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Item 1. Financial Statements

2024-04-24 compared with 2023-10-25 · 106 added, 184 removed, 324 unchanged (47% of the section changed)

3 unchanged sentences

(in millions, except share data)

September 30, December 31,

March 31, December 31,

Current Assets:

33 unchanged sentences

Common stock, $ 0.01 par value;

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

10,000,000,000 authorized shares, 251,032,237 outstanding as of March 31, 2024 and 253,488,288 outstanding as of December 31, 2023

Treasury stock, at cost;

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

84,184,078 shares as of March 31, 2024 and 80,807,049 shares as of December 31, 2023

( 9,060 ) ( 8,393 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

Franchise and licensing fees $ 571 $ 508

3 unchanged sentences

Other revenues 50 35

1,167 1,024 3,263 2,667

Other revenues from managed and franchised properties

1,506 1,344 4,363 3,662

Total revenues 2,573 2,293

Owned and leased hotels

301 263 849 705

Depreciation and amortization 36 37

1 unchanged sentence

Other expenses 30 21

463 408 1,341 1,150

Other expenses from managed and franchised properties

1,557 1,337 4,460 3,589

Total expenses 2,047 1,795

Gain on sales of assets, net

Operating income 533 498

Interest expense ( 131 ) ( 116 )

Gain (loss) on foreign currency transactions

( 7 ) — ( 13 ) 4

Loss on foreign currency transactions

Loss on investments in unconsolidated affiliate — ( 92 )

Other non-operating income, net

Other non-operating income (loss), net

Income before income taxes 365 302

2 unchanged sentences

Net income 268 209

Net loss (income) attributable to noncontrolling interests

( 2 ) 1 ( 7 ) 3

Net income attributable to noncontrolling interests

Net income attributable to Hilton stockholders $ 265 $ 206

7 unchanged sentences

(in millions)

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

Net income $ 268 $ 209

1 unchanged sentence

Currency translation adjustment, net of tax of $ 4 and $( 3 )

( 31 ) ( 22 ) ( 33 ) ( 47 )

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

Cash flow hedge adjustment, net of tax of $( 2 ) and $ 4

Total other comprehensive income (loss)

Total other comprehensive loss

( 18 ) ( 18 )

Comprehensive income 250 191

Comprehensive loss (income) attributable to noncontrolling interests

( 2 ) 1 ( 6 ) 3

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to Hilton stockholders

$ 352 $ 376 $ 972 $ 1,021

(1) Amount was less than $1 million.

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

3 unchanged sentences

Depreciation and amortization expenses 36 37

Loss (gain) on foreign currency transactions 13 ( 4 )

Gain on sales of assets, net

Loss on foreign currency transactions

Loss on investments in unconsolidated affiliate — 92

2 unchanged sentences

Contract acquisition costs, net of refunds ( 37 ) ( 105 )

Change in deferred revenues

Change in liability for guest loyalty program

Working capital changes and other 62 74

4 unchanged sentences

Issuance of financing receivables — ( 8 )

Undesignated derivative financial instruments ( 28 ) 65

Proceeds from asset dispositions

Settlements of undesignated derivative financial instruments

Capitalized software costs ( 18 ) ( 19 )

Investments in unconsolidated affiliates ( 1 ) ( 2 )

Other — ( 2 )

Net cash used in investing activities ( 27 ) ( 85 )

8 unchanged sentences

Settlements of interest rate swap with financing component 14 11

Net cash used in financing activities ( 1,744 ) ( 1,230 )

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 12 ) ( 6 )

Net decrease in cash, restricted cash and cash equivalents

( 507 ) ( 150 )

Net increase (decrease) in cash, restricted cash and cash equivalents

Cash, restricted cash and cash equivalents, beginning of period 875 1,286

7 unchanged sentences

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.

(the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest global hospitality companies 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 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.

The accompanying condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 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;

5 unchanged sentences

All material intercompany transactions have been eliminated in consolidation.

In March 2024, we signed a purchase agreement to acquire the Graduate Hotels brand and enter into franchise contracts for approximately 35 existing and pipeline Graduate Hotels for $ 210 million in cash, which is expected to close in the second quarter of 2024.

In April 2024, we agreed to and completed an all-cash acquisition of a controlling financial interest in Sydell Hotels & Resorts, LLC and Sydell Holding Company UK Ltd (collectively, the "Sydell Group"), which owns the NoMad brand.

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 nine months ended September 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 three months ended March 31, 2024:

(in millions)

2 unchanged sentences

Revenue recognized (1)

Balance as of September 30, 2023

Balance as of March 31, 2024

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

1 unchanged sentence

Performance Obligations

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

As of March 31, 2024, deferred revenues for unsatisfied performance obligations consisted of:

(i) $ 800 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ;

(ii) $ 713 million related to advance consideration received from hotel owners for application, initiation and other fees and certain indirect reimbursements;

(ii) $ 744 million related to advance consideration received from hotel owners for application, initiation and other fees and system implementation fees;

and (iii) $ 18 million related to other obligations.

2 unchanged sentences

Consolidated Variable Interest Entities

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.

As of March 31, 2024 and December 31, 2023, we consolidated two variable interest entities ("VIEs") that each lease one hotel property, both of which are located in Japan.

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

Additionally, we have the obligation to absorb losses and the right to receive benefits that could be significant to each of the VIEs individually.

1 unchanged sentence

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:

September 30, December 31,

March 31, December 31,

(in millions)

Cash and cash equivalents $ 48 $ 46

Accounts receivable, net 15 17

Property and equipment, net 33 37

3 unchanged sentences

Long-term debt (1)(2)

(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.

(1) Includes finance lease liabilities of $ 78 million and $ 86 million as of March 31, 2024 and December 31, 2023, respectively.

(2) Includes current maturities of $ 18 million and $ 19 million as of March 31, 2024 and December 31, 2023, respectively.

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.

We provide equity and debt financing to certain unconsolidated affiliates with an objective of supporting the growth of our network.

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 certain hotels that we manage or franchise, failed to comply with certain requirements of its debt agreements.

As a result, we determined that:

1 unchanged sentence

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 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 September 30, 2023, were as follows:

September 30, December 31,

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.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2024, were as follows:

March 31, December 31,

(in millions)

1 unchanged sentence

$ 1,000 $ 1,000

Senior secured term loan facility with a rate of 7.43 %, due 2030

Senior notes with a rate of 5.375 %, due 2025 (1)

5 unchanged sentences

Senior notes with a rate of 4.000 %, due 2031 (1)

Senior notes with a rate of 3.625 %, due 2032 (1)

Senior notes with a rate of 6.125 %, due 2032 (1)

Finance lease liabilities with a weighted average rate of 6.01 %, due 2024 to 2030 (2)

Other debt of consolidated VIEs with a weighted average rate of 1.32 %, due 2024 to 2026 (2)

unamortized deferred financing costs and discount ( 64 ) ( 73 )

unamortized deferred financing costs and discounts

( 83 ) ( 71 )

current maturities of long-term debt (3)

3 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 are included in finance lease liabilities and other debt of consolidated VIEs as applicable;

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

Refer to Note 4:

1 unchanged sentence

(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 September 30, 2023, which had an available borrowing capacity of $ 1,940 million after considering $ 60 million of outstanding letters of credit.

Our senior secured credit facilities consist of a senior secured revolving credit facility (the "Revolving Credit Facility") and senior secured term loan facilities (the "Term Loans").

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, other than HOC, the named borrower of the senior secured credit facilities.

During the three months ended March 31, 2024, we borrowed and subsequently repaid $ 200 million under the Revolving Credit Facility.

No debt amounts were outstanding under the Revolving Credit Facility as of March 31, 2024, which had an available borrowing capacity of $ 1,913 million after considering $ 87 million of outstanding letters of credit.

In March 2024, we issued $ 550 million aggregate principal amount of 5.875 % Senior Notes due 2029 (the " 5.875 % 2029 Senior Notes") and $ 450 million aggregate principal amount of 6.125 % Senior Notes due 2032 (the " 6.125 % 2032 Senior Notes") and incurred an aggregate $ 15 million of debt issuance costs which were recognized as a reduction to the outstanding debt balance in our condensed consolidated balance sheet and will be amortized to interest expense through the respective maturity dates of the 5.875 % 2029 Senior Notes and the 6.125 % 2032 Senior Notes.

Interest on the 5.875 % 2029 Senior Notes and the 6.125 % 2032 Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2024.

We used a portion of the net proceeds from the issuances to repay $ 200 million borrowed under our Revolving Credit Facility earlier in the period.

The remaining proceeds will be used for general corporate purposes, which may include investments and acquisitions.

Fair Value Measurements

The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:

September 30, 2023

March 31, 2024

Hierarchy Level

18 unchanged sentences

"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 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:

"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.

We measured our interest rate swap at fair value, which was 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.

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.

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.

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.

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 $ 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:

We recognized share-based compensation expense of $ 41 million and $ 33 million during the three months ended March 31, 2024 and 2023, respectively, which included amounts reimbursed by hotel owners.

During the three months ended March 31, 2024, we granted 466,000 RSUs with a weighted average grant date fair value per share of $ 203.96 , which vest in equal annual installments over two or three years from the date of grant.

During the three months ended March 31, 2024, we granted 262,000 options with an exercise price per share of $ 203.96 , 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, 2024 was $ 71.25 , which was determined using the Black-Scholes-Merton option-pricing model with the following 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 terms of the options.

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

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 our quarterly dividend and the three-month average stock price at the date 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.

Department of Treasury instruments with a similar expected term of the options at the date of grant.

(4) Estimated using the midpoint of the vesting period and the contractual term of the options as we do not have sufficient historical share option exercise data to estimate the term of our option grant.

Performance Shares

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.

During the three months ended March 31, 2024, we granted 183,000 performance shares with a grant date fair value per share of $ 203.96 , which vest three years from the date of grant based on the projected achievement of various performance measures.

As of March 31, 2024, we determined that all of the performance measures for all outstanding performance shares granted in 2022, 2023 and 2024 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 2022 and 2023 and at the target achievement percentage for the performance shares granted in 2024.

Earnings Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

(in millions, except per share amounts)

Three Months Ended

(in millions,

except per share amounts)

Net income attributable to Hilton stockholders

$ 377 $ 347 $ 994 $ 927

Weighted average shares outstanding 252 266

1 unchanged sentence

Net income attributable to Hilton stockholders

$ 377 $ 347 $ 994 $ 927

Weighted average shares outstanding (1)

262 275 266 279

Diluted EPS $ 1.04 $ 0.77

(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 or less for all periods .

Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

The following tables present the changes in the components of stockholders' equity (deficit):

Three Months Ended September 30, 2023

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

Net income — — — — 377 — 2 379

Other comprehensive loss

— — — — — ( 25 ) — ( 25 )

— — — — ( 39 ) — — ( 39 )

Repurchases of common stock (1)

( 4.5 ) — ( 691 ) — — — — ( 691 )

Share-based compensation

0.1 — — 46 — — — 46

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

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

Shares Amount Total

(in millions)

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

— — — — ( 41 ) — — ( 41 )

Repurchases of common stock

( 4.0 ) — ( 497 ) — — — — ( 497 )

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

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

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Equity (Deficit) Attributable to Hilton Stockholders

14 unchanged sentences

0.9 — — ( 14 ) — — — ( 14 )

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

Balance as of March 31, 2024 251.0 $ 3 $ ( 9,060 ) $ 10,954 $ ( 3,981 ) $ ( 749 ) $ 16 $ ( 2,817 )

Three Months Ended March 31, 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 (loss) — — — — 927 — ( 3 ) 924

Other comprehensive income

— — — — 206 — 3 209

Other comprehensive loss

— — — — — ( 18 ) — ( 18 )

Dividends — — — — ( 41 ) — — ( 41 )

Repurchases of common stock

2 unchanged sentences

0.7 — — ( 16 ) — — — ( 16 )

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.

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

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

8 unchanged sentences

— 2 ( 13 ) ( 11 )

Net current period other comprehensive income (loss)

Net other comprehensive income (loss)

( 27 ) 2 7 ( 18 )

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

Balance as of March 31, 2024 $ ( 566 ) $ ( 260 ) $ 77 $ ( 749 )

Currency Translation Adjustment (1)

3 unchanged sentences

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

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

( 6 ) — ( 11 ) ( 17 )

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

— 2 ( 3 ) ( 1 )

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

Net other comprehensive income (loss)

( 6 ) 2 ( 14 ) ( 18 )

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

(1) Includes net investment hedge gains and intra-entity foreign currency transactions that are of a long-term investment nature.

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.

(2) Amounts reclassified relate to the amortization of prior service cost and amortization of net loss and were recognized in other non-operating income (loss), 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.

(a) interest rate swaps, inclusive of interest rate swaps that were dedesignated in prior periods, 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.

Business Segments

2 unchanged sentences

(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.

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, but the day-to-day services of the hotels are operated or managed by someone other than us.

Revenues from this segment include:

1 unchanged sentence

(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.

and (iii) fees for managing the 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.

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

(in millions)

1 unchanged sentence

Base and other management fees (1)

94 88 283 235

Incentive management fees 70 65

4 unchanged sentences

Other revenues 50 35

Direct reimbursements from managed and franchised properties (2)

722 643 2,167 1,764

Indirect reimbursements from managed and franchised properties (2)

784 701 2,196 1,898

Other revenues from managed and franchised properties

Intersegment fees elimination (1)

( 6 ) ( 7 ) ( 17 ) ( 14 )

Total revenues $ 2,573 $ 2,293

(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.

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

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

Three Months Ended

(in millions)

Management and franchise (1)

$ 804 $ 718 $ 2,262 $ 1,911

Ownership (1)

2 unchanged sentences

Other revenues, less other expenses 20 14

Net other revenues (expenses) from managed and franchised properties

Net other expenses from managed and franchised properties

( 109 ) ( 38 )

1 unchanged sentence

General and administrative expenses ( 104 ) ( 91 )

Gain on sales of assets, net

Operating income 533 498

Interest expense ( 131 ) ( 116 )

Gain (loss) on foreign currency transactions ( 7 ) — ( 13 ) 4

Loss on foreign currency transactions ( 1 ) —

Loss on investments in unconsolidated affiliate — ( 92 )

Other non-operating income, net 15 10 38 32

Other non-operating income (loss), net ( 36 ) 12

Income before income taxes $ 365 $ 302

1 unchanged sentence

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 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 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.

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.

We include performance clauses in certain of our management contracts, however, most of these clauses do not require us to fund shortfalls, but instead allow for termination of the contract if specified operating performance levels are not achieved.

In limited cases, we are obligated to fund performance shortfalls and our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee for that particular hotel.

As of March 31, 2024, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling $ 9 million.

We also have extended debt guarantees and provided letters of credit to owners of certain hotels that we currently or in the future will manage or franchise.

During the three months ended March 31, 2024, we recognized $ 47 million of losses in other

non-operating loss, net in our condensed consolidated statement of operations for debt guarantees extended to certain hotels we manage that have failed or are expected to fail to comply with the requirements of their respective debt agreements.

We paid $ 62 million during the three months ended March 31, 2024 related to debt guarantees.

Our debt guarantees and letters of credit as of March 31, 2024 had expirations ranging from 2025 to 2033 and remaining possible cash outlays totaling $ 78 million.

The performance and debt guarantees create variable interests in the ownership entities of the related hotels, of which we are not the primary beneficiary.

We receive Hilton Honors and program fees from managed and franchised properties that we are contractually required to use to operate our Hilton Honors program, marketing, sales and brands programs and shared services 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 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 September 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 March 31, 2024 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 $ 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, were $ 349 million and $ 253 million for the nine months ended September 30, 2023 and 2022, respectively.

Cash interest paid included within operating activities in our condensed consolidated statements of cash flows was $ 120 million and $ 101 million during the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024 and 2023, these amounts excluded $ 14 million and $ 11 million of cash receipts, 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, and income tax refunds, net of payments, were $ 18 million and $ 25 million, respectively, for the three months ended March 31, 2024 and 2023, 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