What changed in this filing

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Item 1. Financial Statements

2022-10-26 compared with 2022-07-27 · 107 added, 103 removed, 415 unchanged (34% of the section changed)

3 unchanged sentences

(in millions, except share data)

June 30, December 31,

September 30, December 31,

Current Assets:

33 unchanged sentences

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

3,000,000,000 authorized shares, none issued or outstanding as of September 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

10,000,000,000 authorized shares, 332,944,066 issued and 271,541,523 outstanding as of September 30, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021

Treasury stock, at cost;

57,422,870 shares as of June 30, 2022 and 52,920,350 shares as of December 31, 2021

61,402,543 shares as of September 30, 2022 and 52,920,350 shares as of December 31, 2021

( 5,545 ) ( 4,443 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

17 unchanged sentences

Total expenses 1,745 1,309 4,739 3,267

Loss on sale of assets, net — ( 8 ) — ( 8 )

Operating income 623 432 1,590 677

Interest expense ( 106 ) ( 98 ) ( 295 ) ( 302 )

Gain (loss) on foreign currency transactions

Gain on foreign currency transactions

Loss on debt extinguishment — — — ( 69 )

Other non-operating income, net

Income (loss) before income taxes 513 127 804 ( 17 )

Income tax benefit (expense)

Income before income taxes 527 340 1,331 323

Income tax expense

( 181 ) ( 100 ) ( 407 ) ( 64 )

10 unchanged sentences

(in millions)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

10 unchanged sentences

$ 376 $ 238 $ 1,021 $ 254

(1) Amount was less than $1 million.

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

11 unchanged sentences

Capital expenditures for property and equipment

( 19 ) ( 17 )

Issuance of other financing receivables ( 46 ) ( 3 )

Undesignated derivative financial instruments 65 ( 13 )

Capitalized software costs ( 43 ) ( 28 )

Investments in unconsolidated affiliates ( 53 ) —

Other ( 2 ) 27

Net cash used in investing activities ( 98 ) ( 34 )

23 unchanged sentences

(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.

As of September 30, 2022 , we managed, franchised, owned or leased 7,061 hotels and resorts, including timeshare properties, totaling 1,111,147 rooms in 123 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.

The accompanying condensed consolidated financial statements for the three and nine months ended September 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.

2 unchanged sentences

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.

In particular, the coronavirus ("COVID-19") pandemic (the "pandemic") had an adverse impact on certain of our results for the three and nine months ended September 30, 2022 and 2021;

however, our results experienced significant recovery during the three and nine months ended September 30, 2022 when compared to prior year periods.

As such, these interim periods, as well as upcoming periods, may not 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.

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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:

The following table summarizes the activity of our contract liabilities, which are classified as components of current and long-term deferred revenues, during the nine months ended September 30, 2022:

(in millions)

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Revenue recognized (1)(2)

Balance as of June 30, 2022

Balance as of September 30, 2022

(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.

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.

(2) Revenue recognized during the three months ended September 30, 2022 was $ 139 million.

Revenue recognized during the three and nine months ended September 30, 2022 included a net increase in revenue of $ 7 million and $ 4 million, respectively, for Hilton Honors points redeemed 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 the issuance of Hilton Honors points, which had no effect on revenues.

Performance Obligations

As of June 30, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of:

As of September 30, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 352 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.

(ii) $ 669 million related to application, initiation and other fees;

and (iii) $ 30 million related to other obligations.

These performance obligations are recognized as revenue as discussed in Note 2:

1 unchanged sentence

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.

As of September 30, 2022 and December 31, 2021, we consolidated two variable interest entities ("VIEs") that each lease one 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.

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Our condensed consolidated balance sheets include the assets and liabilities of these entities, which primarily comprised the following:

June 30, December 31,

September 30, December 31,

(in millions)

6 unchanged sentences

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.

(1) Includes finance lease liabilities of $ 109 million and $ 153 million as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022, our consolidated VIEs borrowed a net 2.7 billion JPY (equivalent to $ 19 million as of September 30, 2022), with a weighted average interest rate of 1.22 percent as of September 30, 2022 and maturity dates ranging from May 2023 to February 2029;

these borrowings are included in current maturities of long-term debt and long-term debt in our condensed consolidated balance sheet as of September 30, 2022.

As of December 31, 2021, one of our consolidated VIEs had drawn 500 million JPY (equivalent to $ 4 million as of December 31, 2021) under a revolving credit facility, which was fully repaid by July 2022.

Finite-Lived Intangible Assets

1 unchanged sentence

Management and franchise contracts, net were as follows:

June 30, 2022

September 30, 2022

Gross Carrying Value Accumulated Amortization Net

22 unchanged sentences

Amortization of our finite-lived intangible assets was as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

3 unchanged sentences

Recognized as a reduction of franchise and licensing fees and base and other management fees

(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.

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,

(1) Includes amortization expense associated with assets that were initially recorded at fair value at the time of the Merger of $ 11 million for both the three months ended September 30, 2022 and 2021 and $ 34 million and $ 35 million for the nine months ended September 30, 2022 and 2021, respectively.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of September 30, 2022, were as follows:

September 30, December 31,

(in millions)

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"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.

(3) Represents current maturities of finance lease liabilities and borrowings 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.

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 September 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.

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

September 30, 2022

Hierarchy Level

14 unchanged sentences

(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.

During the nine months ended September 30, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured.

The remaining interest rate swap outstanding as of September 30, 2022 will mature in March 2026.

(2) The carrying values include the deduction for unamortized deferred financing costs and any applicable discounts.

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.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of September 30, 2022 and December 31, 2021.

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.

In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law in the U.S.

We do not expect the IRA to have a material impact on our consolidated financial statements, including our annual estimated effective tax rate.

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.

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.

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.

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:

We recognized share-based compensation expense of $ 42 million and $ 52 million during the three months ended September 30, 2022 and 2021, respectively, and $ 126 million and $ 144 million during the nine months ended September 30, 2022 and 2021, respectively, which included amounts reimbursed by hotel owners.

("options") and performance-vesting RSUs ("performance shares").

As of September 30, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 141 million, which are expected to be recognized over a weighted-average period of 1.7 years on a straight-line basis.

During the nine months ended September 30, 2022, we granted 507,000 RSUs with a weighted average grant date fair value per share of $ 150.58 , which vest in equal annual installments over two or three years from the date of grant.

During the nine months ended September 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.

The grant date fair value per share of the options granted during the nine months ended September 30, 2022 was $ 51.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility (1)

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(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.

Historical volatility is based on the historical movement of Hilton's stock price for a look back period that corresponds to the expected term 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, 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.

Department of Treasury instruments with similar expected terms at the date of grant.

(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 .

During the nine months ended September 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.

As of September 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.

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,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

9 unchanged sentences

Diluted EPS $ 1.26 $ 0.86 $ 3.32 $ 0.94

(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.

(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 shares for both the three and nine months ended September 30, 2022, and less than 1 million shares for both the three and nine months ended September 30, 2021.

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

Three Months Ended September 30, 2022

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

Balance as of March 31, 2022 279.0 $ 3 $ ( 4,573 ) $ 10,702 $ ( 6,110 ) $ ( 720 ) $ 1 $ ( 697 )

Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 )

Net income (loss) — — — — 347 — ( 1 ) 346

7 unchanged sentences

— — — 38 — — — 38

Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 )

Three Months Ended June 30, 2021

Balance as of September 30, 2022 271.5 $ 3 $ ( 5,545 ) $ 10,791 $ ( 5,477 ) $ ( 685 ) $ ( 1 ) $ ( 914 )

Three Months Ended September 30, 2021

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

Balance as of March 31, 2021 278.5 $ 3 $ ( 4,453 ) $ 10,547 $ ( 6,840 ) $ ( 880 ) $ 3 $ ( 1,620 )

Balance as of June 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 )

Net income (loss) — — — — 241 — ( 1 ) 240

Other comprehensive income

Other comprehensive loss

— — — — — ( 3 ) — ( 3 )

1 unchanged sentence

— — — 51 — — — 51

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

Balance as of September 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

Nine Months Ended September 30, 2022

Equity (Deficit) Attributable to Hilton Stockholders

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0.9 — 5 71 — — — 76

Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 )

Six Months Ended June 30, 2021

Balance as of September 30, 2022 271.5 $ 3 $ ( 5,545 ) $ 10,791 $ ( 5,477 ) $ ( 685 ) $ ( 1 ) $ ( 914 )

Nine Months Ended September 30, 2021

Equity (Deficit) Attributable to Hilton Stockholders

11 unchanged sentences

1.1 — 6 102 — — — 108

Balance as of June 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 )

Balance as of September 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

(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.

(2) During the three months ended March 31, 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:

9 unchanged sentences

( 47 ) 4 137 94

Balance as of June 30, 2022 $ ( 565 ) $ ( 207 ) $ 58 $ ( 714 )

Balance as of September 30, 2022 $ ( 587 ) $ ( 206 ) $ 108 $ ( 685 )

Currency Translation Adjustment (1)

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Balance as of December 31, 2020 $ ( 511 ) $ ( 289 ) $ ( 60 ) $ ( 860 )

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

( 32 ) ( 2 ) ( 4 ) ( 38 )

2 unchanged sentences

( 26 ) 6 11 ( 9 )

Balance as of June 30, 2021 $ ( 532 ) $ ( 285 ) $ ( 49 ) $ ( 866 )

Balance as of September 30, 2021 $ ( 537 ) $ ( 283 ) $ ( 49 ) $ ( 869 )

(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.

Amounts reclassified during the nine months ended September 30, 2022 and 2021 relate to the liquidation of investments in foreign entities and were recognized in gain on foreign currency transactions and loss on sale of assets, net, respectively, in our condensed consolidated statements of operations.

(2) Amounts reclassified relate 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:

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(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;

(ii) licensing fees from Hilton Grand Vacations Inc.

("HGV") and strategic partnerships, including co-branded credit card arrangements, for the right to use our IP;

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.

As of September 30, 2022, this segment included 759 managed hotels and 6,175 franchised hotels consisting of 1,080,454 total rooms.

As of September 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.

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 nine months ended September 30, 2021, while no hotels in our ownership segment suspended operations as a result of the pandemic during the nine months ended September 30, 2022.

The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues and other expenses, other revenues and other expenses from managed and franchised properties, 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,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

2 unchanged sentences

Base and other management fees (1)

88 57 235 135

Incentive management fees 52 26 132 60

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(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 Six Months Ended

June 30, June 30,

The following table presents operating income (loss) for each of our reportable segments, reconciled to consolidated income before income taxes:

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

11 unchanged sentences

General and administrative expenses ( 93 ) ( 107 ) ( 287 ) ( 302 )

Loss on sale of assets, net — ( 8 ) — ( 8 )

Operating income 623 432 1,590 677

Interest expense ( 106 ) ( 98 ) ( 295 ) ( 302 )

Gain (loss) on foreign currency transactions 8 ( 1 ) 4 1

Gain on foreign currency transactions — — 4 1

Loss on debt extinguishment — — — ( 69 )

Other non-operating income, net 10 6 32 16

Income (loss) before income taxes $ 513 $ 127 $ 804 $ ( 17 )

Income before income taxes $ 527 $ 340 $ 1,331 $ 323

(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.

3 unchanged sentences

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.

As of September 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.

As of September 30, 2022, we had extended debt guarantees and letters of credit with expirations ranging from 2023 to 2031 and potential cash outlays totaling $ 124 million to owners of certain hotels that we will in the future or do currently manage or franchise.

We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brands programs on behalf of our 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.

As of September 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.

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 September 30, 2022 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements