What changed in this filing

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Item 1. Financial Statements

2023-10-25 compared with 2023-07-26 · 82 added, 69 removed, 426 unchanged (26% 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

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

10,000,000,000 authorized shares, 257,879,258 outstanding as of September 30, 2023 and 267,860,301 outstanding as of December 31, 2022

Treasury stock, at cost;

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

76,241,976 shares as of September 30, 2023 and 65,217,085 shares as of December 31, 2022

( 7,647 ) ( 6,040 )

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,

2023 2022 2023 2022

38 unchanged sentences

(in millions)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

5 unchanged sentences

Cash flow hedge adjustment, net of tax of $( 1 ), $( 17 ), $( 1 ) and $( 46 )

Total other comprehensive income 20 6 2 65

Total other comprehensive income (loss)

( 25 ) 29 ( 23 ) 94

Comprehensive income 354 375 978 1,018

8 unchanged sentences

(in millions)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

8 unchanged sentences

Contract acquisition costs, net of refunds ( 164 ) ( 61 )

Change in deferred revenues

Change in liability for guest loyalty program

Working capital changes and other ( 46 ) ( 77 )

21 unchanged sentences

Net decrease in cash, restricted cash and cash equivalents

( 507 ) ( 150 )

Cash, restricted cash and cash equivalents, beginning of period 1,286 1,512

9 unchanged sentences

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.

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

7 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 six months ended June 30, 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 nine months ended September 30, 2023:

(in millions)

2 unchanged sentences

Revenue recognized (1)

Balance as of June 30, 2023

Balance as of September 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 June 30, 2023, deferred revenues for unsatisfied performance obligations consisted of:

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

(i) $ 761 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 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.

As of September 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:

June 30, December 31,

September 30, December 31,

(in millions)

Cash and cash equivalents $ 52 $ 29

Accounts receivable, net 19 13

Property and equipment, net 36 45

3 unchanged sentences

Long-term debt (1)(2)

(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.

(1) Includes finance lease liabilities of $ 86 million and $ 115 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Includes current maturities of $ 18 million and $ 22 million as of September 30, 2023 and December 31, 2022, respectively.

During the three months ended September 30, 2023, one of our consolidated VIEs made prepayments of JPY 1.0 billion (approximately $ 7 million) on borrowings that were outstanding as of December 31, 2022 and had original maturity dates in 2029.

Loss on Investments in Unconsolidated Affiliate

5 unchanged sentences

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.

These losses were recognized in loss on investments in unconsolidated affiliate in our condensed consolidated statement of operations for the nine months ended September 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 June 30, 2023, were as follows:

June 30, December 31,

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

September 30, December 31,

(in millions)

24 unchanged sentences

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.

No debt amounts were outstanding under the Revolving Credit Facility as of September 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:

June 30, 2023

September 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 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.

During the nine months ended September 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:

2 unchanged sentences

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.

We are under regular and recurring audit by the Internal Revenue Service ("IRS").

The IRS previously proposed material increases to our income tax liability related to our Hilton Honors guest loyalty program, which we have resolved through settlement through the tax year ended December 31, 2018.

We expect the Hilton Honors program to be audited for periods subsequent to 2018.

The IRS may propose tax assessments similar to those which were resolved through the 2018 tax year, and the amounts of any such future proposed assessments may be material.

In October 2023, the U.S.

Tax Court issued an opinion deciding that a third-party taxpayer was not entitled to apply the method of accounting provided for in Treasury Regulation Section 1.451-4 (the "Regulation") to its hotel loyalty program.

We currently apply this method of accounting to our guest loyalty program for federal income tax purposes.

Based on this decision, we are reassessing our uncertain tax positions in relation to our guest loyalty program.

GAAP, we are required to assess and reflect the impact of a change in our assessment of our uncertain tax positions within the period that we become aware of new information, which, in this case, was the aforementioned ruling.

Given that this decision was rendered after September 30, 2023, we will continue to assess this issue and reflect any changes in the fourth quarter of 2023 and future periods as applicable.

While we believe our facts and circumstances are distinguishable from those described in the decision, if we do not conclude that we are more-likely-than-not eligible to apply the Regulation to our guest loyalty program, our uncertain tax position reserves could increase by up to approximately $ 218 million, excluding interest.

Because this issue concerns only the timing of taxable income and deductions, this potential increase in tax reserves would be materially offset by a corresponding increase in our deferred tax assets.

Including interest on prior years potentially assessed under audit, income tax expense could increase by up to approximately $ 65 million in the period that we increase reserves.

In June 2023, we received a draft of proposed adjustments from the 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.

1 unchanged sentence

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.

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

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.

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:

We recognized share-based compensation expense of $ 48 million and $ 42 million during the three months ended September 30, 2023 and 2022, respectively, and $ 133 million and $ 126 million during the nine months ended September 30, 2023 and 2022, respectively, which includes amounts reimbursed by hotel owners.

During the nine months ended September 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 nine months ended September 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 nine months ended September 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)

9 unchanged sentences

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.

During the nine months ended September 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 September 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

9 unchanged sentences

Diluted EPS $ 1.44 $ 1.26 $ 3.74 $ 3.32

(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 June 30, 2023

Three Months Ended September 30, 2023

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

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

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

Net income — — — — 377 — 2 379

Other comprehensive income

Other comprehensive loss

— — — — — ( 25 ) — ( 25 )

Dividends (1)

— — — — ( 39 ) — — ( 39 )

3 unchanged sentences

0.1 — — 46 — — — 46

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

Balance as of September 30, 2023 257.9 $ 3 $ ( 7,647 ) $ 10,925 $ ( 4,316 ) $ ( 728 ) $ 10 $ ( 1,753 )

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

Other comprehensive income — — — — — 29 — 29

Dividends (1)

— — — — ( 41 ) — — ( 41 )

2 unchanged sentences

Share-based compensation — — — 38 — — — 38

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

Six Months Ended June 30, 2023

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

Nine Months Ended September 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

— — — — 994 — 7 1,001

Dividends (1)

Other comprehensive loss (2)

— — — — — ( 22 ) ( 1 ) ( 23 )

— — — — ( 120 ) — — ( 120 )

Repurchases of common stock (1)

2 unchanged sentences

1.0 — 8 94 — — — 102

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

Balance as of September 30, 2023 257.9 $ 3 $ ( 7,647 ) $ 10,925 $ ( 4,316 ) $ ( 728 ) $ 10 $ ( 1,753 )

Nine Months Ended September 30, 2022

Equity (Deficit) Attributable to Hilton Stockholders

9 unchanged sentences

— — — — — 94 — 94

Dividends (1)

— — — — ( 82 ) — — ( 82 )

3 unchanged sentences

0.9 — 5 71 — — — 76

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.

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

(1) Beginning January 1, 2023, amount includes excise tax as imposed by the Inflation Reduction Act of 2022.

(2) Amount for noncontrolling interests relates to currency translation adjustments.

The changes in the components of accumulated other comprehensive loss, net of taxes, were as follows:

9 unchanged sentences

Net current period other comprehensive income (loss)

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

( 32 ) 6 4 ( 22 )

Balance as of September 30, 2023 $ ( 580 ) $ ( 253 ) $ 105 $ ( 728 )

Currency Translation Adjustment (1)

8 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 )

(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.

Amount reclassified during the nine months ended September 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.

15 unchanged sentences

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,

2023 2022 2023 2022

18 unchanged sentences

(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 each of our reportable segments, reconciled to consolidated income before income taxes:

Three Months Ended Six Months Ended

June 30, June 30,

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

3 unchanged sentences

Ownership (1)

37 20 30 ( 17 )

Segment operating income 832 743 2,320 1,919

14 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 June 30, 2023, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 8 million.

As of September 30, 2023, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 7 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.

Additionally, as of September 30, 2023, we had extended debt guarantees and letters of credit with expirations ranging from 2025 to 2031 and possible cash outlays totaling $ 122 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 June 30, 2023 and December 31, 2022, the amounts expended on behalf of these programs exceeded the amounts collected.

As of September 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.

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, 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.

Cash interest paid included within operating activities in our condensed consolidated statements of cash flows was $ 345 million and $ 260 million during the nine months ended September 30, 2023 and 2022, respectively.

These amounts exclude $ 38 million of cash receipts and $ 4 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.

Income tax payments, net of refunds received, were $ 349 million and $ 253 million for the nine months ended September 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