Hilton Worldwide Holdings Inc. 10-Q

Item 1. Financial Statements HILTON WORLDWIDE HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share data) June 30, December 31, 2022 2021 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 1,175 $ 1,427 Restricted cash and cash equivalents 79 85 Accounts receivable, net of allowance for credit losses of $ 122 and $ 126 1,289 1,068 Prepaid expenses 128 89 Other 169 202 Total current assets (variable interest entities – $ 29 and $ 30 ) 2,840 2,871 Intangibles and Other Assets: Goodwill 5,030 5,071 Brands 4,847 4,883 Management and franchise contracts, net 873 758 Other intangible assets, net 167 194 Operating lease right-of-use assets 610 694 Property and equipment, net 271 305 Deferred income tax assets 213 213 Other 531 452 Total intangibles and other assets (variable interest entities – $ 152 and $ 184 ) 12,542 12,570 TOTAL ASSETS $ 15,382 $ 15,441 LIABILITIES AND EQUITY (DEFICIT) Current Liabilities: Accounts payable, accrued expenses and other $ 1,647 $ 1,568 Current maturities of long-term debt 41 54 Current portion of deferred revenues 260 350 Current portion of liability for guest loyalty program 1,247 1,047 Total current liabilities (variable interest entities – $ 40 and $ 50 ) 3,195 3,019 Long-term debt 8,702 8,712 Operating lease liabilities 753 870 Deferred revenues 855 896 Deferred income tax liabilities 727 700 Liability for guest loyalty program 1,252 1,317 Other 687 746 Total liabilities (variable interest entities – $ 185 and $ 212 ) 16,171 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 June 30, 2022 and December 31, 2021 — — Common stock, $ 0.01 par value; 10,000,000,000 authorized shares, 332,933,654 issued and 275,510,784 outstanding as of June 30, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021 3 3 Treasury stock, at cost; 57,422,870 shares as of June 30, 2022 and 52,920,350 shares as of December 31, 2021 ( 5,048 ) ( 4,443 ) Additional paid-in capital 10,753 10,720 Accumulated deficit ( 5,783 ) ( 6,322 ) Accumulated other comprehensive loss ( 714 ) ( 779 ) Total Hilton stockholders' deficit ( 789 ) ( 821 ) Noncontrolling interests — 2 Total deficit ( 789 ) ( 819 ) TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 15,382 $ 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 Six Months Ended June 30, June 30, 2022 2021 2022 2021 Revenues Franchise and licensing fees $ 545 $ 369 $ 958 $ 611 Base and other management fees 75 42 130 67 Incentive management fees 46 21 80 34 Owned and leased hotels 282 121 432 177 Other revenues 25 21 43 38 973 574 1,643 927 Other revenues from managed and franchised properties 1,267 755 2,318 1,276 Total revenues 2,240 1,329 3,961 2,203 Expenses Owned and leased hotels 257 142 442 252 Depreciation and amortization 40 46 84 97 General and administrative 103 98 194 195 Other expenses 11 9 22 19 411 295 742 563 Other expenses from managed and franchised properties 1,231 810 2,252 1,395 Total expenses 1,642 1,105 2,994 1,958 Operating income 598 224 967 245 Interest expense ( 99 ) ( 101 ) ( 189 ) ( 204 ) Gain (loss) on foreign currency transactions 8 ( 1 ) 4 1 Loss on debt extinguishment — — — ( 69 ) Other non-operating income, net 6 5 22 10 Income (loss) before income taxes 513 127 804 ( 17 ) Income tax benefit (expense) ( 146 ) 1 ( 226 ) 36 Net income 367 128 578 19 Net loss attributable to noncontrolling interests 1 2 2 3 Net income attributable to Hilton stockholders $ 368 $ 130 $ 580 $ 22 Earnings per share: Basic $ 1.33 $ 0.47 $ 2.09 $ 0.08 Diluted $ 1.32 $ 0.46 $ 2.07 $ 0.08 Cash dividends declared per share $ 0.15 $ — $ 0.15 $ — 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 Six Months Ended June 30, June 30, 2022 2021 2022 2021 Net income $ 367 $ 128 $ 578 $ 19 Other comprehensive income (loss), net of tax benefit (expense): Currency translation adjustment, net of tax of $ 6 , $ 1 , $ 6 and $( 2 ) ( 23 ) 8 ( 25 ) ( 21 ) Pension liability adjustment, net of tax of $( 1 ), $( 1 ), $( 1 ) and $( 1 ) 2 2 3 4 Cash flow hedge adjustment, net of tax of $( 9 ), $( 2 ), $( 29 ) and $( 4 ) 27 4 87 11 Total other comprehensive income (loss) 6 14 65 ( 6 ) Comprehensive income 373 142 643 13 Comprehensive loss attributable to noncontrolling interests 1 2 2 3 Comprehensive income attributable to Hilton stockholders $ 374 $ 144 $ 645 $ 16 See notes to condensed consolidated financial statements. 4 HILTON WORLDWIDE HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Six Months Ended June 30, 2022 2021 Operating Activities: Net income $ 578 $ 19 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of contract acquisition costs 18 14 Depreciation and amortization expenses 84 97 Gain on foreign currency transactions ( 4 ) ( 1 ) Share-based compensation expense 84 92 Deferred income taxes ( 3 ) ( 35 ) Contract acquisition costs, net of refunds ( 41 ) ( 115 ) Working capital changes and other ( 188 ) ( 371 ) Net cash provided by (used in) operating activities 528 ( 300 ) Investing Activities: Capital expenditures for property and equipment ( 11 ) ( 9 ) Issuance of other financing receivables ( 46 ) — Capitalized software costs ( 25 ) ( 16 ) Investments in unconsolidated affiliates ( 51 ) — Other 39 11 Net cash used in investing activities ( 94 ) ( 14 ) Financing Activities: Borrowings 18 1,500 Repayment of debt ( 25 ) ( 3,218 ) Debt issuance costs and redemption premium — ( 76 ) Dividends paid ( 41 ) — Repurchases of common stock ( 586 ) — Share-based compensation tax withholdings ( 56 ) ( 48 ) Proceeds from share-based compensation 16 24 Settlements of interest rate swap with financing component ( 5 ) — Net cash used in financing activities ( 679 ) ( 1,818 ) Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 13 ) ( 4 ) Net decrease in cash, restricted cash and cash equivalents ( 258 ) ( 2,136 ) Cash, restricted cash and cash equivalents, beginning of period 1,512 3,263 Cash, restricted cash and cash equivalents, end of period $ 1,254 $ 1,127 Supplemental Disclosures: Cash paid during the period: Interest $ 183 $ 174 Income taxes, net of refunds 130 42 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 June 30, 2022 , we managed, franchised, owned or leased 6,983 hotels and resorts, including timeshare properties, totaling 1,098,321 rooms in 122 countries and territories. Basis of Presentation The accompanying condensed consolidated financial statements for the three and six months ended June 30, 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 and six months ended June 30, 2022 and 2021, when compared to periods prior to the onset of the pandemic; however, our results experienced significant recovery during the three and six months ended June 30, 2022 when compared to the prior year periods. As such, these interim periods, 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 six months ended June 30, 2022: (in millions) Balance as of December 31, 2021 $ 1,166 Cash received in advance and not recognized as revenue 212 Revenue recognized (1)(2) ( 241 ) Other (3) ( 85 ) Balance as of June 30, 2022 $ 1,052 ____________ (1) Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements. (2) Revenue recognized during the three months ended June 30, 2022 was $ 113 million. Revenue recognized during the three and six months ended June 30, 2022 included a net reduction in revenue of $ 13 million and $ 3 million, respectively, 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. 6 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. During the six months ended June 30, 2022, the remaining points sold in the Honors Points Pre-Sale were used by American Express. All deferred revenues related to points that were outstanding as of June 30, 2022 are included in our Hilton Honors unsatisfied performance obligation described below. Performance Obligations As of June 30, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of: (i) $ 363 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ; (ii) $ 33 million related to co-branded credit card arrangements; and (iii) $ 656 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 June 30, 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: June 30, December 31, 2022 2021 (in millions) Cash and cash equivalents $ 21 $ 18 Property and equipment, net 47 60 Deferred income tax assets 52 62 Other non-current assets 52 62 Accounts payable, accrued expenses and other 15 15 Long-term debt (1) 154 179 Other long-term liabilities 14 16 ____________ (1) Includes finance lease liabilities of $ 118 million and $ 153 million as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, one of our consolidated VIEs had a revolving credit facility with a borrowing capacity of 2.0 billion Japanese yen ("JPY") (equivalent to $ 15 million), with no amounts drawn as of June 30, 2022 or December 31, 2021. As of June 30, 2022 and December 31, 2021, our other consolidated VIE had drawn 300 million JPY (equivalent to $ 2 million) and 500 million JPY (equivalent to $ 4 million), respectively, under a revolving credit facility which did not have any remaining borrowing capacity as of June 30, 2022, and, in July 2022, the outstanding balance was repaid in full. During the six months ended June 30, 2022, our consolidated VIEs borrowed an aggregate of 2.1 billion JPY (equivalent to $ 15 million as of June 30, 2022), with a weighted average interest rate of 0.9 percent as of June 30, 2022 and maturity dates in February 2029; all of these borrowings were included in long-term debt in our condensed consolidated balance sheet as of June 30, 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: June 30, 2022 Gross Carrying Value Accumulated Amortization Net Carrying Value (in millions) Management contracts recorded at Merger (1) $ 296 $ ( 272 ) $ 24 Contract acquisition costs 920 ( 186 ) 734 Development commissions and other 144 ( 29 ) 115 $ 1,360 $ ( 487 ) $ 873 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 Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in millions) Recognized in depreciation and amortization expenses (1) $ 29 $ 33 $ 61 $ 71 Recognized as a reduction of franchise and licensing fees and base and other management fees 10 7 18 14 ____________ (1) Includes amortization expense associated with assets that were initially recorded at fair value at the time of the Merger of $ 11 million and $ 12 million for the three months ended June 30, 2022 and 2021, respectively, and $ 23 million and $ 24 million for the six months ended June 30, 2022 and 2021, respectively. 8 Note 5: Debt Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of June 30, 2022, were as follows: June 30, December 31, 2022 2021 (in millions) Senior secured term loan facility with a rate of 3.37 %, 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 5.83 %, due 2022 to 2030 168 208 Other debt of consolidated VIEs with a weighted average rate of 1.06 %, due 2022 to 2029 (2) 36 26 8,823 8,853 Less: unamortized deferred financing costs and discount ( 80 ) ( 87 ) Less: current maturities of long-term debt (3) ( 41 ) ( 54 ) $ 8,702 $ 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 "Term Loan"). 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 June 30, 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: June 30, 2022 Hierarchy Level Carrying Value Level 1 Level 2 Level 3 (in millions) Assets: Cash equivalents $ 354 $ — $ 354 $ — Interest rate swap (1) 64 — 64 — Liabilities: Long-term debt (2) 8,539 5,243 — 2,519 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 six months ended June 30, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured. The remaining interest rate swap as of June 30, 2022 will mature in March 2026. (2) The carrying values include the deduction for 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 June 30, 2022 and December 31, 2021. Note 7: Income Taxes At the end of each quarter, we estimate the 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. As of December 31, 2021, we had entered into a tentative agreement with the Internal Revenue Service, subject to approval by the Joint Committee on Taxation, to settle our federal examination through the 2010 tax year. The settlement was approved by the Joint Committee on Taxation during the three months ended June 30, 2022. The assets and liabilities relating to the settlement were previously recognized as of December 31, 2021, and no adjustments were necessary as a result of the settlement approval. Note 8: Share-Based Compensation We recognized share-based compensation expense of $ 47 million and $ 53 million during the three months ended June 30, 2022 and 2021, respectively, and $ 84 million and $ 92 million during the six months ended June 30, 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 June 30, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 181 million, which are expected to be recognized over a weighted-average period of 1.8 years on a straight-line basis. RSUs During the six months ended June 30, 2022, we granted 505,000 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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 June 30, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the 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 Per Share The following table presents the calculation of basic and diluted earnings per share ("EPS"): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in millions, except per share amounts) Basic EPS: Numerator: Net income attributable to Hilton stockholders $ 368 $ 130 $ 580 $ 22 Denominator: Weighted average shares outstanding 278 279 278 278 Basic EPS $ 1.33 $ 0.47 $ 2.09 $ 0.08 Diluted EPS: Numerator: Net income attributable to Hilton stockholders $ 368 $ 130 $ 580 $ 22 Denominator: Weighted average shares outstanding (1) 280 281 281 281 Diluted EPS $ 1.32 $ 0.46 $ 2.07 $ 0.08 ____________ (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 1 million and less than 1 million shares for the three and six months ended June 30, 2022, respectively, and less than 1 million shares for both the three and six months ended June 30, 2021. 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 June 30, 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 March 31, 2022 279.0 $ 3 $ ( 4,573 ) $ 10,702 $ ( 6,110 ) $ ( 720 ) $ 1 $ ( 697 ) Net income (loss) — — — — 368 — ( 1 ) 367 Other comprehensive income — — — — — 6 — 6 Dividends (1) — — — — ( 41 ) — — ( 41 ) Repurchases of common stock (2) ( 3.6 ) — ( 480 ) — — — — ( 480 ) Share-based compensation 0.1 — 5 51 — — — 56 Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 ) Three Months Ended June 30, 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 March 31, 2021 278.5 $ 3 $ ( 4,453 ) $ 10,547 $ ( 6,840 ) $ ( 880 ) $ 3 $ ( 1,620 ) Net income (loss) — — — — 130 — ( 2 ) 128 Other comprehensive income — — — — — 14 — 14 Share-based compensation 0.2 — 6 56 — — — 62 Balance as of June 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 ) Six Months Ended June 30, 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 279.1 $ 3 $ ( 4,443 ) $ 10,720 $ ( 6,322 ) $ ( 779 ) $ 2 $ ( 819 ) Net income (loss) — — — — 580 — ( 2 ) 578 Other comprehensive income — — — — — 65 — 65 Dividends (1) — — — — ( 41 ) — — ( 41 ) Repurchases of common stock (2) ( 4.5 ) — ( 610 ) — — — — ( 610 ) Share-based compensation 0.9 — 5 33 — — — 38 Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 ) 12 Six Months Ended June 30, 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 277.6 $ 3 $ ( 4,453 ) $ 10,552 $ ( 6,732 ) $ ( 860 ) $ 4 $ ( 1,486 ) Net- income (loss) — — — — 22 — ( 3 ) 19 Other comprehensive loss — — — — — ( 6 ) — ( 6 ) Share-based compensation 1.1 — 6 51 — — — 57 Balance as of June 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 ) ____________ (1) During the three months ended June 30, 2022, we resumed payment of regular quarterly cash dividends. (2) Beginning in March 2022, we resumed share repurchases under our previously authorized stock repurchase program. 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 ( 26 ) ( 1 ) 74 47 Amounts reclassified from accumulated other comprehensive loss 1 4 13 18 Net current period other comprehensive income (loss) ( 25 ) 3 87 65 Balance as of June 30, 2022 $ ( 565 ) $ ( 207 ) $ 58 $ ( 714 ) 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 ( 21 ) ( 1 ) 1 ( 21 ) Amounts reclassified from accumulated other comprehensive loss — 5 10 15 Net current period other comprehensive income (loss) ( 21 ) 4 11 ( 6 ) Balance as of June 30, 2021 $ ( 532 ) $ ( 285 ) $ ( 49 ) $ ( 866 ) ____________ (1) Includes net investment hedge gains and intra-entity foreign currency transactions that are of a long-term investment nature. Amount reclassified during the six months ended June 30, 2022 related to the liquidation of an investment in a foreign entity and was recognized in gain 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, 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. 13 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 June 30, 2022, this segment included 746 managed hotels and 6,115 franchised hotels consisting of 1,068,369 total rooms. As of June 30, 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 six months ended June 30, 2021, while no hotels in our ownership segment suspended operations as a result of the pandemic during the six months ended June 30, 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. The following table presents revenues for our reportable segments, reconciled to consolidated amounts: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in millions) Franchise and licensing fees $ 549 $ 372 $ 966 $ 617 Base and other management fees (1) 86 48 147 78 Incentive management fees 46 21 80 34 Management and franchise 681 441 1,193 729 Ownership 282 121 432 177 Segment revenues 963 562 1,625 906 Amortization of contract acquisition costs ( 10 ) ( 7 ) ( 18 ) ( 14 ) Other revenues 25 21 43 38 Direct reimbursements from managed and franchised properties (2) 609 329 1,121 552 Indirect reimbursements from managed and franchised properties (2) 658 426 1,197 724 Intersegment fees elimination (1) ( 5 ) ( 2 ) ( 7 ) ( 3 ) Total revenues $ 2,240 $ 1,329 $ 3,961 $ 2,203 ____________ (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. 14 The following table presents operating income (loss) for our reportable segments, reconciled to consolidated income (loss) before income taxes: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in millions) Management and franchise (1) $ 681 $ 441 $ 1,193 $ 729 Ownership (1) 20 ( 23 ) ( 17 ) ( 78 ) Segment operating income 701 418 1,176 651 Amortization of contract acquisition costs ( 10 ) ( 7 ) ( 18 ) ( 14 ) Other revenues, less other expenses 14 12 21 19 Net other revenues (expenses) from managed and franchised properties 36 ( 55 ) 66 ( 119 ) Depreciation and amortization expenses ( 40 ) ( 46 ) ( 84 ) ( 97 ) General and administrative expenses ( 103 ) ( 98 ) ( 194 ) ( 195 ) Operating income 598 224 967 245 Interest expense ( 99 ) ( 101 ) ( 189 ) ( 204 ) Gain (loss) on foreign currency transactions 8 ( 1 ) 4 1 Loss on debt extinguishment — — — ( 69 ) Other non-operating income, net 6 5 22 10 Income (loss) before income taxes $ 513 $ 127 $ 804 $ ( 17 ) ____________ (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 June 30, 2022, we had performance guarantees with expirations ranging from 2025 to 2043 and potential cash outlays totaling $ 8 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. As of June 30, 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 of such guarantees ranging from 2023 to 2031 and potential cash outlays totaling $ 124 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 June 30, 2022, amounts collected on behalf of these programs exceeded the amounts expended, and, as of December 31, 2021, amounts expended 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 June 30, 2022 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. 15