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Item 1. Financial Statements

2023-07-26 compared with 2023-04-26 · 145 added, 77 removed, 350 unchanged (39% of the section changed)

3 unchanged sentences

(in millions, except share data)

March 31, December 31,

June 30, December 31,

Current Assets:

33 unchanged sentences

Common stock, $ 0.01 par value;

10,000,000,000 authorized shares, 265,439,134 outstanding as of March 31, 2023 and 267,860,301 outstanding as of December 31, 2022

10,000,000,000 authorized shares, 262,348,815 outstanding as of June 30, 2023 and 267,860,301 outstanding as of December 31, 2022

Treasury stock, at cost;

68,402,352 shares as of March 31, 2023 and 65,217,085 shares as of December 31, 2022

71,717,679 shares as of June 30, 2023 and 65,217,085 shares as of December 31, 2022

( 6,956 ) ( 6,040 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Franchise and licensing fees $ 618 $ 545 $ 1,126 $ 958

3 unchanged sentences

Other revenues 46 25 81 43

1,160 973 2,096 1,643

Other revenues from managed and franchised properties

1,500 1,267 2,857 2,318

Total revenues 2,660 2,240 4,953 3,961

Owned and leased hotels

297 257 548 442

Depreciation and amortization 37 40 74 84

1 unchanged sentence

Other expenses 33 11 54 22

478 411 878 742

Other expenses from managed and franchised properties

1,508 1,231 2,903 2,252

Total expenses 1,986 1,642 3,781 2,994

1 unchanged sentence

Interest expense ( 111 ) ( 99 ) ( 227 ) ( 189 )

Loss on foreign currency transactions

Gain (loss) on foreign currency transactions

( 6 ) 8 ( 6 ) 4

Loss on investments in unconsolidated affiliate — — ( 92 ) —

5 unchanged sentences

Net loss (income) attributable to noncontrolling interests

( 2 ) 1 ( 5 ) 2

Net income attributable to Hilton stockholders $ 411 $ 368 $ 617 $ 580

7 unchanged sentences

(in millions)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net income $ 413 $ 367 $ 622 $ 578

1 unchanged sentence

Currency translation adjustment, net of tax of $ 2 , $ 6 , $( 1 ) and $ 6

4 ( 23 ) ( 2 ) ( 25 )

Pension liability adjustment, net of tax of $ — (1) , $( 1 ), $( 1 ) and $( 1 )

Cash flow hedge adjustment, net of tax of $( 4 ), $( 9 ), $ — (1) and $( 29 )

Total other comprehensive income (loss) ( 18 ) 59

Total other comprehensive income 20 6 2 65

Comprehensive income 433 373 624 643

Comprehensive loss (income) attributable to noncontrolling interests

( 1 ) 1 ( 4 ) 2

Comprehensive income attributable to Hilton stockholders

$ 432 $ 374 $ 620 $ 645

(1) Amount was less than $1 million.

3 unchanged sentences

(in millions)

Three Months Ended

Six Months Ended

Operating Activities:

3 unchanged sentences

Depreciation and amortization expenses 74 84

Loss on foreign currency transactions — 4

Loss (gain) on foreign currency transactions 6 ( 4 )

Loss on investments in unconsolidated affiliate 92 —

6 unchanged sentences

Capital expenditures for property and equipment

( 74 ) ( 11 )

Issuance of financing receivables ( 8 ) ( 46 )

18 unchanged sentences

Cash, restricted cash and cash equivalents, end of period $ 883 $ 1,254

Supplemental Disclosures:

Cash paid (received) during the period:

Interest $ 90 $ 78

Income tax refunds, net of payments ( 25 ) ( 44 )

See notes to condensed consolidated financial statements.

For supplemental disclosures, see Note 13:

"Supplemental Disclosures of Cash Flow Information."

HILTON WORLDWIDE HOLDINGS INC.

3 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 March 31, 2023, we managed, franchised, owned or leased 7,215 hotels and resorts, including timeshare properties, totaling 1,133,277 rooms in 122 countries and territories.

Basis of Presentation

The accompanying condensed consolidated financial statements for the three months ended March 31, 2023 and 2022 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, 2022.

The accompanying condensed consolidated financial statements for the three and six months ended June 30, 2023 and 2022 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;

however, 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, 2022.

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.

4 unchanged sentences

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, 2023:

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, 2023:

(in millions)

2 unchanged sentences

Revenue recognized (1)

Balance as of March 31, 2023

Balance as of June 30, 2023

(1) Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements.

1 unchanged sentence

Performance Obligations

As of March 31, 2023, we had deferred revenues for unsatisfied performance obligations consisting of:

As of June 30, 2023, deferred revenues for unsatisfied performance obligations consisted of:

(i) $ 689 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ;

4 unchanged sentences

Consolidated Variable Interest Entities

As of March 31, 2023 and December 31, 2022, we consolidated two variable interest entities ("VIEs") that each lease one hotel property, both of which are located in Japan.

As of June 30, 2023 and December 31, 2022, we consolidated two variable interest entities ("VIEs") that each lease one hotel property, both of which are located in Japan.

We consolidate these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance.

2 unchanged sentences

Our condensed consolidated balance sheets include the assets and liabilities of these entities, including the effect of foreign currency translation, which primarily comprised the following:

March 31, December 31,

June 30, December 31,

(in millions)

Cash and cash equivalents $ 41 $ 29

Accounts receivable, net 19 13

Property and equipment, net 38 45

3 unchanged sentences

Long-term debt (1)(2)

(1) Includes finance lease liabilities of $ 106 million and $ 115 million as of March 31, 2023 and December 31, 2022, respectively.

(2) Includes current maturities of $ 18 million and $ 22 million as of March 31, 2023 and December 31, 2022, respectively .

(1) Includes finance lease liabilities of $ 93 million and $ 115 million as of June 30, 2023 and December 31, 2022, respectively.

(2) Includes current maturities of $ 17 million and $ 22 million as of June 30, 2023 and December 31, 2022, respectively.

Loss on Investments in Unconsolidated Affiliate

1 unchanged sentence

The assets relating to these investments are classified as other current assets or other non-current assets in our condensed consolidated balance sheets based on the expected maturity of the respective investment.

In the current period, as a result of the continued rise in interest rates, one of our third-party unconsolidated affiliates (the "Fund"), which has underlying investments in hotels that we currently or in the future will manage or franchise, failed to comply with certain requirements of its debt agreements.

As a result, as of March 31, 2023, we determined that:

(i) our investment in the Fund was fully impaired and (ii) subordinated financing receivables due to us from the Fund within twelve months or less were uncollectible.

As such, we recognized an other-than-temporary impairment loss on our investment of $ 44 million and credit losses of $ 48 million to fully reserve the financing receivables, such that their net carrying values were zero as of March 31, 2023.

These losses were recognized in loss on investments in unconsolidated affiliate in our condensed consolidated statement of operations for the three months ended March 31, 2023.

In March 2023, as a result of the rise in market-based interest rates, one of our third-party unconsolidated affiliates (the "Fund"), which has underlying investments in hotels that we currently or in the future will manage or franchise, failed to comply with certain requirements of its debt agreements.

As a result, we determined that:

(i) our investment in the Fund was fully impaired and (ii) short-term subordinated financing receivables due to us from the Fund were uncollectible.

These losses were recognized in loss on investments in unconsolidated affiliate in our condensed consolidated statement of operations for the six months ended June 30, 2023.

"Fair Value Measurements" for additional information.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2023, were as follows:

March 31, December 31,

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of June 30, 2023, were as follows:

June 30, December 31,

(in millions)

16 unchanged sentences

("HOC"), an indirect wholly owned subsidiary of the Parent and the issuer of all of the series of Senior Notes.

(2) Long-term debt of our consolidated VIEs included in finance lease liabilities and other debt of consolidated VIEs as applicable;

(2) Long-term debt of our consolidated VIEs are included in finance lease liabilities and other debt of consolidated VIEs as applicable;

refer to Note 3:

2 unchanged sentences

Our senior secured credit facilities consist of a 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, except for HOC, the named borrower on the senior secured credit facilities.

The obligations under 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, except for HOC, the named borrower of the senior secured credit facilities.

In January 2023, we amended the credit agreement governing our Revolving Credit Facility to increase the borrowing capacity from $ 1.75 billion to $ 2.0 billion, $ 250 million of which is available in the form of letters of credit, and, based on the terms of the agreement, we expect the extended maturity date to be January 2028.

In connection with this amendment, we incurred $ 9 million of debt issuance costs, which were recognized in other non-current assets in our condensed consolidated balance sheet.

As of March 31, 2023, there were no borrowings outstanding and $ 60 million of letters of credit outstanding under the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,940 million.

No debt amounts were outstanding under the Revolving Credit Facility as of June 30, 2023, which had an available borrowing capacity of $ 1,940 million after considering $ 60 million of outstanding letters of credit.

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, 2023

June 30, 2023

Hierarchy Level

19 unchanged sentences

We measure our interest rate swap at fair value, which is determined using a discounted cash flow analysis that reflects the contractual terms of the interest rate swap, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves, as applicable.

During the three months ended March 31, 2023, we measured a financial asset, an equity method investment in the Fund, which derives its market value from the underlying hotel assets it owns, at fair value on a non-recurring basis.

Given the Fund's failure to comply with its debt agreements in the current period, as discussed in Note 4:

"Loss on Investments in Unconsolidated Affiliate," and the lack of an active market or observable inputs for the fair value of the Fund, we determined that our investment had no market value as of March 31, 2023 using Level 3 valuation inputs.

As a result of the non-recurring fair value measurement, we recognized an other-than-temporary impairment loss of $ 44 million during the three months ended March 31, 2023.

During the six months ended June 30, 2023, we measured a financial asset at fair value on a non-recurring basis and recognized an other-than-temporary impairment loss of $ 44 million.

In March 2023, the financial asset, an equity method investment in the Fund, which derives its market value from the underlying hotel assets it owns, failed to comply with its debt agreements, as discussed in Note 4:

"Loss on Investments in Unconsolidated Affiliate." Given the lack of an active market or observable inputs for the fair value of the Fund, we determined that at March 31, 2023 our investment had a fair value of zero using Level 3 valuation inputs.

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.

In June 2023, we received a draft of proposed adjustments from the Internal Revenue Service ("IRS") regarding our 2016 transfer of certain IP to a foreign jurisdiction that would increase taxable income for the tax years under audit from 2016 through 2018.

If the IRS's proposed adjustments are upheld, future periods beyond the years currently under audit would be similarly impacted.

We disagree with the proposed adjustments, intend to vigorously contest them and are currently evaluating action, which could include litigation to dispute the adjustments.

We previously recorded reserves of $ 73 million related to this matter.

We evaluated the amount of benefit more-likely-than-not to be realized related to this issue based on this draft notice, and we have determined that our existing reserves for unrecognized tax benefits accurately reflect the estimated benefit that we do not expect to realize related to this issue.

Share-Based Compensation

We recognized share-based compensation expense of $ 33 million and $ 37 million during the three months ended March 31, 2023 and 2022, 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, 2023, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 233 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.

During the three months ended March 31, 2023, we granted 588,000 RSUs with a grant date fair value per share of $ 146.19 , which vest in equal annual installments over two or three years from the date of grant.

During the three months ended March 31, 2023, we granted 333,000 options with an exercise price per share of $ 146.19 , 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 three months ended March 31, 2023 was $ 52.32 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

We recognized share-based compensation expense of $ 52 million and $ 47 million during the three months ended June 30, 2023 and 2022, respectively, and $ 85 million and $ 84 million during the six months ended June 30, 2023 and 2022, respectively, which included amounts reimbursed by hotel owners.

During the six months ended June 30, 2023, we granted 602,000 RSUs with a weighted average grant date fair value per share of $ 146.18 , which vest in equal annual installments over two or three years from the date of grant.

During the six months ended June 30, 2023, we granted 341,000 options with a weighted average exercise price per share of $ 146.18 , 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 weighted average grant date fair value per share of the options granted during the six months ended June 30, 2023 was $ 52.27 , which was determined using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:

Expected volatility (1)

3 unchanged sentences

(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 term of the options.

(2) Estimated based on the quarterly dividend and the three-month average stock price at the date of grant.

Historical volatility is based on the historical movement of Hilton's stock price for a period that corresponds to the expected terms of the options.

(2) Estimated based on the quarterly dividend and the three-month average stock price at the dates of grant.

(3) Based on the yields of U.S.

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.

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

(4) Estimated using the midpoint of the vesting periods and the contractual terms of the options.

Performance Shares

During the three months ended March 31, 2023, we granted 238,000 performance shares with a grant date fair value per share of $ 146.19 .

We recognize compensation expense based on the total number of performance shares that are expected to vest three years from the date of grant, 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, 2023, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2021 and 2022 and at the target achievement percentage for the performance shares granted in 2023.

During the six months ended June 30, 2023, we granted 244,000 performance shares with a weighted average grant date fair value per share of $ 146.18 , which vest three years from the date of grant based on the projected achievement of various performance measures.

As of June 30, 2023, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2021 and 2022 and at the target achievement percentage for the performance shares granted in 2023.

Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share ("EPS"):

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

(in millions, except per share amounts)

Net income attributable to Hilton stockholders

$ 411 $ 368 $ 617 $ 580

Weighted average shares outstanding 264 278 265 278

1 unchanged sentence

Net income attributable to Hilton stockholders

$ 411 $ 368 $ 617 $ 580

Weighted average shares outstanding (1)

266 280 267 281

Diluted EPS $ 1.55 $ 1.32 $ 2.31 $ 2.07

(1) Certain shares related to share-based compensation were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million shares for each of the three months ended March 31, 2023 and 2022.

(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 the three months ended June 30, 2023 and 2022 and six months ended June 30, 2023 and less than 1 million shares for the six months ended June 30, 2022.

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, 2023

Three Months Ended June 30, 2023

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

Balance as of December 31, 2022 267.9 $ 3 $ ( 6,040 ) $ 10,831 $ ( 5,190 ) $ ( 706 ) $ 4 $ ( 1,098 )

Balance as of March 31, 2023 265.4 $ 3 $ ( 6,489 ) $ 10,815 $ ( 5,025 ) $ ( 724 ) $ 7 $ ( 1,413 )

Net income — — — — 411 — 2 413

7 unchanged sentences

0.2 — 8 64 — — — 72

Balance as of June 30, 2023 262.3 $ 3 $ ( 6,956 ) $ 10,879 $ ( 4,654 ) $ ( 703 ) $ 8 $ ( 1,423 )

Three Months Ended June 30, 2022

Equity (Deficit) Attributable to Hilton Stockholders

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

Shares Amount Total

(in millions)

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

Three Months Ended March 31, 2022

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 )

Six Months Ended June 30, 2023

Equity (Deficit) Attributable to Hilton Stockholders

6 unchanged sentences

Balance as of December 31, 2022 267.9 $ 3 $ ( 6,040 ) $ 10,831 $ ( 5,190 ) $ ( 706 ) $ 4 $ ( 1,098 )

Net income — — — — 617 — 5 622

Other comprehensive income

— — — — — 3 ( 1 ) 2

Dividends (1)

— — — — ( 81 ) — — ( 81 )

Repurchases of common stock (2)

( 6.5 ) — ( 924 ) — — — — ( 924 )

Share-based compensation

0.9 — 8 48 — — — 56

Balance as of June 30, 2023 262.3 $ 3 $ ( 6,956 ) $ 10,879 $ ( 4,654 ) $ ( 703 ) $ 8 $ ( 1,423 )

Six Months Ended June 30, 2022

Equity (Deficit) Attributable to Hilton Stockholders

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

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

1 unchanged sentence

— — — — — 65 — 65

Dividends (1)

— — — — ( 41 ) — — ( 41 )

Repurchases of common stock (2)

2 unchanged sentences

0.9 — 5 33 — — — 38

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 )

(1) During the three months ended June 30, 2022, we resumed payment of regular quarterly cash dividends.

7 unchanged sentences

Balance as of December 31, 2022 $ ( 548 ) $ ( 259 ) $ 101 $ ( 706 )

Other comprehensive loss before reclassifications

Other comprehensive income (loss) before reclassifications

( 1 ) — 14 13

2 unchanged sentences

Net current period other comprehensive income (loss)

( 6 ) 2 ( 14 ) ( 18 )

Balance as of March 31, 2023 $ ( 554 ) $ ( 257 ) $ 87 $ ( 724 )

Balance as of June 30, 2023 $ ( 549 ) $ ( 255 ) $ 101 $ ( 703 )

Currency Translation Adjustment (1)

8 unchanged sentences

( 25 ) 3 87 65

Balance as of March 31, 2022 $ ( 542 ) $ ( 209 ) $ 31 $ ( 720 )

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

(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 relates 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.

Amount reclassified during the six months ended June 30, 2022 relates 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 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.

11 unchanged sentences

and (iii) fees for managing hotels in our ownership segment.

As of March 31, 2023, this segment included 774 managed hotels and 6,308 franchised hotels consisting of 1,101,539 total rooms.

As of March 31, 2023, our ownership segment included 51 hotels totaling 17,485 rooms.

The segment comprised 44 hotels that we leased, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

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, and does not include

equity in earnings (losses) from unconsolidated affiliates.

Our chief operating decision maker does not use assets by operating

segment when assessing performance or making operating segment resource allocations.

The ownership segment primarily derives revenues from nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

Our chief operating decision maker does not use assets by operating segment when assessing performance or making operating segment resource allocations.

The following table presents revenues for our reportable segments, reconciled to consolidated amounts:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

(in millions)

1 unchanged sentence

Base and other management fees (1)

100 86 189 147

Incentive management fees 69 46 134 80

5 unchanged sentences

Direct reimbursements from managed and franchised properties (2)

733 609 1,445 1,121

Indirect reimbursements from managed and franchised properties (2)

767 658 1,412 1,197

Intersegment fees elimination (1)

( 7 ) ( 5 ) ( 11 ) ( 7 )

Total revenues $ 2,660 $ 2,240 $ 4,953 $ 3,961

2 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

(in millions)

Management and franchise (1)

$ 791 $ 681 $ 1,458 $ 1,193

Ownership (1)

37 20 30 ( 17 )

Segment operating income 828 701 1,488 1,176

2 unchanged sentences

Net other revenues (expenses) from managed and franchised properties

( 8 ) 36 ( 46 ) 66

Depreciation and amortization expenses ( 37 ) ( 40 ) ( 74 ) ( 84 )

2 unchanged sentences

Interest expense ( 111 ) ( 99 ) ( 227 ) ( 189 )

Loss on foreign currency transactions — ( 4 )

Gain (loss) on foreign currency transactions ( 6 ) 8 ( 6 ) 4

Loss on investments in unconsolidated affiliate — — ( 92 ) —

4 unchanged sentences

In limited cases, we provide performance guarantees to certain owners of hotels that we operate under management contracts that obligate us to fund performance shortfalls if specified operating performance levels are not achieved.

As of March 31, 2023, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 7 million.

As of June 30, 2023, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 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.

Additionally, as of March 31, 2023, we had extended debt guarantees and letters of credit with expirations ranging from 2023 to 2031 and possible

cash outlays totaling $ 124 million to owners of certain hotels that we currently or in the future will manage or franchise.

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

These guarantees create variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary.

1 unchanged sentence

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, 2023 and December 31, 2022, the amounts expended on behalf of these programs exceeded the amounts collected.

As of June 30, 2023 and December 31, 2022, the 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 March 31, 2023 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 June 30, 2023 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Supplemental Disclosures of Cash Flow Information

Cash interest paid included within operating activities in our condensed consolidated statements of cash flows was $ 237 million and $ 178 million during the six months ended June 30, 2023 and 2022, respectively.

These amounts exclude $ 24 million of cash receipts and $ 5 million of cash payments, respectively, related to settlements of our interest rate swap with a financing component, which are separately disclosed within financing activities in our condensed consolidated statements of cash flows.

Income tax payments, net of refunds received, was $ 233 million and $ 130 million for the six months ended June 30, 2023 and 2022, respectively.

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