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, 2023 2022 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 806 $ 1,209 Restricted cash and cash equivalents 77 77 Accounts receivable, net of allowance for credit losses of $ 126 and $ 117 1,402 1,327 Prepaid expenses 146 105 Other 149 152 Total current assets (variable interest entities – $ 62 and $ 43 ) 2,580 2,870 Intangibles and Other Assets: Goodwill 5,048 5,032 Brands 4,842 4,840 Management and franchise contracts, net 958 887 Other intangible assets, net 164 161 Operating lease right-of-use assets 668 662 Property and equipment, net 297 280 Deferred income tax assets 204 204 Other 536 576 Total intangibles and other assets (variable interest entities – $ 119 and $ 152 ) 12,717 12,642 TOTAL ASSETS $ 15,297 $ 15,512 LIABILITIES AND EQUITY (DEFICIT) Current Liabilities: Accounts payable, accrued expenses and other $ 1,694 $ 1,790 Current maturities of long-term debt 35 39 Current portion of deferred revenues 460 433 Current portion of liability for guest loyalty program 1,246 1,110 Total current liabilities (variable interest entities – $ 39 and $ 45 ) 3,435 3,372 Long-term debt 8,696 8,708 Operating lease liabilities 839 832 Deferred revenues 1,022 986 Deferred income tax liabilities 710 735 Liability for guest loyalty program 1,328 1,285 Other 690 692 Total liabilities (variable interest entities – $ 160 and $ 188 ) 16,720 16,610 Commitments and contingencies – see Note 12 Equity (Deficit): Common stock, $ 0.01 par value; 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 3 3 Treasury stock, at cost; 71,717,679 shares as of June 30, 2023 and 65,217,085 shares as of December 31, 2022 ( 6,956 ) ( 6,040 ) Additional paid-in capital 10,879 10,831 Accumulated deficit ( 4,654 ) ( 5,190 ) Accumulated other comprehensive loss ( 703 ) ( 706 ) Total Hilton stockholders' deficit ( 1,431 ) ( 1,102 ) Noncontrolling interests 8 4 Total deficit ( 1,423 ) ( 1,098 ) TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 15,297 $ 15,512 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, 2023 2022 2023 2022 Revenues Franchise and licensing fees $ 618 $ 545 $ 1,126 $ 958 Base and other management fees 86 75 166 130 Incentive management fees 69 46 134 80 Owned and leased hotels 341 282 589 432 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 Expenses Owned and leased hotels 297 257 548 442 Depreciation and amortization 37 40 74 84 General and administrative 111 103 202 194 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 Operating income 674 598 1,172 967 Interest expense ( 111 ) ( 99 ) ( 227 ) ( 189 ) Gain (loss) on foreign currency transactions ( 6 ) 8 ( 6 ) 4 Loss on investments in unconsolidated affiliate — — ( 92 ) — Other non-operating income, net 11 6 23 22 Income before income taxes 568 513 870 804 Income tax expense ( 155 ) ( 146 ) ( 248 ) ( 226 ) Net income 413 367 622 578 Net loss (income) attributable to noncontrolling interests ( 2 ) 1 ( 5 ) 2 Net income attributable to Hilton stockholders $ 411 $ 368 $ 617 $ 580 Earnings per share: Basic $ 1.56 $ 1.33 $ 2.33 $ 2.09 Diluted $ 1.55 $ 1.32 $ 2.31 $ 2.07 Cash dividends declared per share $ 0.15 $ 0.15 $ 0.30 $ 0.15 See notes to condensed consolidated financial statements. 3 HILTON WORLDWIDE HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Net income $ 413 $ 367 $ 622 $ 578 Other comprehensive income (loss), net of tax benefit (expense): 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 ) 2 2 4 3 Cash flow hedge adjustment, net of tax of $( 4 ), $( 9 ), $ — (1) and $( 29 ) 14 27 — 87 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. 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, 2023 2022 Operating Activities: Net income $ 622 $ 578 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of contract acquisition costs 21 18 Depreciation and amortization expenses 74 84 Loss (gain) on foreign currency transactions 6 ( 4 ) Loss on investments in unconsolidated affiliate 92 — Share-based compensation expense 85 84 Deferred income taxes ( 30 ) ( 3 ) Contract acquisition costs, net of refunds ( 139 ) ( 41 ) Working capital changes and other 63 ( 188 ) Net cash provided by operating activities 794 528 Investing Activities: Capital expenditures for property and equipment ( 74 ) ( 11 ) Issuance of financing receivables ( 8 ) ( 46 ) Undesignated derivative financial instruments ( 26 ) 42 Capitalized software costs ( 42 ) ( 25 ) Investments in unconsolidated affiliates ( 4 ) ( 51 ) Other — ( 3 ) Net cash used in investing activities ( 154 ) ( 94 ) Financing Activities: Borrowings — 18 Repayment of debt ( 21 ) ( 25 ) Debt issuance costs ( 9 ) — Dividends paid ( 81 ) ( 41 ) Repurchases of common stock ( 920 ) ( 586 ) Share-based compensation tax withholdings ( 52 ) ( 56 ) Proceeds from share-based compensation 28 16 Settlements of interest rate swap with financing component 24 ( 5 ) Net cash used in financing activities ( 1,031 ) ( 679 ) Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 12 ) ( 13 ) Net decrease in cash, restricted cash and cash equivalents ( 403 ) ( 258 ) Cash, restricted cash and cash equivalents, beginning of period 1,286 1,512 Cash, restricted cash and cash equivalents, end of period $ 883 $ 1,254 See notes to condensed consolidated financial statements. For supplemental disclosures, see Note 13: "Supplemental Disclosures of Cash Flow Information." 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. Basis of Presentation 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. Additionally, interim results are not necessarily indicative of full year performance. 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, 2023: (in millions) Balance as of December 31, 2022 $ 1,331 Cash received in advance and not recognized as revenue 324 Revenue recognized (1) ( 150 ) Other (2) ( 99 ) Balance as of June 30, 2023 $ 1,406 ____________ (1) Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements. (2) Represents the 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, 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 ; (ii) $ 697 million related to advance consideration received from hotel owners for application, initiation and other fees and certain indirect reimbursements; and (iii) $ 20 million related to other obligations. 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, 2022. 6 Note 3: Consolidated Variable Interest Entities 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. 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, including the effect of foreign currency translation, which primarily comprised the following: June 30, December 31, 2023 2022 (in millions) Cash and cash equivalents $ 41 $ 29 Accounts receivable, net 19 13 Property and equipment, net 38 45 Deferred income tax assets 38 52 Other non-current assets 42 55 Accounts payable, accrued expenses and other 21 21 Long-term debt (1)(2) 127 152 ____________ (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. Note 4: Loss on Investments in Unconsolidated Affiliate We strategically provide equity and debt financing to certain unconsolidated affiliates with an objective of supporting the growth of our network. 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 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. 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. 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. See Note 6: "Fair Value Measurements" for additional information. 7 Note 5: Debt 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, 2023 2022 (in millions) Senior secured term loan facility with a rate of 6.94 %, 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 5.96 %, due 2023 to 2030 (2) 145 164 Other debt of consolidated VIEs with a weighted average rate of 1.11 %, due 2024 to 2029 (2) 34 37 8,798 8,820 Less: unamortized deferred financing costs and discount ( 67 ) ( 73 ) Less: current maturities of long-term debt (3) ( 35 ) ( 39 ) $ 8,696 $ 8,708 ____________ (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. ("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 are included in finance lease liabilities and other debt of consolidated VIEs as applicable; refer to Note 3: "Consolidated Variable Interest Entities" for additional information . (3) Represents current maturities of finance lease liabilities and borrowings of consolidated VIEs. 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 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. 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. 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, 2023 Hierarchy Level Carrying Value (1) Level 1 Level 2 Level 3 (in millions) Assets: Interest rate swap $ 109 $ — $ 109 $ — Liabilities: Long-term debt (2) 8,619 5,425 — 2,623 8 December 31, 2022 Hierarchy Level Carrying Value (1) Level 1 Level 2 Level 3 (in millions) Assets: Interest rate swap $ 108 $ — $ 108 $ — Liabilities: Long-term debt (2) 8,619 5,292 — 2,616 ____________ (1) The fair values of cash equivalents and restricted cash equivalents approximate their carrying values due to their short-term maturities. The fair values of all other financial instruments not included in these tables are estimated to be equal to their carrying values. (2) The carrying values and fair values exclude the deduction for unamortized deferred financing costs and any applicable discounts, as well as all finance lease liabilities and other debt of consolidated VIEs; refer to Note 5: "Debt" for additional information. 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 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. 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. 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. Note 8: Share-Based Compensation 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"). 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. RSUs 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. 9 Options 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) 30.16 % Dividend yield (2) 0.43 % Risk-free rate (3) 4.00 % 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 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 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 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. 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, 2023 2022 2023 2022 (in millions, except per share amounts) Basic EPS: Numerator: Net income attributable to Hilton stockholders $ 411 $ 368 $ 617 $ 580 Denominator: Weighted average shares outstanding 264 278 265 278 Basic EPS $ 1.56 $ 1.33 $ 2.33 $ 2.09 Diluted EPS: Numerator: Net income attributable to Hilton stockholders $ 411 $ 368 $ 617 $ 580 Denominator: 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 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. 10 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, 2023 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, 2023 265.4 $ 3 $ ( 6,489 ) $ 10,815 $ ( 5,025 ) $ ( 724 ) $ 7 $ ( 1,413 ) Net income — — — — 411 — 2 413 Other comprehensive income — — — — — 21 ( 1 ) 20 Dividends (1) — — — — ( 40 ) — — ( 40 ) Repurchases of common stock (2) ( 3.3 ) — ( 475 ) — — — — ( 475 ) Share-based compensation 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 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 ) Six Months Ended June 30, 2023 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, 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 ) 11 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 ) ____________ (1) During the three months ended June 30, 2022, we resumed payment of regular quarterly cash dividends. (2) During the three months ended March 31, 2022, we resumed share repurchases under our previously authorized stock repurchase program. Beginning January 1, 2023, amount includes excise tax as imposed by the Inflation Reduction Act of 2022. 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, 2022 $ ( 548 ) $ ( 259 ) $ 101 $ ( 706 ) Other comprehensive income (loss) before reclassifications ( 1 ) — 14 13 Amounts reclassified from accumulated other comprehensive loss — 4 ( 14 ) ( 10 ) Net current period other comprehensive income (loss) ( 1 ) 4 — 3 Balance as of June 30, 2023 $ ( 549 ) $ ( 255 ) $ 101 $ ( 703 ) 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 ) ____________ (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 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. (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. 12 Note 11: Business Segments We are a hospitality company with operations organized in two distinct operating segments: (i) management and franchise and (ii) ownership, each of which is reported as a segment based on (a) delivering a similar set of products and services and (b) being managed separately given its distinct economic characteristics. The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that license our IP and where we provide other contracted services to third-party owners, but the day-to-day services of the hotels are operated or managed by someone other than us. Revenues from this segment include: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees from our strategic partners, including co-branded credit card providers, and Hilton Grand Vacations Inc. ("HGV") for the right to use our IP; and (iii) fees for managing hotels in our ownership segment. 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. 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 following table presents revenues for our reportable segments, reconciled to consolidated amounts: Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 (in millions) Franchise and licensing fees $ 622 $ 549 $ 1,135 $ 966 Base and other management fees (1) 100 86 189 147 Incentive management fees 69 46 134 80 Management and franchise 791 681 1,458 1,193 Ownership 341 282 589 432 Segment revenues 1,132 963 2,047 1,625 Amortization of contract acquisition costs ( 11 ) ( 10 ) ( 21 ) ( 18 ) Other revenues 46 25 81 43 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 ____________ (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. 13 The following table presents operating income (loss) for each of our reportable segments, reconciled to consolidated income before income taxes: 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 Amortization of contract acquisition costs ( 11 ) ( 10 ) ( 21 ) ( 18 ) Other revenues, less other expenses 13 14 27 21 Net other revenues (expenses) from managed and franchised properties ( 8 ) 36 ( 46 ) 66 Depreciation and amortization expenses ( 37 ) ( 40 ) ( 74 ) ( 84 ) General and administrative expenses ( 111 ) ( 103 ) ( 202 ) ( 194 ) Operating income 674 598 1,172 967 Interest expense ( 111 ) ( 99 ) ( 227 ) ( 189 ) Gain (loss) on foreign currency transactions ( 6 ) 8 ( 6 ) 4 Loss on investments in unconsolidated affiliate — — ( 92 ) — Other non-operating income, net 11 6 23 22 Income before income taxes $ 568 $ 513 $ 870 $ 804 ____________ (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 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 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 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. 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 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, 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 June 30, 2023 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Note 13: 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. 14