Item 1. Financial Statements
Item 1. Financial Statements
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, December 31,
2022 2021
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$ 1,432 $ 1,427
Restricted cash and cash equivalents
78 85
Accounts receivable, net of allowance for credit losses of $ 127 and $ 126
1,054 1,068
Prepaid expenses 165 89
Other
132 202
Total current assets (variable interest entities – $ 34 and $ 30 )
2,861 2,871
Intangibles and Other Assets:
Goodwill
5,061 5,071
Brands
4,875 4,883
Management and franchise contracts, net 778 758
Other intangible assets, net 178 194
Operating lease right-of-use assets
659 694
Property and equipment, net
290 305
Deferred income tax assets
213 213
Other
544 452
Total intangibles and other assets (variable interest entities – $ 172 and $ 184 )
12,598 12,570
TOTAL ASSETS $ 15,459 $ 15,441
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other
$ 1,604 $ 1,568
Current maturities of long-term debt
45 54
Current portion of deferred revenues
271 350
Current portion of liability for guest loyalty program 1,165 1,047
Total current liabilities (variable interest entities – $ 43 and $ 50 )
3,085 3,019
Long-term debt 8,720 8,712
Operating lease liabilities 823 870
Deferred revenues
846 896
Deferred income tax liabilities 719 700
Liability for guest loyalty program 1,271 1,317
Other 692 746
Total liabilities (variable interest entities – $ 210 and $ 212 )
16,156 16,260
Commitments and contingencies – see Note 12
Equity (Deficit):
Preferred stock, $ 0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of March 31, 2022 and December 31, 2021
— —
Common stock, $ 0.01 par value; 10,000,000,000 authorized shares, 332,821,509 issued and 278,994,111 outstanding as of March 31, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021
3 3
Treasury stock, at cost; 53,827,398 shares as of March 31, 2022 and 52,920,350 shares as of December 31, 2021
( 4,573 ) ( 4,443 )
Additional paid-in capital
10,702 10,720
Accumulated deficit ( 6,110 ) ( 6,322 )
Accumulated other comprehensive loss
( 720 ) ( 779 )
Total Hilton stockholders' deficit
( 698 ) ( 821 )
Noncontrolling interests
1 2
Total deficit ( 697 ) ( 819 )
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 15,459 $ 15,441
See notes to condensed consolidated financial statements.
2
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
2022 2021
Revenues
Franchise and licensing fees $ 413 $ 242
Base and other management fees 55 25
Incentive management fees 34 13
Owned and leased hotels 150 56
Other revenues 18 17
670 353
Other revenues from managed and franchised properties
1,051 521
Total revenues 1,721 874
Expenses
Owned and leased hotels
185 110
Depreciation and amortization 44 51
General and administrative 91 97
Other expenses 11 10
331 268
Other expenses from managed and franchised properties
1,021 585
Total expenses 1,352 853
Operating income 369 21
Interest expense ( 90 ) ( 103 )
Gain (loss) on foreign currency transactions
( 4 ) 2
Loss on debt extinguishment — ( 69 )
Other non-operating income, net
16 5
Income (loss) before income taxes 291 ( 144 )
Income tax benefit (expense)
( 80 ) 35
Net income (loss) 211 ( 109 )
Net loss attributable to noncontrolling interests
1 1
Net income (loss) attributable to Hilton stockholders $ 212 $ ( 108 )
Earnings (loss) per share:
Basic $ 0.76 $ ( 0.39 )
Diluted $ 0.75 $ ( 0.39 )
See notes to condensed consolidated financial statements.
3
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
Three Months Ended
March 31,
2022 2021
Net income (loss) $ 211 $ ( 109 )
Other comprehensive income (loss), net of tax expense:
Currency translation adjustment, net of tax of $ — (1) and $( 3 )
( 2 ) ( 29 )
Pension liability adjustment, net of tax (1)
1 2
Cash flow hedge adjustment, net of tax of $( 20 ) and $( 2 )
60 7
Total other comprehensive income (loss) 59 ( 20 )
Comprehensive income (loss) 270 ( 129 )
Comprehensive loss attributable to noncontrolling interests
1 1
Comprehensive income (loss) attributable to Hilton stockholders
$ 271 $ ( 128 )
____________
(1) Amounts were less than $ 1 million.
See notes to condensed consolidated financial statements.
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HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 31,
2022 2021
Operating Activities:
Net income (loss) $ 211 $ ( 109 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of contract acquisition costs 8 7
Depreciation and amortization expenses 44 51
Loss (gain) on foreign currency transactions 4 ( 2 )
Share-based compensation expense 37 39
Deferred income taxes ( 3 ) ( 39 )
Contract acquisition costs, net of refunds ( 15 ) ( 43 )
Working capital changes and other ( 91 ) ( 75 )
Net cash provided by (used in) operating activities 195 ( 171 )
Investing Activities:
Capital expenditures for property and equipment
( 4 ) ( 3 )
Capitalized software costs ( 10 ) ( 8 )
Investments in unconsolidated affiliates ( 20 ) —
Other 8 ( 5 )
Net cash used in investing activities ( 26 ) ( 16 )
Financing Activities:
Borrowings 18 1,500
Repayment of debt ( 13 ) ( 2,016 )
Debt issuance costs and redemption premium — ( 74 )
Repurchases of common stock ( 121 ) —
Share-based compensation tax withholdings ( 55 ) ( 46 )
Proceeds from share-based compensation 4 12
Net cash used in financing activities ( 167 ) ( 624 )
Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 4 ) ( 5 )
Net decrease in cash, restricted cash and cash equivalents ( 2 ) ( 816 )
Cash, restricted cash and cash equivalents, beginning of period 1,512 3,263
Cash, restricted cash and cash equivalents, end of period $ 1,510 $ 2,447
Supplemental Disclosures:
Cash paid (received) during the period:
Interest $ 78 $ 72
Income taxes, net of refunds ( 44 ) 25
See notes to condensed consolidated financial statements.
5
HILTON WORLDWIDE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Organization and Basis of Presentation
Organization
Hilton Worldwide Holdings Inc. (the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts, and licensing its intellectual property ("IP"), including brand names, trademarks and service marks. As of March 31, 2022 , we managed, franchised, owned or leased 6,892 hotels and resorts, including timeshare properties, totaling 1,082,728 rooms in 122 countries and territories.
Basis of Presentation
The accompanying condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited. We have condensed or omitted certain disclosures normally included in annual financial statements presented in accordance with GAAP but that are not required for interim reporting purposes. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Additionally, interim results are not necessarily indicative of full year performance. In particular, the coronavirus ("COVID-19") pandemic (the "pandemic") had an adverse impact on our results for the three months ended March 31, 2022 and 2021, when compared to periods prior to the onset of the pandemic; however, our results experienced significant recovery during the three months ended March 31, 2022 when compared to the prior year period. As such, this interim period, as well as upcoming periods, are unlikely to be comparable to periods prior to the onset of the pandemic or to other periods affected by the pandemic, and are not indicative of future performance. Management has made estimates and judgments in light of these circumstances. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.
Note 2: Revenues from Contracts with Customers
Contract Liabilities
The following table summarizes the activity of our contract liabilities, which are classified as components of current and long-term deferred revenues, during the three months ended March 31, 2022:
(in millions)
Balance as of December 31, 2021
$ 1,166
Cash received in advance and not recognized as revenue
88
Revenue recognized (1)(2)
( 128 )
Other (3)
( 88 )
Balance as of March 31, 2022
$ 1,038
____________
(1) Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements.
(2) Revenue recognized during the three months ended March 31, 2022 included $ 10 million for performance obligations that were satisfied in prior periods as a result of a change to the estimated breakage of Hilton Honors points for which point expirations have been temporarily suspended.
(3) Primarily represents changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors, which had no effect on revenues.
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Hilton Honors Points Pre-Sale
In April 2020, we pre-sold Hilton Honors points to American Express for $ 1.0 billion in cash (the "Honors Points Pre-Sale") for their use of points in connection with Hilton Honors co-branded credit cards for promotions, rewards and other such incentive programs. Upon receipt of the cash in 2020, we recognized $ 636 million in deferred revenues and the remainder in liability for guest loyalty program. The deferred revenues remaining as of March 31, 2022 is included in our co-branded credit card arrangement performance obligation described below.
Performance Obligations
As of March 31, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of: (i) $ 335 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ; (ii) $ 61 million related to co-branded credit card arrangements; and (iii) $ 642 million related to application, initiation and other fees. These performance obligations are recognized as revenue as discussed in Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Note 3: Consolidated Variable Interest Entities
As of March 31, 2022 and December 31, 2021, we consolidated two variable interest entities ("VIEs") that each lease a hotel property. We consolidated these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb losses and the right to receive benefits that could be significant to each of the VIEs individually. The assets of our consolidated VIEs are only available to settle the obligations of the respective entities, and the liabilities of the consolidated VIEs are non-recourse to us.
Our condensed consolidated balance sheets include the assets and liabilities of these entities, which primarily comprised the following:
March 31, December 31,
2022 2021
(in millions)
Cash and cash equivalents $ 26 $ 18
Property and equipment, net 54 60
Deferred income tax assets 59 62
Other non-current assets 59 62
Accounts payable, accrued expenses and other 15 15
Long-term debt (1)
177 179
Other long-term liabilities 16 16
____________
(1) Includes finance lease liabilities of $ 135 million and $ 153 million as of March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022 and December 31, 2021, our VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen ("JPY") (equivalent to $ 37 million as of March 31, 2022), with 500 million JPY (equivalent to $ 4 million as of March 31, 2022) drawn and included in long-term debt in our condensed consolidated balance sheets, resulting in available borrowing capacities totaling 4.0 billion JPY (equivalent to $ 33 million as of March 31, 2022). During the three months ended March 31, 2022, our consolidated VIEs borrowed an aggregate of 2.1 billion JPY (equivalent to $ 17 million as of March 31, 2022), with a weighted average interest rate of 0.9 percent as of March 31, 2022 and maturity dates in February 2029, which was also included in long-term debt in our condensed consolidated balance sheet as of March 31, 2022.
7
Note 4: Finite-Lived Intangible Assets
Our finite-lived intangible assets consist of management and franchise contracts and other intangible assets. Management and franchise contracts, net were as follows:
March 31, 2022
Gross Carrying Value Accumulated Amortization Net
Carrying Value
(in millions)
Management contracts recorded at Merger (1)
$ 307 $ ( 277 ) $ 30
Contract acquisition costs
812 ( 178 ) 634
Development commissions and other
142 ( 28 ) 114
$ 1,261 $ ( 483 ) $ 778
December 31, 2021
Gross Carrying Value Accumulated Amortization Net
Carrying Value
(in millions)
Management contracts recorded at Merger (1)
$ 310 $ ( 275 ) $ 35
Contract acquisition costs
780 ( 170 ) 610
Development commissions and other
140 ( 27 ) 113
$ 1,230 $ ( 472 ) $ 758
____________
(1) Represents intangible assets that were initially recorded at fair value as part of the 2007 transaction whereby we became a wholly owned subsidiary of affiliates of Blackstone Inc. (the "Merger").
Amortization of our finite-lived intangible assets was as follows:
Three Months Ended
March 31,
2022 2021
(in millions)
Recognized in depreciation and amortization expenses (1)
$ 32 $ 38
Recognized as a reduction of franchise and licensing fees and
base and other management fees
8 7
____________
(1) Includes amortization expense associated with assets that were initially recorded at fair value at the time of the Merger of $ 12 million for both the three months ended March 31, 2022 and 2021.
8
Note 5: Debt
Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2022, were as follows:
March 31, December 31,
2022 2021
(in millions)
Senior secured term loan facility with a rate of 2.21 %, due 2026
$ 2,619 $ 2,619
Senior notes with a rate of 5.375 %, due 2025 (1)
500 500
Senior notes with a rate of 4.875 %, due 2027 (1)
600 600
Senior notes with a rate of 5.750 %, due 2028 (1)
500 500
Senior notes with a rate of 3.750 %, due 2029 (1)
800 800
Senior notes with a rate of 4.875 %, due 2030 (1)
1,000 1,000
Senior notes with a rate of 4.000 %, due 2031 (1)
1,100 1,100
Senior notes with a rate of 3.625 %, due 2032 (1)
1,500 1,500
Finance lease liabilities with a weighted average rate of 5.87 %, due 2022 to 2030
188 208
Other debt of consolidated VIEs with a weighted average rate of 1.63 %, due 2022 to 2029 (2)
42 26
8,849 8,853
Less: unamortized deferred financing costs and discount ( 84 ) ( 87 )
Less: current maturities of long-term debt (3)
( 45 ) ( 54 )
$ 8,720 $ 8,712
____________
(1) These notes are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries, other than Hilton Domestic Operating Company Inc., an indirect wholly owned subsidiary of the Parent and the issuer of all of the series of Senior Notes.
(2) Refer to Note 3: "Consolidated Variable Interest Entities" for additional information on the debt of our consolidated VIEs .
(3) Represents current maturities of finance lease liabilities and the outstanding borrowings under the revolving credit facility of a consolidated VIE.
Our senior secured credit facilities consist of a $ 1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility. The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries. As of March 31, 2022, we had $ 60 million of letters of credit outstanding under the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,690 million.
Note 6: Fair Value Measurements
The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:
March 31, 2022
Hierarchy Level
Carrying Value Level 1 Level 2 Level 3
(in millions)
Assets:
Cash equivalents $ 601 $ — $ 601 $ —
Interest rate swap (1)
41 41
Liabilities:
Long-term debt (2)
8,535 5,784 — 2,590
9
December 31, 2021
Hierarchy Level
Carrying Value Level 1 Level 2 Level 3
(in millions)
Assets:
Cash equivalents $ 622 $ — $ 622 $ —
Liabilities:
Long-term debt (2)
8,532 6,180 — 2,599
Interest rate swaps (1)
41 — 41 —
____________
(1) Interest rate swaps are included in other non-current assets or other long-term liabilities in our condensed consolidated balance sheets depending on their value to us as of the balance sheet date. During the three months ended March 31, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured. The remaining interest rate swap as of March 31, 2022 will mature in March 2026.
(2) The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude finance lease liabilities and other debt of consolidated VIEs.
We measure our interest rate swaps at fair value, which was determined using a discounted cash flow analysis that reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves, as applicable.
The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of March 31, 2022 and December 31, 2021.
Note 7: Income Taxes
Our effective income tax rate for the three months ended March 31, 2022 was based on our estimated effective income tax rate expected to be applied for the full year. The effective income tax rate is determined by the level and composition of income (loss) before income taxes, which is subject to federal, state, local and foreign income taxes.
Note 8: Share-Based Compensation
We recognized share-based compensation expense of $ 37 million and $ 39 million during the three months ended March 31, 2022 and 2021, respectively, which included amounts reimbursed by hotel owners.
Our share-based compensation primarily consists of awards that we grant to eligible employees under the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan") and includes time-vesting restricted stock units ("RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares"). As of March 31, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 232 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.
RSUs
During the three months ended March 31, 2022, we granted 503,000 RSUs with a weighted average grant date fair value per share of $ 150.67 , which vest in equal annual installments over two or three years from the date of grant.
Options
During the three months ended March 31, 2022, we granted 318,000 options with an exercise price per share of $ 150.67 , which vest in equal annual installments over three years from the date of grant and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances.
10
The grant date fair value per share of the options granted during the three months ended March 31, 2022 was $ 51.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
Expected volatility (1)
33.28 %
Dividend yield (2)
0.41 %
Risk-free rate (3)
1.93 %
Expected term (in years) (4)
6.0
____________
(1) Estimated using a blended approach of historical and implied volatility. Historical volatility is based on the historical movement of Hilton's stock price for a period that corresponds to the expected life of the option.
(2) Estimated based on the expectation, at the date of grant, of the resumption of a quarterly $ 0.15 per share dividend beginning in the second quarter of 2022, as well as our three-month average stock price.
(3) Based on the yields of U.S. Department of Treasury instruments with similar expected lives.
(4) Estimated using the midpoint of the vesting period and the contractual term of the options.
Performance Shares
During the three months ended March 31, 2022, we granted 216,000 performance shares with a grant date fair value per share of $ 150.67 . We recognize compensation expense based on the total number of performance shares that are expected to vest as determined by the projected achievement of each of the performance measures, which are estimated each reporting period and range from zero percent to 200 percent, with 100 percent being the target. As of March 31, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2020 and 2021 and at target for the performance shares granted in 2022.
Note 9: Earnings (Loss) Per Share
The following table presents the calculation of basic and diluted earnings (loss) per share ("EPS"):
Three Months Ended
March 31,
2022 2021
(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$ 212 $ ( 108 )
Denominator:
Weighted average shares outstanding 279 278
Basic EPS $ 0.76 $ ( 0.39 )
Diluted EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$ 212 $ ( 108 )
Denominator:
Weighted average shares outstanding (1)
282 278
Diluted EPS $ 0.75 $ ( 0.39 )
____________
(1) Certain shares related to share-based compensation were excluded from the calculations of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million and 3 million shares for the three months ended March 31, 2022 and 2021, respectively.
11
Note 10: Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss
The following tables present the changes in the components of stockholders' equity (deficit):
Three Months Ended March 31, 2022
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of December 31, 2021 279 $ 3 $ ( 4,443 ) $ 10,720 $ ( 6,322 ) $ ( 779 ) $ 2 $ ( 819 )
Net income (loss) — — — — 212 — ( 1 ) 211
Other comprehensive income
— — — — — 59 — 59
Repurchases of common stock (1)
( 1 ) — ( 130 ) — — — — ( 130 )
Share-based compensation
1 — — ( 18 ) — — — ( 18 )
Balance as of March 31, 2022 279 $ 3 $ ( 4,573 ) $ 10,702 $ ( 6,110 ) $ ( 720 ) $ 1 $ ( 697 )
____________
(1) Beginning in March 2022, we resumed share repurchases under our previously authorized stock repurchase program.
Three Months Ended March 31, 2021
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of December 31, 2020 278 $ 3 $ ( 4,453 ) $ 10,552 $ ( 6,732 ) $ ( 860 ) $ 4 $ ( 1,486 )
Net loss — — — — ( 108 ) — ( 1 ) ( 109 )
Other comprehensive loss
— — — — — ( 20 ) — ( 20 )
Share-based compensation
1 — — ( 5 ) — — — ( 5 )
Balance as of March 31, 2021 279 $ 3 $ ( 4,453 ) $ 10,547 $ ( 6,840 ) $ ( 880 ) $ 3 $ ( 1,620 )
The changes in the components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency Translation Adjustment (1)
Pension Liability Adjustment (2)
Cash Flow Hedge Adjustment (3)
Total
(in millions)
Balance as of December 31, 2021 $ ( 540 ) $ ( 210 ) $ ( 29 ) $ ( 779 )
Other comprehensive income (loss) before reclassifications
( 3 ) ( 1 ) 55 51
Amounts reclassified from accumulated other comprehensive loss
1 2 5 8
Net current period other comprehensive income (loss)
( 2 ) 1 60 59
Balance as of March 31, 2022 $ ( 542 ) $ ( 209 ) $ 31 $ ( 720 )
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Currency Translation Adjustment (1)
Pension Liability Adjustment (2)
Cash Flow Hedge Adjustment (3)
Total
(in millions)
Balance as of December 31, 2020 $ ( 511 ) $ ( 289 ) $ ( 60 ) $ ( 860 )
Other comprehensive income (loss) before reclassifications
( 29 ) ( 1 ) 2 ( 28 )
Amounts reclassified from accumulated other comprehensive loss
— 3 5 8
Net current period other comprehensive income (loss)
( 29 ) 2 7 ( 20 )
Balance as of March 31, 2021 $ ( 540 ) $ ( 287 ) $ ( 53 ) $ ( 880 )
____________
(1) Includes net investment hedge gains and intra-entity foreign currency transactions that are of a long-term investment nature. Amount reclassified during the three months ended March 31, 2022 related to the liquidation of an investment in a foreign entity and was recognized in loss on foreign currency transactions in our condensed consolidated statement of operations.
(2) Amounts reclassified related to the amortization of prior service cost and amortization of net loss and were recognized in other non-operating income, net in our condensed consolidated statements of operations.
(3) Amounts reclassified were the result of hedging instruments, including: (a) interest rate swaps, inclusive of interest rate swaps that were dedesignated and subsequently settled, with related amounts recognized in interest expense in our condensed consolidated statements of operations and (b) forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in various revenue line items, as applicable, in our condensed consolidated statements of operations .
Note 11: Business Segments
We are a hospitality company with operations organized in two distinct operating segments: (i) management and franchise and (ii) ownership, each of which is reported as a segment based on (a) delivering a similar set of products and services and
(b) being managed separately given its distinct economic characteristics.
The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that license our IP and where we provide other contracted services to third-party owners, but the day-to-day services of the hotels are operated or managed by someone other than us. This segment generates its revenue from: (i) management and franchise fees charged to third-party owners; (ii) licensing fees for the right to use our IP from Hilton Grand Vacations Inc. ("HGV") and strategic partnerships, including co-branded credit card arrangements; and (iii) fees for managing hotels in our ownership segment. As of March 31, 2022, this segment included 740 managed hotels and 6,038 franchised hotels consisting of 1,055,088 total rooms.
As of March 31, 2022, our ownership segment included 54 properties totaling 18,151 rooms. The segment comprised 46 hotels that we leased, one hotel owned by a consolidated non-wholly owned entity, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates. As a result of the pandemic, the operations of approximately 15 hotels in our ownership segment were suspended for some period of time during the three months ended March 31, 2021, compared with no hotels in our ownership segment having suspended operations as a result of the pandemic during the three months ended March 31, 2022.
The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues, other revenues and other expenses from managed and franchised properties, other expenses, depreciation and amortization expenses or general and administrative expenses.
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The following table presents revenues for our reportable segments, reconciled to consolidated amounts:
Three Months Ended
March 31,
2022 2021
(in millions)
Franchise and licensing fees $ 417 $ 245
Base and other management fees (1)
61 30
Incentive management fees 34 13
Management and franchise 512 288
Ownership 150 56
Segment revenues 662 344
Amortization of contract acquisition costs ( 8 ) ( 7 )
Other revenues 18 17
Direct reimbursements from managed and franchised properties (2)
511 223
Indirect reimbursements from managed and franchised properties (2)
540 298
Intersegment fees elimination (1)
( 2 ) ( 1 )
Total revenues $ 1,721 $ 874
____________
(1) Includes management, royalty and IP fees charged to consolidated hotels in our ownership segment by our management and franchise segment, which were eliminated in our condensed consolidated statements of operations.
(2) Included in other revenues from managed and franchised properties in our condensed consolidated statements of operations.
The following table presents operating income (loss) for our reportable segments, reconciled to consolidated income (loss) before income taxes:
Three Months Ended
March 31,
2022 2021
(in millions)
Management and franchise (1)
$ 512 $ 288
Ownership (1)
( 37 ) ( 55 )
Segment operating income 475 233
Amortization of contract acquisition costs ( 8 ) ( 7 )
Other revenues, less other expenses 7 7
Net other revenues (expenses) from managed and franchised properties
30 ( 64 )
Depreciation and amortization expenses ( 44 ) ( 51 )
General and administrative expenses ( 91 ) ( 97 )
Operating income 369 21
Interest expense ( 90 ) ( 103 )
Gain (loss) on foreign currency transactions ( 4 ) 2
Loss on debt extinguishment — ( 69 )
Other non-operating income, net 16 5
Income (loss) before income taxes $ 291 $ ( 144 )
____________
(1) Includes management, royalty and IP fees charged to consolidated hotels in our ownership segment by our management and franchise segment, which were eliminated in our condensed consolidated statements of operations.
Note 12: Commitments and Contingencies
We provide performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees do not require us to fund shortfalls, but allow for termination of the contract, if specified operating performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls, creating variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary. As of March 31, 2022, we had performance guarantees with expirations ranging from 2025 to 2043 and potential cash outlays totaling $ 9 million. Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee for that particular hotel.
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As of March 31, 2022, we had extended debt guarantees and letters of credit to owners of certain hotels that we will or currently manage or franchise with expirations ranging from 2023 to 2031 and potential cash outlays totaling $ 61 million.
We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brand programs on behalf of hotel owners. If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs. As of March 31, 2022 and December 31, 2021, amounts expended and recognized on behalf of these programs exceeded the amounts collected.
We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of March 31, 2022 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
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