Hilton Worldwide Holdings Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, statements related to our expectations regarding the impact of the COVID-19 pandemic, the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, risks related to the impact of the COVID-19 pandemic, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S. and our indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Part I—Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. COVID-19 Pandemic Since the beginning of 2020, the COVID-19 pandemic has significantly impacted the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives in place at various times, resulting in cancellations and significantly reduced travel around the world. In response to the global crisis, we took actions to prioritize the safety and security of our guests, employees and owners and support our communities, as well as help our business withstand this uncertain time; see further discussion in "—Liquidity and Capital Resources." The reduction in travel resulted in the complete and partial suspensions of operations at certain of our hotels throughout 2020, although the majority of those properties had reopened by December 31, 2020. During the three months ended March 31, 2021, reopenings outpaced suspensions; however, the operations of approximately 275 hotels were suspended for some period of time during the period. Our Asia Pacific region began experiencing the effects of the pandemic in January 2020, while the pronounced negative results and hotel suspensions in the Americas and Europe, Middle East and Africa ("EMEA") regions did not begin until mid-March 2020. Additionally, since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives have varied by country and state and have fluctuated with COVID-19 infection surges and contractions and COVID-19 vaccination distributions, which commenced in late 2020. As such, the pandemic had a material adverse impact on our results for the three months ended March 31, 2021 and 2020 when compared to periods prior to the onset of the pandemic, and although both periods were significantly impacted by the pandemic, they are not considered comparable, and no two periods affected by the pandemic are expected to be comparable in the future. In addition, although the distribution of effective COVID-19 vaccinations is a promising development, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains) and when normal economic activity and business operations will resume. Accordingly, given the ongoing nature of the COVID-19 pandemic, the ultimate impact that it will have on the Company’s business, financial performance and results of operations remains uncertain. As of April 28, 2021, 97 percent of our global hotel properties were open, while the operations of approximately 175 hotels were suspended, and we expect all of our hotel properties to be open by the end of 2021. Refer to "—Results of Operations" for further discussion on signs of recovery experienced during the period. 19 Overview Our Business Hilton is one of the largest hospitality companies in the world, with 6,567 properties comprising 1,032,412 rooms in 119 countries and territories as of March 31, 2021. Our premier brand portfolio includes: our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Tempo by Hilton and Motto by Hilton; our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton; our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. As of March 31, 2021, we had 115 million members in our award-winning guest loyalty program, Hilton Honors. Segments and Regions We analyze our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments that are based on similar products or services: (i) management and franchise and (ii) ownership. The management and franchise segment provides services, including hotel management and licensing of our brands and IP. This segment generates its revenue from: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees from HGV and strategic partnerships, including co-branded credit card arrangements, for the right to use certain Hilton marks and IP; and (iii) fees for managing properties in our ownership segment. As a manager of hotels, we typically are responsible for supervising or operating the property in exchange for management fees. As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation systems, marketing and information technology services, while a third party manages or operates such franchised hotels. The ownership segment primarily derives earnings from providing nightly hotel room sales, food and beverage sales and other services at our owned and leased hotels. Geographically, we conduct business through three distinct geographic regions: (i) the Americas; (ii) EMEA; and (iii) Asia Pacific. The Americas region includes North America, South America and Central America, including all Caribbean nations. Although the U.S., which represented 71 percent of our system-wide hotel rooms as of March 31, 2021, is included in the Americas region, it is often analyzed separately and apart from the Americas region and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Iceland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East region and all African nations, including the Indian Ocean island nations. Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations. System Growth and Development Pipeline Our strategic objectives include the continued expansion of our global footprint and fee-based business. As we enter into new management and franchise contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our brand names and IP. Prior to approving the addition of new properties to our management and franchise development pipeline, we evaluate the economic viability of the property based on its geographic location, the credit quality of the third-party owner and other factors. By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs. While these objectives have not changed as a result of the COVID-19 pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development. During the three months ended March 31, 2021, we added over 100 hotels, consisting of 16,500 rooms, to our system, contributing to over 13,100 net additional hotel rooms. As of March 31, 2021, we had over 2,570 hotels in our development pipeline that we expect to add to our system in the future, representing nearly 399,000 rooms under construction or approved for development throughout 114 countries and territories, including 31 countries and territories where we do not currently have any existing hotels. Nearly all of the rooms in the development pipeline are within our management and franchise segment. Additionally, of the rooms in the development pipeline, 241,000 rooms were located outside the U.S., and 204,000 rooms were under construction. We do not consider any individual development project to be material to us. 20 Brexit In June 2016, the United Kingdom ("U.K.") held a referendum in which voters approved an exit from the European Union ("E.U.") (commonly referred to as "Brexit"). In December 2020, the U.K. and the E.U. reached a new bilateral trade and cooperation deal governing their future relationship (the "EU-UK Trade and Cooperation Agreement"), which has now been approved by all parties and will be fully implemented from May 1, 2021. While our results as of and for the three months ended March 31, 2021 were not materially affected by Brexit specifically, the final outcomes are not yet certain. In addition, while the EU-UK Trade and Cooperation Agreement provides clarity in respect of the intended future relationship between the U.K. and the E.U. and some detailed matters of trade and cooperation, it remains unclear what general long-term economic, financial, trade and legal implications the U.K. withdrawal from the E.U. will have and how it will ultimately affect our business. Brexit measures could potentially disrupt the markets we serve and cause tax and foreign currency exchange rate volatility, which could have adverse effects on our business. We will continue to monitor the potential impact of Brexit on our business in future periods. Key Business and Financial Metrics Used by Management Comparable Hotels We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available. Of the 6,511 hotels in our system as of March 31, 2021, 5,642 hotels were classified as comparable hotels. Our 869 non-comparable hotels included 48 hotels, or less than one percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available. When considering business interruption in the context of our definition of comparable hotels, any hotel that had completely or partially suspended operations on a temporary basis at any point as a result of the COVID-19 pandemic was considered to be part of the definition of comparable hotels. Despite these temporary suspensions of hotel operations, we believe that including these hotels within our hotel operating statistics of occupancy, average daily rate ("ADR") and revenue per available room ("RevPAR") reflects the underlying results of our business for the three months ended March 31, 2021 and 2020. Occupancy Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period. Occupancy measures the utilization of our hotels' available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR pricing levels as demand for hotel rooms increases or decreases. ADR ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above. RevPAR RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels, as previously described: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels. References to RevPAR, ADR and occupancy are presented on a comparable basis, and references to RevPAR and ADR are presented on a currency neutral basis, unless otherwise noted. As such, comparisons of these hotel operating statistics for the three months ended March 31, 2021 and 2020 use the exchange rates for the three months ended March 31, 2021. 21 EBITDA and Adjusted EBITDA EBITDA reflects net income (loss), excluding interest expense, a provision for income tax benefit (expense) and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated equity investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment ("FF&E") replacement reserves required under certain lease agreements; (v) share-based compensation; (vi) reorganization, severance, relocation and other expenses; (vii) non-cash impairment; (viii) amortization of contract acquisition costs; (ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties; and (x) other items. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry. For instance, interest expense and income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies. Depreciation and amortization, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used. For Adjusted EBITDA, we also exclude items such as: (i) FF&E replacement reserves for leased hotels to be consistent with the treatment of FF&E for owned hotels, where it is capitalized and depreciated over the life of the FF&E; (ii) share-based compensation, as this could vary widely among companies due to the different plans in place and the usage of them; (iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts; and (iv) other items, such as amounts related to debt restructurings and retirements and reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are: • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • EBITDA and Adjusted EBITDA do not reflect income tax expenses or the cash requirements to pay our taxes; • EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations. 22 Results of Operations The hotel operating statistics by region for our system-wide comparable hotels were as follows: Three Months Ended Change March 31, 2021 2021 vs. 2020 U.S. Occupancy 47.7 % (9.9) % pts. ADR $ 107.23 (23.4) % RevPAR $ 51.10 (36.6) % Americas (excluding U.S.) Occupancy 30.3 % (21.3) % pts. ADR $ 94.43 (22.7) % RevPAR $ 28.64 (54.6) % Europe Occupancy 19.3 % (32.7) % pts. ADR $ 81.59 (35.0) % RevPAR $ 15.74 (75.9) % MEA Occupancy 42.6 % (15.7) % pts. ADR $ 124.56 (6.9) % RevPAR $ 53.12 (31.9) % Asia Pacific Occupancy 43.7 % 6.5 % pts. ADR $ 97.60 (20.5) % RevPAR $ 42.65 (6.6) % System-wide Occupancy 43.9 % (11.0) % pts. ADR $ 105.38 (23.0) % RevPAR $ 46.23 (38.4) % During the three months ended March 31, 2021, the COVID-19 pandemic continued to negatively impact our business and our hotel operating statistics. As a result of the pandemic, certain hotels suspended operations at various times throughout 2020 and, although the majority of those hotels were reopened by 2021, new suspensions and re-suspensions continued during the three months ended March 31, 2021. The operations of approximately 275 properties, which are primarily located in the U.S. and Europe, were suspended for some period of time during the three months ended March 31, 2021, as compared to approximately 730 properties during the three months ended March 31, 2020. While approximately 97 percent of our global hotel properties were open as of March 31, 2021, most properties, including those that reopened following suspensions of their operations, experienced significantly lower occupancy as compared to prior to the pandemic, as business and transient demand was lower due to factors related to the pandemic, such as travel restrictions and health and safety concerns. The negative impact of the COVID-19 pandemic affected the Asia Pacific region in January 2020, before spanning to the U.S., Americas (excluding the U.S.), Europe and MEA regions in mid-March 2020. Therefore, the results for the three months ended March 31, 2021 and 2020 for the U.S., Americas (excluding the U.S.), Europe and MEA regions are less comparable than the Asia Pacific region and reflect more pronounced declines in RevPAR between the two periods. However, overall, signs of recovery are evident as our properties continue to reopen and, although we historically expect our revenues to be lowest in the first quarter given the seasonality of our industry, we had sequential monthly improvement in occupancy, ADR and RevPAR on a system-wide basis from December 2020 through March 2021, with a 23.2 percent improvement in system-wide RevPAR for the month of March 2021 as compared to the month of March 2020. 23 The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA: Three Months Ended March 31, 2021 2020 (in millions) Net income (loss) $ (109) $ 18 Interest expense 103 94 Income tax benefit (35) (35) Depreciation and amortization expenses 51 91 EBITDA 10 168 Gain on foreign currency transactions (2) (9) Loss on debt extinguishment 69 — FF&E replacement reserves 4 14 Share-based compensation expense (benefit) 39 (12) Impairment losses — 112 Amortization of contract acquisition costs 7 8 Net other expenses from managed and franchised properties 64 71 Other adjustments (1) 7 11 Adjusted EBITDA $ 198 $ 363 ____________ (1) Includes severance and other items. Revenues Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Franchise and licensing fees $ 242 $ 339 (28.6) Base and other management fees $ 25 $ 60 (58.3) Incentive management fees 13 23 (43.5) Total management fees $ 38 $ 83 (54.2) The COVID-19 pandemic began to significantly impact our franchise and licensing fees and management fees in March 2020. As a result of the pandemic, during the three months ended March 31, 2021 and 2020, the operations of certain of our franchised and managed hotels were suspended for some period of time. As of March 31, 2021, all but approximately 200 of these hotels were open. In addition to the suspensions of hotel operations, the related reduction in global travel and tourism led to decreases in our hotel operating statistics during the three months ended March 31, 2021, compared to the same period in the prior year, and, ultimately, decreases in our franchise fees and management fees. For the three months ended March 31, 2021, RevPAR decreased 33.3 percent at our comparable franchised properties and 50.2 percent at our comparable managed properties, as a result of decreases in occupancy of 8.9 percentage points and 16.5 percentage points, respectively, and reduced ADR of 20.8 percent and 25.8 percent, respectively. The decreases in RevPAR during the period were primarily attributable to decreases in January 2021 and February 2021 when compared to the same period in the prior year, as March 2021 showed RevPAR improvement at both comparable franchised properties and managed properties of 25.7 percent and 17.6 percent, respectively, when compared to the same period in the prior year. Including new development and ownership type transfers, from January 1, 2020 to March 31, 2021, we added 460 managed and franchised properties on a net basis, providing an additional 61,700 rooms to our management and franchise segment. While we have historically experienced increases to franchise fees and management fees as new hotels are a part of our system for full periods, the impact of the COVID-19 pandemic outweighed the positive impact of these property additions on our franchise fees and management fees from non-comparable hotels. 24 Additionally, licensing and other fees decreased $19 million during the three months ended March 31, 2021, primarily due to decreases in licensing fees from HGV and our strategic partnerships, which were the result of reductions in timeshare revenues and lower co-branded credit cardholder spend, respectively, both resulting from the COVID-19 pandemic. Incentive fees decreased during the period as they are based on hotels' operating profits, which have declined from the prior year as a result of decreased demand due to the COVID-19 pandemic. Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Owned and leased hotels $ 56 $ 210 (73.3) Owned and leased hotel revenues decreased primarily due to the COVID-19 pandemic and the related reduction in global travel and tourism. As a result of the COVID-19 pandemic, the operations of approximately 15 of our owned and leased hotels, all of which are located in Europe, were suspended for some period of time during the three months ended March 31, 2021, and five remained suspended as of March 31, 2021. Although the operations of some of our owned and leased hotels were suspended for some period of time during the three months ended March 31, 2020, the suspensions began in late March, when our owned and leased hotels began to be significantly impacted by the pandemic. The decrease in owned and leased hotel revenues was primarily attributable to the $114 million decrease in revenues from our comparable owned and leased hotels, due to reduced RevPAR of 79.6 percent, resulting from decreases in occupancy and ADR of 37.1 percentage points and 27.1 percent, respectively. Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Other revenues $ 17 $ 23 (26.1) Other revenues decreased primarily due to decreased revenues from our purchasing operations, which predominately related to lower volume purchasing based on reduced hotel demand as a result of the COVID-19 pandemic. Operating Expenses Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Owned and leased hotels $ 110 $ 239 (54.0) Owned and leased hotel expen ses decreased primarily due to a decrease in occupancy and certain hotels having suspended operations for some period of time as a result of the COVID-19 pandemic, which led to reduced variable operating costs and food and beverage expenses. Further, as a result of declining performance, variable rent, which is generally based on a percentage of hotel revenues or profits, decreased at most leased hotels that have a variable rent structure . However, certain fixed costs of maintaining these hotels, such as fixed rent and certain minimum maintenance and utility costs, even with suspended operations or operating with very low occupancy, could not be reduced at the same rate as the hotel revenue decreases during the period. 25 Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Depreciation and amortization expenses $ 51 $ 91 (44.0) General and administrative expenses 97 60 61.7 Impairment losses — 112 (100.0) Other expenses 10 14 (28.6) The decrease in depreciation and amortization expenses was primarily due to a decrease in amortization expense, which was largely the result of certain management and franchise contract intangible assets recorded at the Merger becoming fully amortized during 2020. The increase in general and administrative expenses was primarily due to increased share-based compensation expense as a result of a benefit recognized during the three months ended March 31, 2020 due to the reversal of previously recognized expense resulting from the determination that the performance conditions of certain then-outstanding performance shares were no longer probable of achievement, while compensation expense was recognized during the three months ended March 31, 2021 for all of the outstanding performance shares, which were probable of achievement. See Note 9: "Share-Based Compensation" in our unaudited condensed consolidated financial statements for additional information. This increase was partially offset by a decrease in corporate costs associated with the reorganization initiated by the Company in June 2020, in response to the COVID-19 pandemic. During the three months ended March 31, 2020, we recognized impairment losses of $45 million, $21 million and $46 million for operating lease ROU assets, property and equipment and other intangible assets, respectively, related to our leased hotel properties. These impairment losses were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic. Other expenses decreased primarily as a result of a decrease in expenses from our purchasing operations, resulting from reduced hotel demand, as well as a decrease in expenses related to a performance guarantee that was recognized during the three months ended March 31, 2020. Non-operating Income and Expenses Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Interest expense $ (103) $ (94) 9.6 Gain on foreign currency transactions 2 9 (77.8) Loss on debt extinguishment (69) — NM (1) Other non-operating income, net 5 — NM (1) Income tax benefit 35 35 — ____________ (1) Fluctuation in terms of percentage change is not meaningful. The increase in interest expense was primarily due to the issuances of the 2025 Senior Notes and the 2028 Senior Notes in April 2020. These increases were partially offset by a decrease resulting from the issuances of new senior unsecured notes and extinguishments of existing senior unsecured notes in December 2020 and February 2021, which reduced the weighted average interest rate on our outstanding senior unsecured notes, as well as a decrease in interest expense on our Term Loan due to a decline in its variable interest rate that was applicable for the period. See Note 5: "Debt" in our unaudited condensed consolidated financial statements for additional information on our indebtedness. The gains on foreign currency transactions included changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans. The changes for both periods were the result of various currencies, but primarily the Australian dollar and the euro. 26 Loss on debt extinguishment for the three months ended March 31, 2021 related to the redemption of the 2026 Senior Notes and included a redemption premium of $55 million and the accelerated recognition of unamortized deferred financing costs of $14 million. See Note 5: "Debt" in our unaudited condensed consolidated financial statements for additional information. The income tax benefit was flat during the three months ended March 31, 2021, as the increase in loss before income taxes was partially offset by a decrease in tax benefits recognized for losses in certain jurisdictions. Further, during the three months ended March 31, 2020, we recognized a tax benefit for impairment losses that were recognized during the period. For additional information, see Note 8: "Income Taxes" in our unaudited condensed consolidated financial statements. Segment Results Refer to Note 12: "Business Segments" in our unaudited condensed consolidated financial statements for reconciliations of revenues for our reportable segments to consolidated amounts and of segment operating income to consolidated loss before income taxes. We evaluate our business segment operating performance using segment operating income (loss), without allocating other revenues and expenses or general and administrative expenses. Refer to "—Revenues" for further discussion of the decrease in revenues from our managed and franchised properties, which is correlated to our management and franchise segment revenues and segment operating income. Refer to "—Revenues" and "—Operating Expenses" for further discussion of the decreases in revenues and operating expenses at our owned and leased hotels, which are correlated with our ownership segment revenues and segment operating loss. Liquidity and Capital Resources Overview As of March 31, 2021, we had total cash and cash equivalents of $2,447 million, including $45 million of restricted cash and cash equivalents. The majority of our restricted cash and cash equivalents are related to cash collateral on our self-insurance programs and cash held for FF&E reserves. Although we cannot presently estimate the ultimate and total financial impact of the unprecedented COVID-19 pandemic, which is highly dependent on the severity and duration of the pandemic, we expect it will continue to have a significant adverse impact on our results of operations in the near term. As such, due to these uncertainties, and the indeterminate length of time the pandemic will affect the hospitality industry, we took certain proactive measures in 2020 to implement strict cost management and to secure our liquidity position to be able to meet our obligations for the foreseeable future, including issuing senior notes, drawing down on our Revolving Credit Facility and consummating the Honors Points Pre-Sale. Further, in February 2021, we issued the 2032 Senior Notes to continue to extend debt maturities and reduce our cost of debt by repaying the 2026 Senior Notes. Based on our ability to manage our liquidity position during the COVID-19 pandemic, we repaid an aggregate of $500 million of the outstanding debt balance on our Revolving Credit Facility during the three months ended March 31, 2021. Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including costs associated with the management and franchising of hotels, corporate expenses, payroll and compensation costs, taxes and compliance costs, interest payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for required renovations and maintenance at the hotels within our ownership segment. While our accounts receivable balance as of March 31, 2021 is less than periods prior to the start of the pandemic, we are generally experiencing slower payment of certain fees due to us. As such, we have considered the implications of these delayed payment trends in developing our estimates of expected future credit losses. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements to the hotels within our ownership segment, commitments to owners in our management and franchise segment and corporate capital and information technology expenditures. We have currently suspended dividend payments and share repurchases, but expect that these activities will be reinstated in future periods and result in uses of liquidity. Although the COVID-19 pandemic has caused us to temporarily change our cash management strategy, we have a long-term investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders through dividends and share repurchases, which we expect to reimplement in the future. Within the framework of our investment policy, we currently intend to continue to finance our business activities 27 primarily with cash on our balance sheet as of March 31, 2021, cash generated from our operations and, as needed, the use of the available capacity of our Revolving Credit Facility. After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position and sources of liquidity will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments for the foreseeable future based on current conditions. The objectives of our cash management policy are to maintain the availability of liquidity while minimizing operational costs. We may from time to time issue or incur or increase our capacity to incur new debt and/or purchase our outstanding debt through underwritten offerings, open market transactions, privately negotiated transactions or otherwise. Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirement of outstanding debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We formally suspended share repurchases in 2020 given the economic environment and our efforts to preserve cash, and no share repurchases have been made since March 2020. The stock repurchase program remains authorized by the board of directors, and we may resume share repurchases in the future at any time, depending on market conditions, our capital needs and other factors. As of March 31, 2021, approximately $2.2 billion remained available for share repurchases under the program. Sources and Uses of Our Cash and Cash Equivalents The following table summarizes our net cash flows: Three Months Ended Percent March 31, Change 2021 2020 2021 vs. 2020 (in millions) Net cash provided by (used in) operating activities $ (171) $ 129 NM (1) Net cash used in investing activities (16) (47) (66.0) Net cash provided by (used in) financing activities (624) 1,100 NM (1) ____________ (1) Fluctuation in terms of percentage change is not meaningful. Operating Activities The change in cash flows from operating activities was primarily the result of decreases in cash inflows generated from our management and franchise properties and our owned and leased hotels, largely as a result of decreases in system-wide RevPAR due to the COVID-19 pandemic, as further discussed in "—Revenues," as well as an increase in contract acquisition costs of $32 million. The decrease was only partially offset by decreases in cash paid for taxes and interest of $25 million and $22 million, respectively. Investing Activities Net cash used in investing activities primarily related to capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations and, during the three months ended March 31, 2020, also capital expenditures for property and equipment. These capital expenditures were incurred before we took steps in March 2020 to temporarily reduce such expenditures in response to the COVID-19 pandemic and were related to our corporate facilities and the renovation of hotels in our ownership segment . Financing Activities The change in cash flows from financing activities was primarily attributable to our Revolving Credit Facility, which we fully drew down during the three months ended March 31, 2020 in response to the COVID-19 pandemic, resulting in net cash inflows of $1.5 billion, while we repaid $500 million of the outstanding debt balance during the three months ended March 31, 2021. Additionally, cash outflows decreased $338 million as a result of decreases in share repurchases and dividend payments, as both programs remained suspended during the three months ended March 31, 2021. 28 Debt and Borrowing Capacity As of March 31, 2021, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $10.1 billion. For additional information on our total indebtedness, including our recent financing transactions, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 5: "Debt" in our unaudited condensed consolidated financial statements. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity securities. Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control. The COVID-19 pandemic negatively impacted our cash flows from operations during the period, and will continue to do so for an indeterminate period of time. During 2020, we took precautions to secure our cash position, as discussed above, and we expect to be able to meet our current obligations. Furthermore, we do not have any material indebtedness outstanding that matures prior to June 2024. Contractual Obligations During the three months ended March 31, 2021, we issued the 2032 Senior Notes, redeemed the 2026 Senior Notes and repaid $500 million of the outstanding debt balance on our Revolving Credit Facility. Otherwise, there were no other material changes to our contractual obligations from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Summarized Guarantor Financial Information HOC is the issuer of the Senior Notes and is 100 percent owned directly by Hilton Worldwide Parent LLC ("HWP"), which, in turn, is 100 percent owned directly by the Parent. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by the Parent, HWP and substantially all of the Parent's direct and indirect wholly owned domestic restricted subsidiaries, except for HOC, the issuer (together, the "Guarantors"). The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of our senior secured credit facilities will guarantee the Senior Notes. As of March 31, 2021, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or our non-wholly owned subsidiaries guaranteed the Senior Notes. The guarantees are full and unconditional, subject to certain customary release provisions. The indentures that govern the Senior Notes provide that any Guarantor may be released from its guarantee so long as: (i) the subsidiary is sold or sells all of its assets; (ii) the subsidiary is released from its guarantee under our senior secured credit facilities; (iii) the subsidiary is declared "unrestricted" for covenant purposes; or (iv) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied, in each case in compliance with applicable provisions of the indentures. Neither HOC nor any of the Guarantors has any reporting obligation under the Exchange Act in respect of the Senior Notes; however, we are supplementally providing the information set forth below. The following tables present summarized financial information for HOC, along with the Parent and all other Guarantors, on a combined basis: As of March 31, 2021 (in millions) ASSETS Total current assets $ 752 Intangible assets, net 8,782 Total intangibles and other assets 9,285 TOTAL ASSETS 10,037 LIABILITIES AND EQUITY (DEFICIT) Total current liabilities 1,954 Long-term debt 9,721 Total liabilities 15,362 Total Hilton stockholders' deficit (5,325) TOTAL LIABILITIES AND EQUITY (DEFICIT) 10,037 29 Three Months Ended March 31, 2021 (in millions) Revenues Revenues $ 243 Other revenues from managed and franchised properties 441 Total revenues $ 684 Expenses Expenses $ 89 Other expenses from managed and franchised properties 512 Total expenses $ 601 Operating income $ 83 Interest expense (100) Income tax benefit 23 Net loss (55) Net loss attributable to Hilton stockholders (55) Critical Accounting Policies and Estimates The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and, during the three months ended March 31, 2021, there were no material changes to those previously disclosed.