-backed securities	26		—		—		6		20
Asset-backed securities	27		—		—		7		20
Municipal and provincial notes and bonds	3		—		—		1		2
Level Three - Significant Unobservable Inputs
Preferred shares	335		—		—		—		335
Total	$	1,169	$	18	$	46	$	92	$	1,013

During the three and six months ended June 30, 2016 and June 30, 2015, there were no transfers between levels of the fair value hierarchy. Our policy is to recognize transfers in and transfers out as of the end of each quarterly reporting period. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.

We invest a portion of our cash into short-term interest bearing money market funds that have a maturity of less than ninety days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis. The fair value of our mutual funds is classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Time deposits are recorded at par value, which approximates fair value and are classified as Level Two. The remaining securities, other than our investment in preferred shares, are classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.

Preferred shares—During the year ended December 31, 2013, we invested $271 million in Playa Hotels & Resorts B.V. ("Playa") for redeemable, convertible preferred shares. Hyatt has the option to convert its preferred shares into shares of common stock at any time through the later of the second anniversary of the closing of our investment or an initial public offering by Playa. The preferred investment is redeemable at Hyatt's option in August 2021. In the event of an initial public offering or other equity issuance by Playa, Hyatt has the option to request that Playa redeem up to $125 million of preferred shares. As a result, we have classified the preferred investment as an AFS debt security, which is remeasured quarterly at fair value on the condensed consolidated balance sheets through other comprehensive income (loss). The fair value of the preferred shares was:



	2016			2015
Fair value at January 1	$	335		$	280
Gross unrealized gains	—			2
Gross unrealized losses	(7		)	—
Fair value at March 31	$	328		$	282
Gross unrealized gains	19			8
Fair value at June 30	$	347		$	290

Due to the lack of availability of market data, the preferred shares are classified as Level Three. We estimated the fair value of the Playa preferred shares using an option-pricing model. This model requires that we make certain assumptions regarding the expected volatility, term, risk-free interest rate over the expected term, dividend yield and enterprise value. Financial forecasts were used in the computation of the enterprise value using the income approach, based on assumed revenue growth rates and operating margin levels. The risks associated with achieving these forecasts were assessed in selecting the appropriate weighted-average cost of capital.

A summary of the significant assumptions used to estimate the fair value of our preferred shares as of June 30, 2016 and December 31, 2015 are as follows:



	June 30, 2016		December 31, 2015
Expected term	0.42 years		0.75 years
Risk-free Interest Rate	0.33	%	0.57	%
Volatility	45.1	%	46.0	%
Dividend Yield	12.0	%	12.0	%

There is inherent uncertainty in our assumptions, and fluctuations in these assumptions will result in different estimates of fair value. The significant unobservable assumptions driving the value of the preferred shares are the enterprise value and the expected term. A 10% increase or decrease in the enterprise value primarily driven by the weighted-average cost of capital assumption and financial forecasts may cause the fair value to fluctuate between $20 million to $30 million. Independent of the enterprise value, a six month change in the expected term assumption may cause the fair value to fluctuate by approximately $30 million.

Held-to-Maturity Debt Securities—As of June 30, 2016 and December 31, 2015, we have investments in held-to-maturity debt securities of $25 million, which are investments in third-party entities that own certain of our hotels. The amortized cost of our investments approximates fair value. The securities are mandatorily redeemable between 2020 and 2025.

5. FINANCING RECEIVABLES

Financing receivables at June 30, 2016 and December 31, 2015 are as follows:



	June 30, 2016			December 31, 2015
Unsecured financing to hotel owners	$	124		$	120
Less allowance for losses	(103		)	(98		)
Less current portion included in receivables, net	—			(2		)
Total long-term financing receivables, net	$	21		$	20

During the year ended December 31, 2015, all of our outstanding secured financing receivables to hotel owners were settled.

Allowance for Losses and Impairments—The following tables summarize the activity in our financing receivables allowance for the three and six months ended June 30, 2016 and June 30, 2015:



	Secured Financing		Unsecured Financing		Total
Allowance at January 1, 2016	$	—	$	98	$	98
Provisions	—		1		1
Other Adjustments	—		1		1
Allowance at March 31, 2016	$	—	$	100	$	100
Provisions	—		3		3
Allowance at June 30, 2016	$	—	$	103	$	103



	Secured Financing		Unsecured Financing			Total
Allowance at January 1, 2015	$	13	$	87		$	100
Provisions	—		2			2
Other Adjustments	—		(1		)	(1		)
Allowance at March 31, 2015	$	13	$	88		$	101
Provisions	2		2			4
Allowance at June 30, 2015	$	15	$	90		$	105

Credit Monitoring—Our unsecured financing receivables are as follows:



	June 30, 2016
	Gross Loan Balance (Principal and Interest)		Related Allowance			Net Financing Receivables		Gross Receivables on Non-Accrual Status
Loans	$	14	$	—		$	14	$	—
Impaired loans (1)	62		(62		)	—		62
Total loans	76		(62		)	14		62
Other financing arrangements	48		(41		)	7		41
Total unsecured financing receivables	$	124	$	(103	)	$	21	$	103

(1) The unpaid principal balance was $44 million and the average recorded loan balance was $61 million as of June 30, 2016.



	December 31, 2015
	Gross Loan Balance (Principal and Interest)		Related Allowance			Net Financing Receivables		Gross Receivables on Non-Accrual Status
Loans	$	15	$	—		$	15	$	—
Impaired loans (2)	58		(58		)	—		58
Total loans	73		(58		)	15		58
Other financing arrangements	47		(40		)	7		40
Total unsecured financing receivables	$	120	$	(98	)	$	22	$	98

(2) The unpaid principal balance was $42 million and the average recorded loan balance was $55 million as of December 31, 2015.

Fair Value—We estimated the fair value of financing receivables which are classified as Level Three in the fair value hierarchy to be approximately $22 million as of June 30, 2016 and December 31, 2015. During the three and six months ended June 30, 2016 and June 30, 2015, there were no transfers between levels of the fair value hierarchy.

6. ACQUISITIONS AND DISPOSITIONS

Acquisitions

The Confidante—During the three months ended June 30, 2016, we acquired Thompson Miami Beach for a purchase price of approximately $238 million, from a seller that is indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman. Of the $238 million purchase price, significant assets acquired consist of property and equipment of $228 million, which has been recorded in our owned and leased hotels segment, and a $10 million management agreement intangible, which has been recorded in our Americas management and franchising segment. We have rebranded this hotel as The Confidante, an addition to The Unbound Collection by Hyatt. The purchase of The Confidante has been identified as replacement property in a potential reverse like-kind exchange agreement.

Dispositions

Andaz 5th Avenue—During the three months ended June 30, 2016, we sold Andaz 5th Avenue for $240 million, net of $10 million of closing costs and proration adjustments, to an unrelated third party, and entered into a long-term management agreement with the owner of the property. The sale resulted in a $21 million pre-tax loss which has been recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the three and six months ended June 30, 2016. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.

Hyatt Regency Indianapolis—During the six months ended June 30, 2015, we sold Hyatt Regency Indianapolis for $69 million, net of closing costs, to an unrelated third party, and entered into a long-term franchise agreement with the owner of the property. The sale resulted in a pre-tax gain of $8 million, which has been recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the six months ended June 30, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.

Land Held for Development—During the three months ended June 30, 2015, we sold land and construction in progress for $14 million to an unconsolidated hospitality venture in which Hyatt has a 40% ownership interest, of which we received $12 million in cash proceeds as of June 30, 2015.

A Hyatt House Hotel— During the three months ended June 30, 2015, we sold a select service property for $5 million, net of closing costs, to an unrelated third party, resulting in a $1 million pre-tax gain which has been recognized in gains (losses) on sales of real estate on our condensed consolidated statements of income during the three and six months ended June 30, 2015. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.

As a result of certain dispositions, we have agreed to provide 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.

Like-Kind Exchange Agreements

Periodically, we enter into like-kind exchange agreements upon the disposition of certain hotels. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary. The proceeds are recorded to restricted cash on our condensed consolidated balance sheets and released once they are utilized as part of a like-kind exchange agreement or when a like-kind exchange agreement is not completed within the allowable time period.

In conjunction with the sale of five Hyatt Place properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary. Pursuant to the like-kind exchange agreements, the combined net proceeds of $51 million from the sales of these hotels were placed into an escrow account administered by a qualified intermediary. During the six months ended June 30, 2015, we released the net proceeds because the identified replacement property was not acquired in order to complete the exchange.

In conjunction with the sale of thirty-eight select service properties during the year ended December 31, 2014, we entered into like-kind exchange agreements with a qualified intermediary for twenty-seven of the select service hotels. In the fourth quarter of 2014, we utilized the net proceeds from twenty-one of the twenty-seven hotels as part of the like-kind exchange agreement to acquire the Park Hyatt New York. During the six months ended June 30, 2015, we released $92 million of net proceeds from the remaining six hotels from restricted cash, as the intermediary distributed these funds from escrow to complete the reverse like-kind exchange transaction in connection with the acquisition of Hyatt Regency Lost Pines Resort and Spa.

7. INTANGIBLE ASSETS

The following is a summary of intangible assets at June 30, 2016 and December 31, 2015:



	June 30, 2016			Weighted- Average Useful Lives in Years	December 31, 2015
Management and franchise agreement intangibles	$	523		25	$	535
Lease related intangibles	123			112	136
Advanced booking intangibles	9			6	12
Brand intangible	7			—	7
Other	7			14	8
	669				698
Less accumulated amortization	(128		)		(151		)
Intangibles, net	$	541			$	547

Amortization expense relating to intangible assets for the three and six months ended June 30, 2016 and June 30, 2015 was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Amortization expense	$	6	$	7	$	13	$	15

8. DEBT

Long-term debt, net of current maturities, at June 30, 2016 and December 31, 2015, was $1,455 million and $1,042 million, respectively.

Senior Notes—During the six months ended June 30, 2016, we issued $400 million of 4.850% senior notes due 2026, at an issue price of 99.920% (the "2026 Notes"). We received net proceeds of $396 million from the sale of the 2026 Notes, after deducting discounts and offering expenses of approximately $4 million. We used a portion of the net proceeds to pay for the redemption of the 2016 Notes (as described below), with the remaining proceeds

intended to be used for general corporate purposes. Interest on the 2026 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2016.

The 2026 Notes, together with our $250 million of 3.875% senior notes due 2016 (the "2016 Notes"), $196 million of 6.875% senior notes due 2019 (the "2019 Notes"), $250 million of 5.375% senior notes due 2021 (the "2021 Notes"), and $350 million of 3.375% senior notes due 2023 (the "2023 Notes"), are collectively referred to as the "Senior Notes."

Debt Redemption—During the three months ended June 30, 2016, we redeemed all of our outstanding 2016 Notes, of which an aggregate principal amount of $250 million was outstanding. The redemption price, which was calculated in accordance with the terms of the 2016 Notes and included principal and accrued interest plus a make-whole premium, was $254 million. The make-whole premium was recorded within other income (loss), net on our condensed consolidated statements of income, see Note 17.

Senior Secured Term Loan—During the six months ended June 30, 2016, we repaid the senior secured term loan related to Hyatt Regency Lost Pines Resort and Spa of $64 million.

Fair Value—We estimated the fair value of debt, excluding capital leases, which consists of our Senior Notes, bonds and other long-term debt. Our Senior Notes and bonds are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities. We estimated the fair value of our other long-term debt instruments using discounted cash flow analysis based on current market inputs for similar types of arrangements. Based upon the lack of availability of market data, we have classified our other long-term debt as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value.

As of June 30, 2016 and December 31, 2015, we had the following debt balances, excluding capital lease obligations, measured at fair value as described above:



	June 30, 2016
	Carrying Value			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level One)		Significant Other Observable Inputs (Level Two)			Significant Unobservable Inputs (Level Three)
Debt, excluding capital lease obligations	$	(1,458	)	$	(1,600	)	$	—	$	(1,498	)	$	(102	)



	December 31, 2015
	Carrying Value			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level One)		Significant Other Observable Inputs (Level Two)			Significant Unobservable Inputs (Level Three)
Debt, excluding capital lease obligations	$	(1,354	)	$	(1,421	)	$	—	$	(1,277	)	$	(144	)

During the three and six months ended June 30, 2016 and June 30, 2015, there were no transfers between levels of the fair value hierarchy.

9. LIABILITIES

Other long-term liabilities at June 30, 2016 and December 31, 2015 consist of the following:



	June 30, 2016		December 31, 2015
Deferred gains on sales of hotel properties	$	356	$	367
Deferred compensation plans	337		333
Hyatt Gold Passport Fund	267		280
Guarantee liabilities (see Note 11)	100		120
Other	359		347
Total	$	1,419	$	1,447

Accrued expenses and other current liabilities includes $178 million and $166 million of liabilities related to the Hyatt Gold Passport Fund at June 30, 2016 and December 31, 2015, respectively.

10. INCOME TAXES

The effective income tax rates for the three months ended June 30, 2016 and June 30, 2015, were 24.7% and 50.0%, respectively. The effective income tax rates for the six months ended June 30, 2016 and June 30, 2015, were 27.2% and 45.6%, respectively. Our effective tax rate decreased for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015, primarily due to the 2016 tax impact of global transfer pricing changes implemented during the fourth quarter of 2015 and the effect of certain foreign joint venture losses not benefited in 2015.

Unrecognized tax benefits were $100 million and $110 million at June 30, 2016 and December 31, 2015, respectively, of which $16 million and $21 million, respectively, would impact the effective tax rate if recognized.

11. COMMITMENTS AND CONTINGENCIES

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

Commitments—As of June 30, 2016, we are committed, under certain conditions, to lend or invest up to $334 million, net of any related letters of credit, in various business ventures.

Included in the $334 million above is our commitment to purchase land and improvements for a new build hotel located in Portland, Oregon from the developer upon substantial completion for a purchase price of approximately $160 million.

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

Our most significant performance guarantee relates to four managed hotels in France that we began managing in the second quarter of 2013 ("the four managed hotels in France"), which has a term of 7 years, with approximately 4 years remaining, and does not have an annual cap. The remaining maximum exposure related to our performance guarantees at June 30, 2016 was $411 million, of which €344 million ($382 million using exchange rates as of June 30, 2016) related to the four managed hotels in France.

We had total net performance guarantee liabilities of $76 million and $97 million at June 30, 2016 and December 31, 2015, which included $66 million and $81 million recorded in other long-term liabilities, $11 million and $16 million in accrued expenses and other current liabilities and $1 million and $0 in receivables on our condensed consolidated balance sheets, respectively. Our total performance guarantee liabilities are comprised of the fair value of the guarantee obligation liabilities recorded upon inception, net of amortization and any separate contingent liabilities, net of cash payments. Performance guarantee expense or income and income from amortization of the guarantee obligation liabilities are recorded in other income (loss), net on the condensed consolidated statements of income, see Note 17.

The following table details the total performance guarantee liability (inclusive of the initial guarantee liability, net of amortization and the contingent liability, net of cash payments):



	The Four Managed Hotels in France						Other Performance Guarantees						All Performance Guarantees
	2016			2015			2016			2015			2016			2015
Beginning balance, January 1	$	93		$	106		$	4		$	5		$	97		$	111
Amortization of initial guarantee obligation liability into income	(8		)	(2		)	—			—			(8		)	(2		)
Performance guarantee expense, net	19			16			—			—			19			16
Net (payments) receipts during the period	(14		)	1			(1		)	(1		)	(15		)	—
Foreign currency exchange, net	4			(13		)	—			—			4			(13		)
Ending balance, March 31	$	94		$	108		$	3		$	4		$	97		$	112
Amortization of initial guarantee obligation liability into income	(9		)	(3		)	—			—			(9		)	(3		)
Performance guarantee (income) expense, net	10			(1		)	(2		)	(1		)	8			(2		)
Net (payments) receipts during the period	(20		)	(23		)	1			1			(19		)	(22		)
Foreign currency exchange, net	(1		)	4			—			—			(1		)	4
Ending balance, June 30	$	74		$	85		$	2		$	4		$	76		$	89

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. As of June 30, 2016 and December 31, 2015, there were no amounts recorded on our condensed consolidated balance sheets related to these performance test clauses.

Debt Repayment Guarantees—We have entered into various debt repayment guarantees primarily related to our unconsolidated hospitality ventures and certain managed hotels. As of June 30, 2016, we had a $34 million liability representing the carrying value of these guarantees, net of amortization within other long-term liabilities on our condensed consolidated balance sheets. Included within debt repayment guarantees are the following:



Property Description	Maximum Guarantee Amount		Amount Recorded at June 30, 2016		Amount Recorded at December 31, 2015		Year of Guarantee Expiration
Hotel properties in India	$	166	$	24	$	27	2020
Hotel property in Brazil	74		3		4		2020
Hotel property in Minnesota	25		2		2		2021
Hotel property in Arizona	25		3		3		2019
Vacation ownership property	24		—		—		2016
Hotel property in Hawaii	15		2		3		2017
Hotel property in Colorado	13		—		—		2016
Other	21		—		—		various, through 2020
Total Debt Repayment Guarantees	$	363	$	34	$	39

With respect to certain debt repayment guarantees related to unconsolidated hospitality ventures, the Company has agreements with its respective partners that require each partner to pay a pro rata portion of the guarantee amount based on each partner’s ownership percentage. In relation to the vacation ownership property debt repayment guarantee, for which we no longer have an investment in the unconsolidated venture, we have the ability to fully recover from third parties any amounts we may be required to fund. Assuming successful enforcement of these agreements with our respective partners and third parties, our maximum exposure under the various debt repayment guarantees as of June 30, 2016 would be $255 million. Additionally, with respect to the debt repayment guarantee associated with the hotel properties in India, we have the contractual right to recover all amounts funded

under the guarantee from the unconsolidated hospitality venture, in which we have a 50% ownership interest. Furthermore, under certain conditions as stated in the hospitality venture's operating agreements, we have the right to force the sale of the hotel properties in India in order to recover any amounts funded under the guarantee.

Insurance—The Company obtains commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property and other miscellaneous coverages. A portion of the risk is retained on a self-insurance basis primarily through a U.S. based and licensed captive insurance company that is a wholly owned subsidiary of Hyatt and generally insures our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Losses estimated to be paid within twelve months are $32 million and $35 million as of June 30, 2016 and December 31, 2015, respectively, and are classified within accrued expenses and other current liabilities on our condensed consolidated balance sheets, while losses expected to be payable in later periods are $63 million and $57 million as of June 30, 2016 and December 31, 2015, respectively, and are included in other long-term liabilities on our condensed consolidated balance sheets. At June 30, 2016, standby letters of credit amounting to $7 million have been issued to provide collateral for the estimated claims, which are guaranteed by us. For further discussion, see the "—Letters of Credit" section of this footnote.

At June 30, 2016, we have a $4 million liability related to our estimated exposure for a cyber security malware issue that occurred in 2015. We maintain a separate cyber security insurance policy with a deductible of $3 million and expect our exposure to exceed our deductible, but be significantly less than our maximum insurance coverage.

Collective Bargaining Agreements—At June 30, 2016, approximately 25% of our U.S. based employees were covered by various collective bargaining agreements, generally providing for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and we believe that our employee relations are good.

Surety Bonds—Surety bonds issued on our behalf totaled $24 million as of June 30, 2016 and primarily relate to workers’ compensation, taxes, licenses and utilities related to our lodging operations.

Letters of Credit—Letters of credit outstanding on our behalf as of June 30, 2016 totaled $224 million, which relate to our ongoing operations and securitization of our performance under our debt repayment guarantee associated with the hotel properties in India, which is only called upon if we default on our guarantee. The $224 million letters of credit outstanding do not reduce the available capacity under our revolving credit facility.

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

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

In conjunction with financing obtained for our unconsolidated hospitality ventures, 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 hospitality venture owners.

We are subject, from time to time, to various claims and contingencies related to lawsuits, taxes and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. We reasonably recognize a liability associated with commitments and contingencies when a loss is probable and reasonably estimable. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.

12. EQUITY

Stockholders’ Equity and Noncontrolling Interests—The following table details the equity activity for the six months ended June 30, 2016 and June 30, 2015, respectively.



	Stockholders’ equity			Noncontrolling interests in consolidated subsidiaries		Total equity
Balance at January 1, 2016	$	3,991		$	4	$	3,995
Net income	101			—		101
Other comprehensive income (loss)	23			—		23
Repurchase of common stock	(131		)	—		(131		)
Directors compensation	2			—		2
Employee stock plan issuance	2			—		2
Share-based payment activity	16			—		16
Balance at June 30, 2016	$	4,004		$	4	$	4,008

	Stockholders’ equity			Noncontrolling interests in consolidated subsidiaries		Total equity
Balance at January 1, 2015	$	4,627		$	4	$	4,631
Net income	62			—		62
Other comprehensive income (loss)	(41		)	—		(41		)
Repurchase of common stock	(344		)	—		(344		)
Directors compensation	1			—		1
Employee stock plan issuance	2			—		2
Share-based payment activity	17			—		17
Balance at June 30, 2015	$	4,324		$	4	$	4,328

Accumulated Other Comprehensive Loss—The following table details the accumulated other comprehensive loss activity, net of tax, for the three and six months ended June 30, 2016 and June 30, 2015, respectively.



	Balance at April 1, 2016			Current period other comprehensive income (loss) before reclassification			Amount Reclassified from Accumulated Other Comprehensive Loss		Balance at June 30, 2016
Foreign currency translation adjustments	$	(233	)	$	(9	)	$	—	$	(242	)
Unrealized gains on AFS securities	35			12			—		47
Unrecognized pension cost	(7		)	—			—		(7		)
Unrealized losses on derivative instruments	(5		)	—			—		(5		)
Accumulated Other Comprehensive Income (Loss)	$	(210	)	$	3		$	—	$	(207	)

	Balance at January 1, 2016			Current period other comprehensive income (loss) before reclassification			Amount Reclassified from Accumulated Other Comprehensive Loss		Balance at June 30, 2016
Foreign currency translation adjustments	$	(257	)	$	15		$	—	$	(242	)
Unrealized gains on AFS securities	39			8			—		47
Unrecognized pension cost	(7		)	—			—		(7		)
Unrealized losses on derivative instruments	(5		)	—			—		(5		)
Accumulated Other Comprehensive Income (Loss)	$	(230	)	$	23		$	—	$	(207	)

	Balance at April 1, 2015			Current period other comprehensive income (loss) before reclassification			Amount Reclassified from Accumulated Other Comprehensive Loss		Balance at June 30, 2015
Foreign currency translation adjustments	$	(210	)	$	8		$	—	$	(202	)
Unrealized gains on AFS securities	8			4			—		12
Unrecognized pension cost	(5		)	—			—		(5		)
Unrealized losses on derivative instruments	(6		)	—			—		(6		)
Accumulated Other Comprehensive Income (Loss)	$	(213	)	$	12		$	—	$	(201	)

	Balance at January 1, 2015			Current period other comprehensive income (loss) before reclassification			Amount Reclassified from Accumulated Other Comprehensive Loss		Balance at June 30, 2015
Foreign currency translation adjustments	$	(155	)	$	(47	)	$	—	$	(202	)
Unrealized gains on AFS securities	6			6			—		12
Unrecognized pension cost	(5		)	—			—		(5		)
Unrealized losses on derivative instruments	(6		)	—			—		(6		)
Accumulated Other Comprehensive Income (Loss)	$	(160	)	$	(41	)	$	—	$	(201	)

Share Repurchase—During 2016, 2015, and 2014, the Company's board of directors authorized the repurchase of up to $250 million, $400 million and $700 million, respectively, of the Company's common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan, at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company's sole discretion. The common stock repurchase program applies to the Company’s Class A common stock and/or the Company’s Class B common stock. The common stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of common stock and the program may be suspended or discontinued at any time.

During the six months ended June 30, 2016 and June 30, 2015, the Company repurchased 2,948,990 and 5,879,003 shares of common stock, respectively. These shares of common stock were repurchased at a weighted-average price of $44.47 and $58.56 per share, respectively, for an aggregate purchase price of $131 million and $344 million, respectively, excluding related expenses that were insignificant in both periods. The shares repurchased during the six months ended June 30, 2016 represented approximately 2% of the Company's total shares of common stock outstanding as of December 31, 2015. The shares repurchased during the six months ended June 30, 2015 represented approximately 4% of the Company's total shares of common stock outstanding as of December 31, 2014. The shares of Class A common stock that were 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 that were repurchased were retired and the total number of authorized Class B shares was reduced by the number of shares repurchased. As of June 30, 2016, we had $248 million remaining under the share repurchase authorization.

Treasury Stock Retirement—During the six months ended June 30, 2015, the Company retired 195,423 shares of treasury stock. These shares were retired at a weighted-average price of $43.41 resulting in an $8 million reduction in treasury stock. The retired shares of treasury stock were returned to the status of authorized and unissued.

13. STOCK-BASED COMPENSATION

As part of our Long-Term Incentive Plan, we award Stock Appreciation Rights ("SARs"), Restricted Stock Units ("RSUs"), Performance Share Units ("PSUs") and Performance Vesting Restricted Stock ("PSSs") to certain employees. Compensation expense and unearned compensation presented below exclude amounts related to employees of our managed hotels and other employees whose payroll is reimbursed, as this expense has been and will continue to be reimbursed by our third-party hotel owners and is recorded on the lines other revenues from managed properties and other costs from managed properties on our condensed consolidated statements of income. Compensation expense included in selling, general, and administrative expense on our condensed consolidated statements of income related to these awards for the three and six months ended June 30, 2016 and June 30, 2015 are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
SARs	$	1	$	1	$	8	$	8
RSUs	3		3		11		11
PSUs and PSSs	—		1		1		2
Total stock-based compensation recorded within selling, general, and administrative expenses	$	4	$	5	$	20	$	21

SARs—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life in accordance with the plan. All outstanding SARs have a 10-year contractual term, are settled in shares of our Class A common stock and are accounted for as equity instruments.

During the six months ended June 30, 2016, the Company granted 924,424 SARs to employees with a weighted-average grant date fair value of $14.52. The fair value of each SAR was estimated on the grant date using the Black-Scholes-Merton option-pricing model.

RSUs—Each vested RSU represents the right to receive a single share of our Class A common stock (or, in the case of an insignificant portion of total RSUs granted, its cash equivalent value). The value of the stock-settled

RSUs is based on the fair value of our Class A common stock as of the grant date. We record compensation expense for RSUs over the vesting period of the individual award. Vesting is dependent upon continuous service by the employee, but will accelerate due to death or disability or in the event of a change in control. Compensation expense for retirement eligible grantees is recorded in full once the grantee becomes retirement eligible. In certain limited situations we also grant cash-settled RSUs which are recorded as liability instruments. During the six months ended June 30, 2016, the Company granted a total of 444,629 RSUs (an insignificant portion of which are cash-settled RSUs) to employees which, with respect to stock-settled RSUs, had a weighted-average grant date fair value of $47.36.

PSUs and PSSs—The Company has granted both PSUs and PSSs to certain executive officers.

PSUs vest and are paid out in Class A common stock based upon the performance of the Company through the end of the applicable three year performance period relative to the applicable performance target. During the six months ended June 30, 2016, the Company granted to its executive officers a total of 111,620 PSUs, with a weighted-average grant date fair value of $47.36. The performance period applicable to such PSUs is a three year period beginning January 1, 2016 and ending December 31, 2018. The PSUs will vest at the end of the performance period only if the performance threshold is met and continued service requirements are satisfied; there is no interim performance metric except in the case of certain change in control transactions.

PSSs vest and restrictions on transfer thereon lapse based upon the performance of the Company through the end of the applicable three year performance period relative to the applicable performance target. The PSSs vest in full if the maximum performance metric is achieved. At the end of the performance period, the PSSs that do not vest will be forfeited. The PSSs will vest at the end of the performance period only if the performance threshold is met and applicable continued service requirements are met; there is no interim performance metric except in the case of certain change in control transactions.

Our total unearned compensation for our stock-based compensation programs as of June 30, 2016 was $8 million for SARs, $19 million for RSUs and $3 million for PSUs and PSSs, which will be recorded to compensation expense over the next three years with respect to SARs and RSUs, with a limited portion of the SAR and RSU awards extending to four years, and over the next two years with respect to PSUs and PSSs.

14. RELATED-PARTY TRANSACTIONS

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

Leases—Our corporate headquarters have been located at the Hyatt Center in Chicago, Illinois, since 2005. A subsidiary of the Company holds a master lease for a portion of the Hyatt Center and has entered into sublease agreements with certain related parties. Future expected sublease income for this space from related parties is $4 million.

Equity Method Investments—We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We recorded fees of $8 million and $7 million for the three months ended June 30, 2016 and June 30, 2015, respectively. We recorded fees of $14 million and $12 million for the six months ended June 30, 2016 and June 30, 2015, respectively. As of June 30, 2016 and December 31, 2015, we had receivables due from these properties of $7 million and $6 million, respectively. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 11) to these entities. Our ownership interest in these unconsolidated hospitality ventures generally varies from 24% to 70%. See Note 3 for further details regarding these investments.

Class B Share Repurchase—During the three months ended June 30, 2015, we repurchased 1,026,501 shares of Class B common stock for a weighted average price of $58.45 per share, for an aggregate purchase price of approximately $60 million. The shares repurchased represented approximately 0.7% of the Company's total shares of common stock outstanding prior to the repurchase. During the six months ended June 30, 2015, we repurchased 1,776,501 shares of Class B common stock for a weighted average price of $58.91 per share, for an aggregate purchase price of approximately $105 million. The shares repurchased represented approximately 1% of the Company's total shares of common stock outstanding prior to the repurchase. The shares of Class B common stock were repurchased in privately negotiated transactions from trusts for the benefit of certain Pritzker family members and limited partnerships owned indirectly by trusts for the benefit of certain Pritzker family members and

were retired, thereby reducing the total number of shares outstanding and reducing the shares of Class B common stock authorized and outstanding by the repurchased share amount.

15. SEGMENT INFORMATION

Our reportable segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is the Chief Executive Officer. We define our reportable segments as follows:

•

Owned and leased hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations and, for purposes of segment Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.

•

Americas management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in the United States, Latin America, Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.

•

ASPAC management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Southeast Asia, as well as greater China, Australia, South Korea, Japan and Micronesia. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.

•

EAME/SW Asia management—This segment derives its earnings primarily from hotel management of our portfolio of brands located primarily in Europe, Africa, the Middle East, India and Nepal, as well as countries along the Persian Gulf and the Arabian Sea. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners with no added margin. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.

Our chief operating decision maker evaluates performance based on each segment’s revenue and Adjusted EBITDA. Adjusted EBITDA, as we define it, is a non-GAAP measure. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated hospitality ventures Adjusted EBITDA based on our ownership percentage of each venture, adjusted to exclude equity earnings (losses) from unconsolidated hospitality ventures; stock-based compensation expense; gains (losses) on sales of real estate; other income (loss), net; depreciation and amortization; interest expense; and provision for income taxes.

Effective January 1, 2016, our definition of Adjusted EBITDA has been updated to exclude stock-based compensation expense, to facilitate comparison with our competitors. We have applied this change in the definition of Adjusted EBITDA to 2015 historical results to allow for comparability between the periods presented.

The table below shows summarized consolidated financial information by segment. Included within corporate and other are unallocated corporate expenses, license fees related to Hyatt Residence Club, and our co-branded credit card.



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Owned and leased hotels
Owned and leased hotels revenues	$	559		$	540		$	1,075		$	1,049
Adjusted EBITDA	149			140			280			264
Depreciation and amortization	72			68			140			139
Americas management and franchising
Management and franchise fees revenues	100			96			191			184
Other revenues from managed properties	436			416			857			816
Intersegment revenues (a)	21			21			41			40
Adjusted EBITDA	89			82			165			155
Depreciation and amortization	4			4			9			9
ASPAC management and franchising
Management and franchise fees revenues	22			23			44			44
Other revenues from managed properties	27			21			48			40
Intersegment revenues (a)	—			1			—			1
Adjusted EBITDA	12			13			24			25
Depreciation and amortization	1			1			1			1
EAME/SW Asia management
Management and franchise fees revenues	16			17			32			33
Other revenues from managed properties	17			14			32			28
Intersegment revenues (a)	4			3			6			6
Adjusted EBITDA	8			9			16			16
Depreciation and amortization	2			2			3			3
Corporate and other
Revenues	13			10			22			19
Adjusted EBITDA	(31		)	(29		)	(64		)	(60		)
Depreciation and amortization	7			1			14			3
Eliminations (a)
Revenues	(25		)	(25		)	(47		)	(47		)
Adjusted EBITDA	—			—			—			—
Depreciation and amortization	—			—			—			—
TOTAL
Revenues	$	1,165		$	1,112		$	2,254		$	2,166
Adjusted EBITDA	227			215			421			400
Depreciation and amortization	86			76			167			155


(a)	Intersegment revenues are included in the management and franchise fees revenues and eliminated in Eliminations.

The table below provides a reconciliation of our consolidated Adjusted EBITDA to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporation for the three and six months ended June 30, 2016 and June 30, 2015.



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Adjusted EBITDA	$	227		$	215		$	421		$	400
Equity earnings (losses) from unconsolidated hospitality ventures	19			(23		)	21			(29		)
Stock-based compensation expense (see Note 13)	(4		)	(5		)	(20		)	(21		)
Gains (losses) on sales of real estate (see Note 6)	(21		)	1			(21		)	9
Other income (loss), net (see Note 17)	1			4			(3		)	(14		)
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA	(28		)	(19		)	(56		)	(42		)
EBITDA	194			173			342			303
Depreciation and amortization	(86		)	(76		)	(167		)	(155		)
Interest expense	(20		)	(17		)	(37		)	(34		)
Provision for income taxes	(21		)	(40		)	(37		)	(52		)
Net income attributable to Hyatt Hotels Corporation	$	67		$	40		$	101		$	62

16. EARNINGS PER SHARE

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Numerator:
Net income	$	67	$	40	$	101	$	62
Net income attributable to noncontrolling interests	—		—		—		—
Net income attributable to Hyatt Hotels Corporation	$	67	$	40	$	101