Item 1. Financial Statements
Item 1. Financial Statements
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, December 31,
2024 2023
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$ 1,346 $ 800
Restricted cash and cash equivalents
74 75
Accounts receivable, net of allowance for credit losses of $ 137 and $ 131
1,467 1,487
Prepaid expenses 193 131
Other
103 121
Total current assets (variable interest entities – $ 66 and $ 65 )
3,183 2,614
Intangibles and Other Assets:
Goodwill
5,044 5,052
Brands
4,831 4,846
Management and franchise contracts, net 1,087 1,064
Other intangible assets, net 173 173
Operating lease right-of-use assets
594 618
Property and equipment, net
377 382
Deferred income tax assets
140 140
Other
503 512
Total intangibles and other assets (variable interest entities – $ 102 and $ 112 )
12,749 12,787
TOTAL ASSETS $ 15,932 $ 15,401
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other
$ 1,935 $ 1,979
Current maturities of long-term debt
38 39
Current portion of deferred revenues
513 502
Current portion of liability for guest loyalty program 1,288 1,202
Total current liabilities (variable interest entities – $ 46 and $ 50 )
3,774 3,722
Long-term debt 10,135 9,157
Operating lease liabilities 775 808
Deferred revenues
1,152 1,132
Deferred income tax liabilities 373 401
Liability for guest loyalty program 1,553 1,530
Other 987 998
Total liabilities (variable interest entities – $ 122 and $ 137 )
18,749 17,748
Commitments and contingencies – see Note 13
Equity (Deficit):
Common stock, $ 0.01 par value; 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
3 3
Treasury stock, at cost; 84,184,078 shares as of March 31, 2024 and 80,807,049 shares as of December 31, 2023
( 9,060 ) ( 8,393 )
Additional paid-in capital
10,954 10,968
Accumulated deficit ( 3,981 ) ( 4,207 )
Accumulated other comprehensive loss
( 749 ) ( 731 )
Total Hilton stockholders' deficit
( 2,833 ) ( 2,360 )
Noncontrolling interests
16 13
Total deficit ( 2,817 ) ( 2,347 )
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 15,932 $ 15,401
See notes to condensed consolidated financial statements.
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HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
2024 2023
Revenues
Franchise and licensing fees $ 571 $ 508
Base and other management fees 106 80
Incentive management fees 70 65
Owned and leased hotels 255 248
Other revenues 50 35
1,052 936
Other revenues from managed and franchised properties
1,521 1,357
Total revenues 2,573 2,293
Expenses
Owned and leased hotels
247 251
Depreciation and amortization 36 37
General and administrative 104 91
Other expenses 30 21
417 400
Other expenses from managed and franchised properties
1,630 1,395
Total expenses 2,047 1,795
Gain on sales of assets, net
7 —
Operating income 533 498
Interest expense ( 131 ) ( 116 )
Loss on foreign currency transactions
( 1 ) —
Loss on investments in unconsolidated affiliate — ( 92 )
Other non-operating income (loss), net
( 36 ) 12
Income before income taxes 365 302
Income tax expense
( 97 ) ( 93 )
Net income 268 209
Net income attributable to noncontrolling interests
( 3 ) ( 3 )
Net income attributable to Hilton stockholders $ 265 $ 206
Earnings per share:
Basic $ 1.05 $ 0.77
Diluted $ 1.04 $ 0.77
Cash dividends declared per share $ 0.15 $ 0.15
See notes to condensed consolidated financial statements.
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HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
March 31,
2024 2023
Net income $ 268 $ 209
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $ 4 and $( 3 )
( 27 ) ( 6 )
Pension liability adjustment, net of tax of $( 1 ) and $( 1 )
2 2
Cash flow hedge adjustment, net of tax of $( 2 ) and $ 4
7 ( 14 )
Total other comprehensive loss
( 18 ) ( 18 )
Comprehensive income 250 191
Comprehensive income attributable to noncontrolling interests
( 3 ) ( 3 )
Comprehensive income attributable to Hilton stockholders
$ 247 $ 188
See notes to condensed consolidated financial statements.
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HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 31,
2024 2023
Operating Activities:
Net income $ 268 $ 209
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of contract acquisition costs 12 10
Depreciation and amortization expenses 36 37
Gain on sales of assets, net
( 7 ) —
Loss on foreign currency transactions
1 —
Loss on investments in unconsolidated affiliate — 92
Share-based compensation expense 41 33
Deferred income taxes ( 30 ) ( 20 )
Contract acquisition costs, net of refunds ( 37 ) ( 105 )
Working capital changes and other 62 74
Net cash provided by operating activities 346 330
Investing Activities:
Capital expenditures for property and equipment
( 16 ) ( 44 )
Issuance of financing receivables — ( 8 )
Proceeds from asset dispositions
8 —
Settlements of undesignated derivative financial instruments
— ( 12 )
Capitalized software costs ( 18 ) ( 19 )
Investments in unconsolidated affiliates ( 1 ) ( 2 )
Net cash used in investing activities ( 27 ) ( 85 )
Financing Activities:
Borrowings 1,200 —
Repayment of debt ( 209 ) ( 12 )
Debt issuance costs ( 13 ) ( 9 )
Dividends paid ( 39 ) ( 41 )
Repurchases of common stock ( 666 ) ( 450 )
Share-based compensation tax withholdings ( 69 ) ( 51 )
Proceeds from share-based compensation 20 5
Settlements of interest rate swap with financing component 14 11
Net cash provided by (used in) financing activities
238 ( 547 )
Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 12 ) ( 6 )
Net increase (decrease) in cash, restricted cash and cash equivalents
545 ( 308 )
Cash, restricted cash and cash equivalents, beginning of period 875 1,286
Cash, restricted cash and cash equivalents, end of period $ 1,420 $ 978
See notes to condensed consolidated financial statements. For supplemental disclosures, see Note 14: "Supplemental Disclosures of Cash Flow Information."
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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 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 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; 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, 2023.
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: Acquisitions
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.
Note 3: 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 three months ended March 31, 2024:
(in millions)
Balance as of December 31, 2023
$ 1,521
Cash received in advance and not recognized as revenue
185
Revenue recognized (1)
( 66 )
Other (2)
( 78 )
Balance as of March 31, 2024
$ 1,562
____________
(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.
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Performance Obligations
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) $ 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. 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, 2023.
Note 4: Consolidated Variable Interest Entities
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. 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:
March 31, December 31,
2024 2023
(in millions)
Cash and cash equivalents $ 48 $ 46
Accounts receivable, net 15 17
Property and equipment, net 33 37
Deferred income tax assets 28 32
Other non-current assets 40 43
Accounts payable, accrued expenses and other 26 29
Long-term debt (1)(2)
86 95
____________
(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.
Note 5: Loss on Investments in Unconsolidated Affiliate
We 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, if applicable.
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: (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 three months ended March 31, 2023.
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Note 6: Debt
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,
2024 2023
(in millions)
Senior secured term loan facility with a rate of 7.18 %, due 2028
$ 1,000 $ 1,000
Senior secured term loan facility with a rate of 7.43 %, due 2030
2,119 2,119
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 5.875 %, due 2029 (1)
550 —
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
Senior notes with a rate of 6.125 %, due 2032 (1)
450 —
Finance lease liabilities with a weighted average rate of 6.01 %, due 2024 to 2030 (2)
129 139
Other debt of consolidated VIEs with a weighted average rate of 1.32 %, due 2024 to 2026 (2)
8 9
10,256 9,267
Less: unamortized deferred financing costs and discounts
( 83 ) ( 71 )
Less: current maturities of long-term debt (3)
( 38 ) ( 39 )
$ 10,135 $ 9,157
____________
(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 is included in finance lease liabilities and other debt of consolidated VIEs, as applicable. Refer to Note 4: "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 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.
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Note 7: Fair Value Measurements
The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:
March 31, 2024
Hierarchy Level
Carrying Value (1)
Level 1 Level 2 Level 3
(in millions)
Assets:
Interest rate swap $ 83 $ — $ 83 $ —
Liabilities:
Long-term debt (2)
10,119 6,568 — 3,127
December 31, 2023
Hierarchy Level
Carrying Value (1)
Level 1 Level 2 Level 3
(in millions)
Assets:
Interest rate swap $ 75 $ — $ 75 $ —
Liabilities:
Long-term debt (2)
9,119 5,631 — 3,129
____________
(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 6: "Debt" for additional information.
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.
Note 8: 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.
Note 9: 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 $ 41 million and $ 33 million during the three months ended March 31, 2024 and 2023, respectively, which included amounts reimbursed by hotel owners.
RSUs
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.
Options
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.
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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)
27.95 %
Dividend yield (2)
0.33 %
Risk-free rate (3)
4.17 %
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 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 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 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.
Note 10: Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share ("EPS"):
Three Months Ended
March 31,
2024 2023
(in millions,
except per share amounts)
Basic EPS:
Numerator:
Net income attributable to Hilton stockholders
$ 265 $ 206
Denominator:
Weighted average shares outstanding 252 266
Basic EPS $ 1.05 $ 0.77
Diluted EPS:
Numerator:
Net income attributable to Hilton stockholders
$ 265 $ 206
Denominator:
Weighted average shares outstanding (1)
255 269
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 less than 1 million shares for each of the three months ended March 31, 2024 and 2023.
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Note 11: Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss
The following tables present the changes in the components of stockholders' equity (deficit):
Three Months Ended March 31, 2024
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, 2023 253.5 $ 3 $ ( 8,393 ) $ 10,968 $ ( 4,207 ) $ ( 731 ) $ 13 $ ( 2,347 )
Net income
— — — — 265 — 3 268
Other comprehensive loss
— — — — — ( 18 ) — ( 18 )
Dividends
— — — — ( 39 ) — — ( 39 )
Repurchases of common stock
( 3.4 ) — ( 667 ) — — — — ( 667 )
Share-based compensation
0.9 — — ( 14 ) — — — ( 14 )
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
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
— — — — 206 — 3 209
Other comprehensive loss
— — — — — ( 18 ) — ( 18 )
Dividends — — — — ( 41 ) — — ( 41 )
Repurchases of common stock
( 3.2 ) — ( 449 ) — — — — ( 449 )
Share-based compensation
0.7 — — ( 16 ) — — — ( 16 )
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:
Currency Translation Adjustment (1)
Pension Liability Adjustment (2)
Cash Flow Hedge Adjustment (3)
Total
(in millions)
Balance as of December 31, 2023 $ ( 539 ) $ ( 262 ) $ 70 $ ( 731 )
Other comprehensive income (loss) before reclassifications
( 27 ) — 20 ( 7 )
Amounts reclassified from accumulated other comprehensive loss
— 2 ( 13 ) ( 11 )
Net other comprehensive income (loss)
( 27 ) 2 7 ( 18 )
Balance as of March 31, 2024 $ ( 566 ) $ ( 260 ) $ 77 $ ( 749 )
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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 loss before reclassifications
( 6 ) — ( 11 ) ( 17 )
Amounts reclassified from accumulated other comprehensive loss
— 2 ( 3 ) ( 1 )
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.
(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 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.
Note 12: 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, 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"); 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.
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.
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The following table presents revenues for our reportable segments, reconciled to consolidated amounts:
Three Months Ended
March 31,
2024 2023
(in millions)
Franchise and licensing fees $ 576 $ 513
Base and other management fees (1)
119 89
Incentive management fees 70 65
Management and franchise 765 667
Ownership 255 248
Segment revenues 1,020 915
Amortization of contract acquisition costs ( 12 ) ( 10 )
Other revenues 50 35
Other revenues from managed and franchised properties
1,521 1,357
Intersegment fees elimination (1)
( 6 ) ( 4 )
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.
The following table presents operating income (loss) for each of our reportable segments, reconciled to consolidated income before income taxes:
Three Months Ended
March 31,
2024 2023
(in millions)
Management and franchise (1)
$ 765 $ 667
Ownership (1)
2 ( 7 )
Segment operating income 767 660
Amortization of contract acquisition costs ( 12 ) ( 10 )
Other revenues, less other expenses 20 14
Net other expenses from managed and franchised properties
( 109 ) ( 38 )
Depreciation and amortization expenses ( 36 ) ( 37 )
General and administrative expenses ( 104 ) ( 91 )
Gain on sales of assets, net
7 —
Operating income 533 498
Interest expense ( 131 ) ( 116 )
Loss on foreign currency transactions ( 1 ) —
Loss on investments in unconsolidated affiliate — ( 92 )
Other non-operating income (loss), net ( 36 ) 12
Income before income taxes $ 365 $ 302
____________
(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 13: Commitments and Contingencies
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
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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.
We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of March 31, 2024 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 14: Supplemental Disclosures of Cash Flow Information
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.
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