UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017March 31, 2018
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-36243
Hilton Worldwide Holdings Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 27-4384691 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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7930 Jones Branch Drive, Suite 1100, McLean, VA | | 22102 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (703) 883-1000
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large accelerated filer x | | Accelerated filer ¨ |
Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Emerging growth company ¨ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of JulyApril 19, 20172018 was 324,212,528.300,416,906.
HILTON WORLDWIDE HOLDINGS INC.
FORM 10-Q TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION | |
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Item 1. | Financial Statements | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
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PART II | OTHER INFORMATION | |
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Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
| Signatures | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
(unaudited) |
| | | | | | | |
| June 30, | | December 31, |
2017 | 2016 |
| (Unaudited) | | |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 784 |
| | $ | 1,062 |
|
Restricted cash and cash equivalents | 125 |
| | 121 |
|
Accounts receivable, net of allowance for doubtful accounts of $25 and $27 | 921 |
| | 755 |
|
Prepaid expenses | 123 |
| | 89 |
|
Income taxes receivable | — |
| | 13 |
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Other | 46 |
| | 39 |
|
Current assets of discontinued operations | — |
| | 1,478 |
|
Total current assets (variable interest entities - $83 and $167) | 1,999 |
| | 3,557 |
|
Intangibles and Other Assets: | | | |
Goodwill | 5,164 |
| | 5,218 |
|
Brands | 4,872 |
| | 4,848 |
|
Management and franchise contracts, net | 930 |
| | 963 |
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Other intangible assets, net | 432 |
| | 447 |
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Property and equipment, net | 338 |
| | 341 |
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Deferred income tax assets | 82 |
| | 82 |
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Other | 452 |
| | 408 |
|
Non-current assets of discontinued operations | — |
| | 10,347 |
|
Total intangibles and other assets (variable interest entities - $169 and $569) | 12,270 |
| | 22,654 |
|
TOTAL ASSETS | $ | 14,269 |
| | $ | 26,211 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Accounts payable, accrued expenses and other | $ | 1,879 |
| | $ | 1,821 |
|
Current maturities of long-term debt | 48 |
| | 33 |
|
Income taxes payable | 62 |
| | 56 |
|
Current liabilities of discontinued operations | — |
| | 774 |
|
Total current liabilities (variable interest entities - $54 and $124) | 1,989 |
| | 2,684 |
|
Long-term debt | 6,572 |
| | 6,583 |
|
Deferred revenues | 99 |
| | 42 |
|
Deferred income tax liabilities | 1,673 |
| | 1,778 |
|
Liability for guest loyalty program | 884 |
| | 889 |
|
Other | 1,537 |
| | 1,492 |
|
Non-current liabilities of discontinued operations | — |
| | 6,894 |
|
Total liabilities (variable interest entities - $270 and $766) | 12,754 |
| | 20,362 |
|
Commitments and contingencies - see Note 14 |
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Equity: | | | |
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of June 30, 2017 and December 31, 2016 | — |
| | — |
|
Common stock(1), $0.01 par value; 10,000,000,000 authorized shares, 330,916,295 issued and 325,235,234 outstanding as of June 30, 2017 and 329,351,581 issued and 329,341,992 outstanding as of December 31, 2016 | 3 |
| | 3 |
|
Treasury stock, at cost; 5,681,061 shares as of June 30, 2017 and 9,589 shares as of December 31, 2016 | (352 | ) | | — |
|
Additional paid-in capital(1) | 10,245 |
| | 10,220 |
|
Accumulated deficit | (7,514 | ) | | (3,323 | ) |
Accumulated other comprehensive loss | (867 | ) | | (1,001 | ) |
Total Hilton stockholders' equity | 1,515 |
| | 5,899 |
|
Noncontrolling interests | — |
| | (50 | ) |
Total equity | 1,515 |
| | 5,849 |
|
TOTAL LIABILITIES AND EQUITY | $ | 14,269 |
| | $ | 26,211 |
|
____________ | |
(1) | | | | | | | | | | March 31, | | December 31, | 2018 | 2017 | ASSETS | | | | Current Assets: | | | | Cash and cash equivalents | $ | 610 |
| | $ | 570 |
| Restricted cash and cash equivalents | 73 |
| | 100 |
| Accounts receivable, net of allowance for doubtful accounts of $32 and $29 | 980 |
| | 1,005 |
| Prepaid expenses | 161 |
| | 127 |
| Income taxes receivable | — |
| | 36 |
| Other | 184 |
| | 169 |
| Total current assets (variable interest entities - $99 and $93) | 2,008 |
| | 2,007 |
| Intangibles and Other Assets: | | | | Goodwill | 5,211 |
| | 5,190 |
| Brands | 4,902 |
| | 4,890 |
| Management and franchise contracts, net | 928 |
| | 953 |
| Other intangible assets, net | 428 |
| | 433 |
| Property and equipment, net | 358 |
| | 353 |
| Deferred income tax assets | 111 |
| | 111 |
| Other | 314 |
| | 291 |
| Total intangibles and other assets (variable interest entities - $180 and $171) | 12,252 |
| | 12,221 |
| TOTAL ASSETS | $ | 14,260 |
| | $ | 14,228 |
| LIABILITIES AND EQUITY | | | | Current Liabilities: | | | | Accounts payable, accrued expenses and other | $ | 1,344 |
| | $ | 1,416 |
| Current portion of deferred revenues | 342 |
| | 366 |
| Current maturities of long-term debt | 47 |
| | 46 |
| Income taxes payable | 63 |
| | 12 |
| Current portion of liability for guest loyalty program | 692 |
| | 622 |
| Total current liabilities (variable interest entities - $55 and $58) | 2,488 |
| | 2,462 |
| Long-term debt | 6,558 |
| | 6,556 |
| Deferred revenues | 828 |
| | 829 |
| Deferred income tax liabilities | 901 |
| | 931 |
| Liability for guest loyalty program | 841 |
| | 839 |
| Other | 897 |
| | 920 |
| Total liabilities (variable interest entities - $278 and $271) | 12,513 |
| | 12,537 |
| Commitments and contingencies - see Note 14 |
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| Equity: | | | | Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of March 31, 2018 and December 31, 2017 | — |
| | — |
| Common stock, $0.01 par value; 10,000,000,000 authorized shares, 331,864,584 issued and 316,904,646 outstanding as of March 31, 2018 and 331,054,014 issued and 317,420,933 outstanding as of December 31, 2017 | 3 |
| | 3 |
| Treasury stock, at cost; 14,959,938 shares as of March 31, 2018 and 13,633,081 shares as of December 31, 2017 | (1,001 | ) | | (891 | ) | Additional paid-in capital | 10,288 |
| | 10,298 |
| Accumulated deficit | (6,868 | ) | | (6,981 | ) | Accumulated other comprehensive loss | (680 | ) | | (741 | ) | Total Hilton stockholders' equity | 1,742 |
| | 1,688 |
| Noncontrolling interests | 5 |
| | 3 |
| Total equity | 1,747 |
| | 1,691 |
| TOTAL LIABILITIES AND EQUITY | $ | 14,260 |
| | $ | 14,228 |
|
| Balance as of December 31, 2016 was adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017. See Note 1: "Organization and Basis of Presentation" for additional information. |
See notes to condensed consolidated financial statements.
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 |
Revenues | | | | | | | | | | |
Franchise fees | $ | 372 |
| | $ | 311 |
| | $ | 666 |
| | $ | 564 |
| $ | 331 |
| | $ | 282 |
|
Base and other management fees | 85 |
| | 60 |
| | 168 |
| | 120 |
| 77 |
| | 81 |
|
Incentive management fees | 56 |
| | 33 |
| | 108 |
| | 69 |
| 55 |
| | 49 |
|
Owned and leased hotels | 377 |
| | 398 |
| | 677 |
| | 717 |
| 334 |
| | 296 |
|
Other revenues | 20 |
| | 18 |
| | 57 |
| | 35 |
| 23 |
| | 37 |
|
| 910 |
| | 820 |
| | 1,676 |
| | 1,505 |
| 820 |
| | 745 |
|
Other revenues from managed and franchised properties | 1,436 |
| | 1,130 |
| | 2,831 |
| | 2,171 |
| 1,254 |
| | 1,151 |
|
Total revenues | 2,346 |
| | 1,950 |
| | 4,507 |
| | 3,676 |
| 2,074 |
| | 1,896 |
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| | | | | | | | | | |
Expenses | | | | | | | | | | |
Owned and leased hotels | 330 |
| | 349 |
| | 602 |
| | 656 |
| 320 |
| | 268 |
|
Depreciation and amortization | 87 |
| | 91 |
| | 176 |
| | 183 |
| 82 |
| | 86 |
|
Impairment loss | — |
| | — |
| | — |
| | 15 |
| |
General and administrative | 117 |
| | 97 |
| | 222 |
| | 180 |
| 104 |
| | 106 |
|
Other expenses | 11 |
| | 11 |
| | 34 |
| | 29 |
| 14 |
| | 23 |
|
| 545 |
| | 548 |
| | 1,034 |
| | 1,063 |
| 520 |
| | 483 |
|
Other expenses from managed and franchised properties | 1,436 |
| | 1,130 |
| | 2,831 |
| | 2,171 |
| 1,275 |
| | 1,196 |
|
Total expenses | 1,981 |
| | 1,678 |
| | 3,865 |
| | 3,234 |
| 1,795 |
| | 1,679 |
|
| | | | | | | | |
Gain on sales of assets, net | — |
| | 1 |
| | — |
| | 1 |
| |
| | | | | | | |
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| | |
Operating income | 365 |
| | 273 |
| | 642 |
| | 443 |
| 279 |
| | 217 |
|
| | | | | | | | | | |
Interest expense | (100 | ) | | (99 | ) | | (204 | ) | | (189 | ) | (83 | ) | | (89 | ) |
Gain (loss) on foreign currency transactions | 5 |
| | (14 | ) | | 1 |
| | (26 | ) | 11 |
| | (4 | ) |
Loss on debt extinguishment | — |
| | — |
| | (60 | ) | | — |
| — |
| | (60 | ) |
Other non-operating income, net | 5 |
| | 3 |
| | 6 |
| | 5 |
| 14 |
| | 2 |
|
| | | | | | | | | | |
Income from continuing operations before income taxes | 275 |
| | 163 |
| | 385 |
| | 233 |
| |
Income before income taxes | | 221 |
| | 66 |
|
| | | | | | | | | | |
Income tax benefit (expense) | (108 | ) | | (63 | ) | | (143 | ) | | 58 |
| |
Income tax expense | | (58 | ) | | (18 | ) |
| | | | | | | | | | |
Income from continuing operations, net of taxes | 167 |
| | 100 |
| | 242 |
| | 291 |
| |
Income from discontinued operations, net of taxes | — |
| | 144 |
| | — |
| | 263 |
| |
Net income | 167 |
| | 244 |
| | 242 |
| | 554 |
| 163 |
| | 48 |
|
Net income attributable to noncontrolling interests | (1 | ) | | (5 | ) | | (2 | ) | | (6 | ) | (2 | ) | | (1 | ) |
Net income attributable to Hilton stockholders | $ | 166 |
| | $ | 239 |
| | $ | 240 |
| | $ | 548 |
| $ | 161 |
| | $ | 47 |
|
| | | | | | | | | | |
Earnings per share(1) | | | | | | | | |
Basic: | | | | | | | | |
Net income from continuing operations per share | $ | 0.51 |
| | $ | 0.29 |
| | $ | 0.73 |
| | $ | 0.88 |
| |
Net income from discontinued operations per share | — |
| | 0.44 |
| | — |
| | 0.79 |
| |
Net income per share | $ | 0.51 |
| | $ | 0.73 |
| | $ | 0.73 |
| | $ | 1.67 |
| |
Diluted: | | | | | | | | |
Net income from continuing operations per share | $ | 0.51 |
| | $ | 0.29 |
| | $ | 0.73 |
| | $ | 0.87 |
| |
Net income from discontinued operations per share | — |
| | 0.43 |
| | — |
| | 0.79 |
| |
Net income per share | $ | 0.51 |
| | $ | 0.72 |
| | $ | 0.73 |
| | $ | 1.66 |
| |
Earnings per share: | | | | |
Basic | | $ | 0.51 |
| | $ | 0.14 |
|
Diluted | | $ | 0.51 |
| | $ | 0.14 |
|
| | | | | | | | | | |
Cash dividends declared per share(1) | $ | 0.15 |
| | $ | 0.21 |
| | $ | 0.30 |
| | $ | 0.42 |
| |
Cash dividends declared per share | | $ | 0.15 |
| | $ | 0.15 |
|
____________
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(1)
| Weighted average shares outstanding used in the computation of basic and diluted earnings per share and cash dividends declared per share for the three and six months ended June 30, 2016 were adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017. See Note 1: "Organization and Basis of Presentation" for additional information. |
See notes to condensed consolidated financial statements.
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 |
Net income | $ | 167 |
| | $ | 244 |
| | $ | 242 |
| | $ | 554 |
| $ | 163 |
| | $ | 48 |
|
Other comprehensive income (loss), net of tax benefit (expense): | | | | | | | | | | |
Currency translation adjustment, net of tax of $—, $(12), $1 and $(15) | 54 |
| | (53 | ) | | 74 |
| | (40 | ) | |
Pension liability adjustment, net of tax of $—, $—, $(1) and $(1) | 3 |
| | 1 |
| | 4 |
| | 2 |
| |
Cash flow hedge adjustment, net of tax of $2, $—, $4 and $4 | (5 | ) | | — |
| | (7 | ) | | (6 | ) | |
Total other comprehensive income (loss) | 52 |
| | (52 | ) | | 71 |
| | (44 | ) | |
Currency translation adjustment, net of tax of $1 and $1 | | 32 |
| | 20 |
|
Pension liability adjustment, net of tax of $— and $(1) | | 1 |
| | 1 |
|
Cash flow hedge adjustment, net of tax of $(10) and $2 | | 28 |
| | (2 | ) |
Total other comprehensive income | | 61 |
| | 19 |
|
| | | | | | | | | | |
Comprehensive income | 219 |
| | 192 |
| | 313 |
| | 510 |
| 224 |
| | 67 |
|
Comprehensive income attributable to noncontrolling interests | (2 | ) | | (5 | ) | | (2 | ) | | (4 | ) | (2 | ) | | — |
|
Comprehensive income attributable to Hilton stockholders | $ | 217 |
| | $ | 187 |
| | $ | 311 |
| | $ | 506 |
| $ | 222 |
| | $ | 67 |
|
See notes to condensed consolidated financial statements.
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| | | Six Months Ended | Three Months Ended |
| June 30, | March 31, |
| 2017 | | 2016 | 2018 | | 2017 |
Operating Activities: | | | | | | |
Net income | $ | 242 |
| | $ | 554 |
| $ | 163 |
| | $ | 48 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 176 |
| | 340 |
| 82 |
| | 86 |
|
Impairment loss | — |
| | 15 |
| |
Gain on sales of assets, net | — |
| | (2 | ) | |
Amortization of contract acquisition costs | | 7 |
| | 3 |
|
Loss (gain) on foreign currency transactions | (1 | ) | | 25 |
| (11 | ) | | 4 |
|
Loss on debt extinguishment | 60 |
| | — |
| — |
| | 60 |
|
Share-based compensation | 36 |
| | 27 |
| 28 |
| | 25 |
|
Deferred income taxes | (98 | ) | | (100 | ) | (37 | ) | | (67 | ) |
Contract acquisition costs | | (14 | ) | | (13 | ) |
Working capital changes and other | (39 | ) | | (185 | ) | 25 |
| | (96 | ) |
Net cash provided by operating activities | 376 |
| | 674 |
| 243 |
| | 50 |
|
Investing Activities: | | | | | | |
Capital expenditures for property and equipment | (18 | ) | | (169 | ) | (10 | ) | | (9 | ) |
Proceeds from asset dispositions | — |
| | 1 |
| |
Contract acquisition costs | (32 | ) | | (18 | ) | |
Capitalized software costs | (29 | ) | | (35 | ) | (15 | ) | | (9 | ) |
Other | (18 | ) | | (15 | ) | (1 | ) | | (19 | ) |
Net cash used in investing activities | (97 | ) | | (236 | ) | (26 | ) | | (37 | ) |
Financing Activities: | | | | | | |
Borrowings | 1,823 |
| | — |
| — |
| | 1,823 |
|
Repayment of debt | (1,836 | ) | | (64 | ) | (14 | ) | | (1,824 | ) |
Debt issuance costs and redemption premium | (68 | ) | | — |
| — |
| | (66 | ) |
Dividends paid | (98 | ) | | (138 | ) | (47 | ) | | (49 | ) |
Cash transferred in spin-offs of Park and HGV | (501 | ) | | — |
| — |
| | (501 | ) |
Repurchases of common stock | (352 | ) | | — |
| (110 | ) | | (70 | ) |
Distributions to noncontrolling interests | (1 | ) | | (4 | ) | — |
| | (1 | ) |
Tax withholdings on share-based compensation | (28 | ) | | (13 | ) | (40 | ) | | (28 | ) |
Net cash used in financing activities | (1,061 | ) | | (219 | ) | (211 | ) | | (716 | ) |
| | | | | | |
Effect of exchange rate changes on cash, restricted cash and cash equivalents | 7 |
| | 6 |
| 7 |
| | 5 |
|
Net increase (decrease) in cash, restricted cash and cash equivalents | (775 | ) | | 225 |
| 13 |
| | (698 | ) |
Cash, restricted cash and cash equivalents from continuing operations, beginning of period | 1,183 |
| | 633 |
| 670 |
| | 1,183 |
|
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period | 501 |
| | 223 |
| — |
| | 501 |
|
Cash, restricted cash and cash equivalents, beginning of period | 1,684 |
| | 856 |
| 670 |
| | 1,684 |
|
Cash, restricted cash and cash equivalents from continuing operations, end of period | 909 |
| | 718 |
| |
Cash, restricted cash and cash equivalents from discontinued operations, end of period | — |
| | 363 |
| |
Cash, restricted cash and cash equivalents, end of period | $ | 909 |
| | $ | 1,081 |
| $ | 683 |
| | $ | 986 |
|
| | | | | | |
Supplemental Disclosures: | | | | | | |
Cash paid during the year: | | | | | | |
Interest | $ | 158 |
| | $ | 225 |
| $ | 72 |
| | $ | 113 |
|
Income taxes, net of refunds | 237 |
| | 242 |
| 9 |
| | 6 |
|
Non-cash investing activities: | | | | |
Conversion of Park's property and equipment to timeshare inventory of HGV | $ | — |
| | $ | (22 | ) | |
Non-cash financing activities: | | | | | | |
Spin-offs of Park and HGV | $ | 29 |
| | $ | — |
| $ | — |
| | $ | 17 |
|
See notes to condensed consolidated financial statements.
HILTON WORLDWIDE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Organization and Basis of Presentation
Organization
Hilton Worldwide Holdings Inc. (the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts, including timeshare properties. As of June 30, 2017,March 31, 2018, we managed, franchised, owned or leased 5,0795,339 hotels and resorts, totaling 825,747863,241 rooms in 103106 countries and territories.
InAs of March 2017,31, 2018, HNA Tourism Group Co., Ltd. and certain of its affiliates (together, "HNA") acquired 82.5 million shares of Hilton common stock from affiliates of The Blackstone Group L.P. ("Blackstone"). As of June 30, 2017, HNA and Blackstone beneficially owned approximately 25.4 percent and 10.326 percent of our common stock, respectively.
Spin-offsstock. In April 2018, HNA sold its entire ownership interest in Hilton's common stock. See Note 16: "Subsequent Events" for additional information.
On January 3, 2017, we completed the spin-offs of a portfolio of hotels and resorts, as well as our timeshare business, into two independent, publicly traded companies: Park Hotels & Resorts Inc. ("Park") and Hilton Grand Vacations Inc. ("HGV"), respectively (the "spin-offs"). See Note 3: "Discontinued Operations" for additional information.
On January 3, 2017, we completed a 1-for-3 reverse stock splitNote 2: Basis of Hilton's outstanding common stock (the "Reverse Stock
Split"). All historical sharePresentation and share-related information presented in these condensed consolidated financial statements have been retrospectively adjusted to reflect the decreased numberSummary of shares resulting from the Reverse Stock Split. The retrospective adjustments resulted in the reclassification of $7 million from common stock to additional paid-in capital in the condensed consolidated balance sheets for all periods presented prior to the date of the Reverse Stock Split.Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 have been prepared in accordance with United States of America ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in Item 8.01 of our CurrentAnnual Report on Form 8-K dated July 26,10-K for the fiscal year ended December 31, 2017.
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.
These condensed consolidated financial statements present the condensed consolidated financial position of Hilton as of June 30, 2017 and December 31, 2016 and the results of operations of Hilton for the three and six months ended June 30, 2017 and 2016 giving effect to the spin-offs, with the historical financial results of Park and HGV reflected as discontinued operations. Unless otherwise indicated, the information in the notes to the condensed consolidated financial statements refer only to Hilton's continuing operations and do not include discussion of balances or activity of Park or HGV.
Principles of Consolidation
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.
On January 1, 2018, we adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") using the full retrospective approach as of January 1, 2016. All amounts and disclosures set forth in this Form 10-Q reflect the necessary adjustments required for the adoption of this standard, including the reclassification of prior year balances to conform to current year presentation. See "Summary of Significant Accounting Policies" below for additional information.
Summary of Significant Accounting Policies
Our significant accounting policies are detailed 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, 2017. The significant accounting policies that changed as a result of the adoption of ASU 2014-09 are set forth below.
Revenue Recognition
Revenues are primarily derived from management and franchise contracts with third-party hotel and resort owners, as well as from our owned and leased hotels. The majority of our performance obligations are a series of distinct goods or services, for which we receive variable consideration through our management and franchise fees or fixed consideration through our owned and leased hotels. We allocate the variable fees to the distinct services to which they relate applying the prescribed variable consideration allocation guidance, and we allocate fixed consideration to the related performance obligations based on the present value of the allocated variable cash flows. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good
Reclassificationsor service to a customer and when the customer pays for that good or service will be one year or less, which it is in substantially all cases. Additionally, we do not typically include extended payment terms in our contracts with customers.
Certain amountsManagement and franchise revenues
We identified the following performance obligations in previously issued financial statements have been reclassifiedconnection with our management and franchise contracts:
Intellectual Property ("IP") licenses grant the right to conformaccess our hotel system IP, including brand IP, reservations systems and property management systems.
Hotel management services include providing day-to-day management services of the hotels for the property owners.
Development services include providing consultative services (e.g., design assistance and contractor selection) to the presentation followingproperty owner to assist with the spin-offs, which includes the reclassificationconstruction of the financial positionhotel prior to the hotel opening.
Pre-opening services include providing services (e.g., advertising, budgeting, e-commerce strategies, food and results of operations of Park and HGV as discontinued operations as of December 31, 2016 andbeverage testing) to the property owner to assist in preparing for the threehotel opening.
Material rights for free or discounted goods or services to hotel guests are satisfied at the earlier point in time of either when the material right expires or the underlying free or discounted good or service is provided to the hotel guest.
Each of the identified performance obligations related to management and six months ended June 30, 2016. Additionally,franchise revenues is considered to be a series of distinct services transferred over time. While the underlying activities may vary from day to day, the nature of the promises are the same each day, and the property owner can independently benefit from each day's services. Management and franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed upfront fees that usually represent an insignificant portion of the transaction price.
Franchise fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with the property owner, and include the following:
Royalty fees are generally based on a percentage of a hotel's monthly gross room revenue and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, where applicable. These fees are typically billed and collected monthly, and revenue is generally recognized at the same time the fees are billed.
Application, initiation and other fees are charged when: (i) new hotels enter our system; (ii) there is a change of ownership; or (iii) contracts with properties already in our system are extended. These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract. We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the property owner failing to adequately complete some or all of its obligations under the contract.
License fees are earned from: (i) a license agreement with HGV to use certain line itemsHilton marks and IP in its timeshare business, which are typically billed and collected monthly, and revenue is generally recognized at the condensedsame time the fees are billed; and (ii) co-brand credit card arrangements and are recognized as revenue when Hilton Honors points are issued, generally as spend on the co-branded credit card occurs; see further discussion below under "Hilton Honors."
Franchise fees are reduced by any consideration paid or anticipated to be paid to incentivize hotel owners to enter into franchise contracts.
Base management fees and incentive management fees represent fees earned from hotels that we manage, usually under long-term contracts with the property owner, and include the following:
Base fees are generally based on a percentage of a hotel's monthly gross revenue. Base fees are typically billed and collected monthly, and revenue is generally recognized at the same time the fees are billed.
Incentive fees are generally based on a percentage of a hotel's operating profits and in some cases may be subject to a stated return threshold to the property owner, normally over a one-calendar year period (the "incentive period"). Incentive fee revenue is recognized on a monthly basis, but only to the extent the cumulative fee earned does not exceed the probable fee for the incentive period. Incentive fee payment terms vary, but they are generally billed and collected monthly or annually upon completion of the incentive period.
Base and other management fees are reduced by any consideration paid or anticipated to be paid to incentivize hotel owners to enter into management contracts.
Other revenues from managed and franchised properties represent amounts that are contractually reimbursed to us by property owners directly as costs are incurred or fees that are billed and collected in advance related to certain indirect costs and expenses of the related properties, and include the following:
Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties’ operations, which are contractually reimbursed to us by the property owners as expenses are incurred. Revenue is recognized based on the amount of expenses incurred by Hilton, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, have been revisedthat are then reimbursed by the property owner typically on a monthly basis, which results in no net effect on operating income (loss) or net income (loss).
Indirect reimbursements include marketing expenses and other expenses associated with our brands and shared services, which are paid from fees collected by Hilton from the managed and franchised properties. Revenue is generally recognized as fees are billed, which are based on the underlying hotel's sales or usage (e.g., gross room revenues and number of reservations processed). System implementation fees charged to reflectproperty owners are deferred and recognized as revenue over the operating structureterm of Hilton subsequent to the spin-offs.management or franchise contract. The primary change to the condensedcorresponding expenses are expensed as incurred and are presented as other expenses from managed and franchised properties in our consolidated statements of operations isand are expected to equal the disaggregation ofrevenues earned from indirect reimbursements over time.
The management and franchise fee revenues.fees and reimbursements from third-party hotel owners are allocated to the performance obligations and the distinct services to which they relate using their estimated standalone selling prices. The terms of the fees earned under the contract relate to a specific outcome of providing the services (e.g., hotel room sales) or to Hilton's efforts (e.g., costs) to satisfy the performance obligations. We use time as the measure of progress to recognize as revenue the fees that are allocated to the period earned per the contract or to the period when the reimbursable costs are incurred.
Owned and leased hotel revenues
We identified the following performance obligations in connection with our owned and leased hotel revenues, for which revenue is recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:
Cancellable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.
Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time satisfied as each distinct good or service is provided, which is reflected by the duration of the room reservation.
Material rights for free or discounted goods or services are satisfied at the earlier point in time when the material right expires or the underlying free or discounted good or service is provided to the hotel guest.
Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.
Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.
Note 2: Owned and leased hotel revenues primarily consist of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking) related to owned, leased and consolidated non-wholly owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. Owned and leased hotel revenues are reduced upon issuance of points for our guest loyalty program, Hilton Honors, for Hilton Honors members' paid stay transactions and are recognized when Hilton Honors points are redeemed for a free stay at an owned or leased hotel (see "Hilton Honors" section below for additional information).
Although the transaction prices of room rentals, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component. On occasion, the hotel may also provide the customer with a material right to a free or discounted good or service in conjunction with a room reservation or banquet contract (e.g., free breakfast and free room night for every four nights booked). These material rights are considered separate performance obligations to which a portion of the transaction price is allocated based on the estimated standalone selling prices of the good or service, adjusted for the likelihood the hotel guest will exercise the right.
Other revenues
Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels, including purchasing operations, and other operating income. Purchasing revenues include any amounts received for vendor rebate arrangements that we participate in as a manager of hotel properties.
Taxes and fees collected on behalf of governmental agencies
We are required to collect certain taxes and fees from customers on behalf of governmental agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in our measurement of transaction prices. We have elected to present revenue net of sales taxes and other similar taxes. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.
Contract Assets
Contract assets relate to incentive management fees for which the period of service has passed, but for which our right to consideration is conditional upon completing the requirements of the incentive fee period. Contract assets are included in other current assets in our consolidated balance sheets and are transferred to accounts receivable when our right to consideration becomes unconditional.
Contract Liabilities
Contract liabilities relate to: (i) advance consideration received from hotel owners at contract inception for services considered to be part of the contract performance obligations, such as management or franchise contract application, initiation, renewal and other fees; (ii) advance consideration received for certain indirect reimbursements, such as system implementation fees; and (iii) amounts received when points are issued under Hilton Honors, but for which revenue is not yet recognized, since the related points are not yet redeemed. Contract liabilities related to advance consideration received for fees, excluding Hilton Honors, and certain indirect reimbursements are recognized as revenue over the term of the related contract. Contract liabilities related to amounts received for Hilton Honors are recognized as revenue at the point in time when the points are redeemed for a free good or service by the Hilton Honors member, which typically occurs within two years of points issuance. Contract liabilities are included in deferred revenues in our consolidated balance sheets.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value in connection with the October 24, 2007 transaction whereby we became a wholly owned subsidiary of an affiliate of The Blackstone Group L.P. (the "Merger"). These intangible assets consist of management contracts, franchise contracts, leases, certain proprietary technologies and our Hilton Honors guest loyalty program. Additionally, we capitalize cash consideration paid to incentivize hotel owners to enter into management and franchise contracts as contract acquisition costs, as well as the incremental costs to obtain or fulfill the contracts as development commissions, which are generally fixed. We also capitalize as finite lived intangible assets costs incurred to develop internal-use computer software and costs to acquire software licenses, as well as internal and external costs incurred in connection with development of upgrades or enhancements that result in additional information technology functionality.
Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which for contract acquisition costs and development commissions is the contract term, including any renewal periods at our sole option. These estimated useful lives are generally as follows: management contracts recorded at the Merger (13 to 16 years); management contract acquisition costs and development commissions (20 to 30 years); franchise contracts recorded at the Merger (12 to 13 years); franchise contract acquisition costs and development commissions (10 to 20 years); leases (12 to 35 years); Hilton Honors (16 years); and capitalized software development costs (3 years).The amortization of our intangible assets, excluding contract acquisition costs, is included in depreciation and amortization expense, and the amortization of contract acquisition costs is recognized as a reduction to franchise fees and base and other management fees (based on the contract type) in our consolidated statements of operations. Costs incurred prior to the acquisition of a contract (e.g., external legal costs) are expensed as incurred and included in general and administrative expenses in our consolidated statements of operations. Cash flows for contract acquisition costs and development commissions are included as operating activities in our consolidated statements of cash flows.
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.
Hilton Honors
Hilton Honors is our guest loyalty and marketing program provided to hotel and resort properties. Nearly all of our owned, leased, managed and franchised properties participate in the Hilton Honors program. Hilton Honors members earn points based on their spending at our participating properties and through participation in affiliated partner programs. When points are earned by Hilton Honors members, they are provided with a material right to free or discounted goods or services in the future upon accumulation of the required level of Hilton Honors points. Points may be redeemed for the right to stay at participating properties, as well as for other goods and services from third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining. As the points are issued to a Hilton Honors member, the property or affiliated partner pays Hilton Honors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication and administrative expenses, as well as the estimated cost of award redemptions.
We record liabilities for the payments received from participating hotels and program partners, which are typically due when the points are issued to a Hilton Honors member. Amounts equal to the estimated cost per point of the future redemption obligation are included in the liability for guest loyalty program and any amounts received in excess of the estimated cost per point are included in deferred revenues in our consolidated balance sheets. We engage outside actuaries to assist in determining the fair value of the future redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of points that will eventually be redeemed, which includes an estimate of "breakage" for points that will never be redeemed, and the cost of reimbursing properties and other third parties in respect to other redemption opportunities available to members. When points are issued as a result of a stay at our owned or leased hotel, we recognize a reduction in owned and leased hotel revenues, since we are also the guest loyalty program sponsor. For the Hilton Honors fees that are charged to the participating properties, we allocate the fees to the material right created by Hilton Honors points issued using the variable consideration allocation guidance, since the fees are directly related to the issuance of Hilton Honors points to the Hilton Honors member and Hilton's efforts to satisfy the future redemption of those Hilton Honors points.
The transaction prices for the Hilton Honors points are reduced by the expected payments to the third parties that will provide the free or discounted room or service using the actuarial projection of the cost per point. The remaining transaction price is then further allocated to the points that are expected to be redeemed, adjusting the points that are issued for estimated breakage, and recognized when those points are redeemed. While the points are outstanding, both the estimate of the expected payments to third parties (cost per point) and the estimated breakage are reevaluated, and the amount of revenue recognized when each point is redeemed is adjusted so that the final amount allocated to the material right is reflective of the amount retained for providing all of the free or discounted goods and services, net of the payments to third parties and points not redeemed.
We also earn license fees from co-brand credit card arrangements (see "Management and franchise revenues" within the "Revenue Recognition" section above). The co-brand license fee is allocated between two performance obligations based on their estimated standalone selling prices: (i) an IP license using the relief-from-royalty method; and (ii) material rights for free or discounted goods or services to the credit card customers using a cost plus method based on an evaluation of other third-party administrators.
We satisfy our performance obligation related to points issued under the Hilton Honors guest loyalty program at a point in time when points are redeemed for a free good or service by the Hilton Honors member, and we satisfy our remaining performance obligations over time as the customer simultaneously receives and consumes the benefits of the goods or services provided. Hilton Honors reimburses participating properties when points are redeemed by members at the respective properties, at which time the redemption obligation is reduced and the related deferred revenue is recognized in other revenues from managed and franchised properties in our consolidated statements of operations. Additionally, when Hilton Honors members redeem award certificates at our owned and leased hotels, we recognize room revenue, included in owned and leased hotels revenue in our consolidated statements of operations.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In JanuaryMarch 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")ASU No. 2017-042017-07 ("ASU 2017-04"), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill by removing Step 2 from the goodwill impairment test. We elected, as permitted by the standard, to early adopt ASU 2017-04 on a prospective basis as of January 1, 2017. The adoption did not have a material effect on our condensed consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09 ("ASU 2016-09"2017-07"), Compensation - Stock CompensationRetirement Benefits (Topic 718)715): Improvements to Employee Share-Based Payment Accounting.Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU is intendedrequires employers to simplify several aspectsreport the service cost component of net periodic pension cost in the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as to clarify the classification insame line item or items of the statement of cash flows.operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost must be presented separately from the service cost component and outside of a subtotal of income (loss) from operations. We adopted ASU 2016-09 as of2017-07 on January 1, 2017. One of the provisions of this ASU requires entities to make an accounting policy election with respect to forfeitures of share-based payment awards, and we elected to account for forfeitures as they occur and adopted this provision of ASU 2016-09 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of January 1, 2017 of approximately $1 million. Additionally, we have applied the provisions of this ASU2018 on a retrospective basis in our condensed consolidated statements of cash flows,operations, which includes presenting: (i) excess tax benefitsthe service cost component of net periodic pension cost in owned and leased hotel expenses and general and administrative expenses; and (ii) the other components of net periodic pension cost in other non-operating income (loss), net in our condensed consolidated statements of operations. Prior to adoption, all net periodic pension costs were presented in owned and leased hotel expenses and general and administrative expenses. We have applied the practical expedient permitting us to use the amounts disclosed in our Employee Benefits Plans note in our Annual Report on Form 10-K for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. See the "Prior Period Financial Information" below for the effect of the adoption of ASU 2017-07 on our condensed consolidated statement of operations for the three months ended March 31, 2017.
In May 2014, the FASB issued ASU 2014-09. This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue when a customer obtains control of promised goods or services and in an operating activity, which were previously presentedamount that reflects the consideration the entity expects to receive in exchange for those goods or services. Subsequent to ASU 2014-09, the FASB issued several related ASUs to clarify the application of the new revenue recognition standard, collectively referred to herein as ASU 2014-09. We adopted the requirements of ASU 2014-09 on January 1, 2018 using the full retrospective approach, as permitted by the standard, resulting in a cumulative adjustment to accumulated deficit of $212 million as of January 1, 2016.
The provisions of ASU 2014-09 affected our revenue recognition as follows:
Application, initiation and other fees are recognized over the term of the franchise contract, rather than upon execution of the contract and the unamortized portion of these fees is included in deferred revenues in our condensed consolidated balance sheets.
Certain contract acquisition costs related to our management and franchise contracts are recognized over the term of the contracts as a financing activity; and (ii) cash paymentsreduction to tax authorities for employee taxes when sharesrevenue, instead of as amortization expense. This change does not affect net income (loss).
Incentive management fees are withheldrecognized to meet statutory withholding requirementsthe extent that it is probable that a significant reversal will not occur as a financing activity,result of future hotel profits or cash flows, as opposed to recognizing amounts that would be due if the management contract was terminated at the end of the reporting period. This change does not affect net income (loss) for any full year period.
Revenue related to our Hilton Honors guest loyalty program is recognized upon point redemption, net of any reward reimbursement paid to a third party, as opposed to recognized on a gross basis at the time points are issued in conjunction with the accrual of the expected future cost of the reward reimbursement. Additionally, points issued at owned and leased hotels are accounted for as a reduction of revenue from owned and leased hotels, as opposed to expenses of owned and leased hotels. Fees received in excess of the estimated liability for guest loyalty program are included in deferred revenues in our condensed consolidated balance sheets.
Reimbursable fees related to our management and franchise contracts are recognized as they are billed, as opposed to when we incur the related expenses. Timing differences related to the receipt and spend of these fees will no longer be recorded in other assets and other liabilities in our condensed consolidated balance sheets.
We have not retrospectively restated for management and franchise contracts modified before January 1, 2016 for the contract modifications. Instead, we have reflected the aggregate effect of all contract modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. The estimated effect of applying this practical expedient is to use a longer period over which were previously presentedto straight line any fixed consideration either received from the customer or paid to the customer, since all fees will be amortized over the full contract term beginning on the date of initial execution, rather than amortizing fees received upon contract modifications prospectively from the contract modification date. We do not anticipate that this effect is material given the insignificance of the fixed consideration compared to the overall consideration we expect to earn over the term of the contract. See the "Prior Period Financial
Information" below for the effect of the adoption of ASU 2014-09 on our condensed consolidated balance sheet as an operating activity.of December 31, 2017 and our condensed consolidated statement of operations for the three months ended March 31, 2017.
Prior Period Financial Information
The following table presents the effect of the adoption of ASU 2014-09 for the line items affected on our condensed consolidated balance sheet:
|
| | | | | | | | | | | |
| December 31, 2017 |
| As Previously Reported | | Adoption of ASU 2014-09 | | As Adjusted |
| (in millions) |
ASSETS | | | | | |
Accounts receivable, net | $ | 998 |
| | $ | 7 |
| | $ | 1,005 |
|
Prepaid expenses | 111 |
| | 16 |
| | 127 |
|
Other current assets | 171 |
| | (2 | ) | | 169 |
|
Management and franchise contracts, net | 909 |
| | 44 |
| | 953 |
|
Deferred income tax assets | 113 |
| | (2 | ) | | 111 |
|
Other non-current assets | 434 |
| | (143 | ) | | 291 |
|
TOTAL ASSETS | 14,308 |
| | (80 | ) | | 14,228 |
|
| | | | | |
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable, accrued expenses and other(1)(2) | 1,487 |
| | (71 | ) | | 1,416 |
|
Current portion of deferred revenues(1) | 41 |
| | 325 |
| | 366 |
|
Deferred revenues | 97 |
| | 732 |
| | 829 |
|
Deferred income tax liabilities | 1,063 |
| | (132 | ) | | 931 |
|
Other non-current liabilities | 1,470 |
| | (550 | ) | | 920 |
|
Total liabilities | 12,233 |
| | 304 |
| | 12,537 |
|
Equity: | | | | | |
Accumulated deficit | (6,596 | ) | | (385 | ) | | (6,981 | ) |
Accumulated other comprehensive loss | (742 | ) | | 1 |
| | (741 | ) |
Total equity | 2,075 |
| | (384 | ) | | 1,691 |
|
TOTAL LIABILITIES AND EQUITY | 14,308 |
| | (80 | ) | | 14,228 |
|
____________
| |
(1) | The current portion of deferred revenues has been separated from accounts payable, accrued expenses and other in the "As Previously Reported" column following the adoption of ASU 2014-09. |
| |
(2) | The current portion of liability for guest loyalty program has been separated from accounts payable, accrued expenses and other to conform with current presentation. The balance was $622 million as of December 31, 2017 and did not change as a result of the adoption of ASU 2014-09. |
The following table presents the effect of the adoption of ASU 2014-09 and ASU 2017-07 on our condensed consolidated statement of operations:
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| As Previously Reported | | Adoption of ASU 2014-09 | | Adoption of ASU 2017-07 | | As Adjusted |
| (in millions) |
Revenues | | | | | | | |
Franchise fees | $ | 294 |
| | $ | (12 | ) | | $ | — |
| | $ | 282 |
|
Base and other management fees | 83 |
| | (2 | ) | | — |
| | 81 |
|
Incentive management fees | 52 |
| | (3 | ) | | — |
| | 49 |
|
Owned and leased hotels | 300 |
| | (4 | ) | | — |
| | 296 |
|
Other revenues | 37 |
| | — |
| | — |
| | 37 |
|
| 766 |
| | (21 | ) | | — |
| | 745 |
|
Other revenues from managed and franchised properties | 1,395 |
| | (244 | ) | | — |
| | 1,151 |
|
Total revenues | 2,161 |
| | (265 | ) | | — |
| | 1,896 |
|
| | | | | | | |
Expenses | | | | | | | |
Owned and leased hotels | 272 |
| | (4 | ) | | — |
| | 268 |
|
Depreciation and amortization | 89 |
| | (3 | ) | | — |
| | 86 |
|
General and administrative | 105 |
| | — |
| | 1 |
| | 106 |
|
Other expenses | 23 |
| | — |
| | — |
| | 23 |
|
| 489 |
| | (7 | ) | | 1 |
| | 483 |
|
Other expenses from managed and franchised properties | 1,395 |
| | (199 | ) | | — |
| | 1,196 |
|
Total expenses | 1,884 |
| | (206 | ) | | 1 |
| | 1,679 |
|
| | | | | | | |
Operating income | 277 |
| | (59 | ) | | (1 | ) | | 217 |
|
| | | | | | | |
Interest expense | (104 | ) | | 15 |
| | — |
| | (89 | ) |
Loss on foreign currency transactions | (4 | ) | | — |
| | — |
| | (4 | ) |
Loss on debt extinguishment | (60 | ) | | — |
| | — |
| | (60 | ) |
Other non-operating income, net | 1 |
| | — |
| | 1 |
| | 2 |
|
| | | | | | | |
Income before income taxes | 110 |
| | (44 | ) | | — |
| | 66 |
|
| | | | | | | |
Income tax expense | (35 | ) | | 17 |
| | — |
| | (18 | ) |
| | | | | | | |
Net income | 75 |
| | (27 | ) | | — |
| | 48 |
|
Net income attributable to noncontrolling interests | (1 | ) | | — |
| | — |
| | (1 | ) |
Net income attributable to Hilton stockholders | $ | 74 |
| | $ | (27 | ) | | $ | — |
| | $ | 47 |
|
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 0.22 |
| | | | | | $ | 0.14 |
|
Diluted | $ | 0.22 |
| | | | | | $ | 0.14 |
|
Accounting Standards Not Yet Adopted
In February 2018, the FASB issued ASU No. 2018-02 ("ASU 2018-02"), Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects that do not reflect the appropriate tax rates as a result of the Tax Cuts and Jobs Act of 2017 (the "TCJ Act"). The provisions of ASU 2018-02 are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax rate in the TCJ Act is recognized. Early adoption is permitted. We are currently evaluating the effect that ASU 2018-02 will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be
recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. We intend to adopt the standard on January 1, 2019 and apply the package of practical expedients available to us upon adoption. We are currently evaluatingcontinuing to evaluate the effect that this ASU will have on our consolidated financial statements, but we expect this ASU to have a material effect on our consolidated balance sheet.
In May 2014, the FASB issued ASU No. 2014-09 ("ASU 2014-09"), RevenueNote 3: Revenues from Contracts with Customers (Topic 606). This ASU supersedes
Contract Liabilities
The following table summarizes the revenue recognition requirementsactivity of our contract liabilities, which are classified as a component of current and long-term deferred revenues, during the three months ended March 31, 2018:
|
| | | |
| (in millions) |
Balance as of December 31, 2017 | $ | 1,087 |
|
Cash received in advance and not recognized as revenue | 115 |
|
Revenue recognized | (60 | ) |
Other(1) | (53 | ) |
Balance as of March 31, 2018 | $ | 1,089 |
|
____________
| |
(1) | Represents the reclassification from deferred revenues to the current portion of liability for guest loyalty program in our condensed consolidated balance sheet. The reclassification is the result of changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors due to a change in our expected costs to the third parties providing the good or service associated with the Hilton Honors points. |
Performance Obligations
Estimated revenues expected to be recognized related to performance obligations that were unsatisfied as of March 31, 2018, including revenues related to application, initiation and other fees and excluding revenues related to Hilton Honors, royalty fees, base management fees and incentive management fees, were as follows:
|
| | | |
Year | (in millions) |
2018 (remaining) | $ | 32 |
|
2019 | 43 |
|
2020 | 47 |
|
2021 | 52 |
|
2022 | 57 |
|
Thereafter | 323 |
|
| $ | 554 |
|
As of March 31, 2018, we had $535 million of deferred revenues related to unsatisfied performance obligations under Hilton Honors, which are not included in the table above. Revenue Recognition (Topic 605) and requires entitieswill be recognized as the points are redeemed, which is expected to recognize revenue when a customer obtains control of promised goods or services and isoccur over the next two years.
We did not estimate revenues expected to be recognized in an amount that reflects the consideration the entity expectsrelated to receiveour unsatisfied performance obligations for our: (i) royalty fees since they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for those goods or services. Subsequent to ASU 2014-09,licenses of our brand names over the FASB issued several related ASUs. The provisions of ASU 2014-09 and the related ASUs are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. ASU 2014-09 permits two transition approaches: retrospective or modified retrospective. We currently expect to implement this ASU using the retrospective approach.
We anticipate that ASU 2014-09 and the related ASUs will have a material effect on our consolidated financial statements. However, we expect revenue recognition related to our accounting for ongoing royalty and management fee revenues, direct reimbursable fees from our management and franchise agreements and hotel guest transactions at our owned and leased hotels to remain substantially unchanged.
While we are continuing to assess all other potential effectsterms of the standard, we currently believefranchise contracts; and (ii) base management fees and incentive management fees since they are allocated entirely to the provisionswholly unsatisfied promise to transfer management services, which form part of ASU 2014-09 and the related ASUs will affect revenue recognition as follows: (i) application and initiation fees for new hotels entering the system will be recognizeda single performance obligation in a series, over the term of the franchise agreement; (ii) certain contract acquisition costsmanagement contract. Therefore, there are no amounts included in the table above related to our management and franchise agreements will be recognized over the termthese revenues.
As part of the agreements as a reductionadoption of ASU 2014-09, we elected not to revenue; and (iii) incentive management fees will be recognizeddisclose the amount of the transaction price allocated to the extentsame remaining performance obligations, disclosed above, as of December 31, 2017 or provide an explanation of when we expect to recognize that it is probable that a significant reversal will not occuramount as arevenue.
result of future hotel profits or cash flows. We do not expect the changes in revenue recognition for certain contract acquisition costs or incentive management fees to affect the Company’s net income for any full year period. We are currently assessing the effect of the standard on indirect reimbursable fees related to our management and franchise agreements and the accounting for our guest loyalty program. We continue to update our assessment of the effect that ASU 2014-09 and the related ASUs will have on our consolidated financial statements and we will disclose further material effects, if any, when known.
Note 3: Discontinued Operations
On January 3, 2017, we completed the spin-offs of Park and HGV via a pro rata distribution to each of Hilton's stockholders of record, as of close of business on December 15, 2016, of 100 percent of the outstanding common stock of each of Park and HGV (the "Distribution"). Each Hilton stockholder of record received one share of Park common stock for every five shares of Hilton common stock and one share of HGV common stock for every ten shares of Hilton common stock. Following the spin-offs, Hilton did not retain any ownership interest in Park or HGV. Both Park and HGV have their common stock listed on the New York Stock Exchange under the symbols "PK" and "HGV," respectively.
In connection with the spin-offs, on January 2, 2017, Hilton entered into several agreements with Park and HGV that govern Hilton’s relationship with them following the Distribution including: (i) a Distribution Agreement; (ii) an Employee Matters Agreement; (iii) a Tax Matters Agreement; (iv) a Transition Services Agreement ("TSA"); (v) an HGV License Agreement; (vi) a Tax Stockholders Agreement; and (vii) management and franchise agreements.
Under the TSA with Park and HGV, Hilton or one of its affiliates provides Park and HGV with certain services for a period of two years to help ensure an orderly transition following the Distribution. The services that Hilton agreed to provide under the TSA may include: finance; information technology; human resources and compensation; facilities; legal and compliance; and other services. The entity providing the services is compensated for any such services at agreed amounts as set forth in the TSA.
The License Agreement with HGV granted HGV the exclusive right, for an initial term of 100 years, to use certain Hilton marks and intellectual property in its timeshare business, subject to the terms and conditions of the agreement. HGV pays a royalty fee of five percent of gross revenues, as defined, to Hilton quarterly in arrears, as well as specified additional fees and reimbursements. Additionally, during the term of the license agreement, HGV will participate in Hilton’s guest loyalty program, Hilton Honors.
Under the management and franchise agreements with Park, Park pays agreed upon fees for various services that Hilton provides to support the operations of their hotels, as well as royalty fees for the licensing of Hilton's hotel brands. The terms of the management agreements generally include a base management fee, calculated as three percent of gross hotel revenues or receipts, and an incentive management fee, calculated as six percent of a specified measure of hotel earnings that is calculated in accordance with the applicable management agreement. Additionally, payroll and related costs, certain other operating costs, marketing expenses and other expenses associated with Hilton's brands and shared services are directly reimbursed to Hilton by Park pursuant to the terms of the management and franchise agreements.
Financial Information
During the three and six months ended June 30, 2017, we recognized $43 million and $82 million, respectively, of management and franchise fees for properties that were transferred to Park upon completion of the spin-offs and $23 million and $43 million, respectively, of license fees from HGV.
Prior to the spin-offs, the results of Park were reported in our ownership segment and the results of HGV were reported in our timeshare segment. Following the spin-offs, we do not have a timeshare segment, as we no longer have timeshare operations.
The following table presents the assets and liabilities of Park and HGV that were included in discontinued operations in our condensed consolidated balance sheet:
|
| | | |
| December 31, 2016 |
| (in millions) |
ASSETS | |
Current Assets: | |
Cash and cash equivalents | $ | 341 |
|
Restricted cash and cash equivalents | 160 |
|
Accounts receivable, net | 250 |
|
Prepaid expenses | 48 |
|
Inventories | 527 |
|
Current portion of financing receivables, net | 136 |
|
Other | 16 |
|
Total current assets of discontinued operations (variable interest entities - $92) | 1,478 |
|
Intangibles and Other Assets: | |
Goodwill | 604 |
|
Management and franchise contracts, net | 56 |
|
Other intangible assets, net | 60 |
|
Property and equipment, net | 8,589 |
|
Deferred income tax assets | 35 |
|
Financing receivables, net | 895 |
|
Investments in affiliates | 81 |
|
Other | 27 |
|
Total intangibles and other assets of discontinued operations (variable interest entities - $405) | 10,347 |
|
TOTAL ASSETS OF DISCONTINUED OPERATIONS | $ | 11,825 |
|
LIABILITIES | |
Current Liabilities: | |
Accounts payable, accrued expenses and other | $ | 632 |
|
Current maturities of long-term debt | 65 |
|
Current maturities of timeshare debt | 73 |
|
Income taxes payable | 4 |
|
Total current liabilities of discontinued operations (variable interest entities - $81) | 774 |
|
Long-term debt | 3,437 |
|
Timeshare debt | 621 |
|
Deferred revenues | 22 |
|
Deferred income tax liabilities | 2,797 |
|
Other | 17 |
|
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS (variable interest entities - $506) | $ | 7,668 |
|
The following table presents the results of operations of Park and HGV that were included in discontinued operations in our condensed consolidated statements of operations:
|
| | | | | | | |
| Three Months Ended June 30, 2016 |
| Six Months Ended June 30, 2016 |
| (in millions) |
Total revenues from discontinued operations | $ | 1,101 |
| | $ | 2,125 |
|
| | | |
Expenses | | | |
Owned and leased hotels | 459 |
| | 908 |
|
Timeshare | 223 |
| | 440 |
|
Depreciation and amortization | 80 |
| | 157 |
|
Other | 60 |
| | 102 |
|
Total expenses from discontinued operations | 822 |
| | 1,607 |
|
| | | |
Gain on sales of assets, net | 1 |
| | 1 |
|
| | | |
Operating income from discontinued operations | 280 |
| | 519 |
|
| | | |
Non-operating loss, net | (43 | ) | | (88 | ) |
| | | |
Income from discontinued operations before income taxes | 237 |
| | 431 |
|
| | | |
Income tax expense | (93 | ) | | (168 | ) |
| | | |
Income from discontinued operations, net of taxes | 144 |
| | 263 |
|
Income from discontinued operations attributable to noncontrolling interests, net of taxes | (1 | ) | | (3 | ) |
Income from discontinued operations attributable to Hilton stockholders, net of taxes | $ | 143 |
| | $ | 260 |
|
The following table presents selected financial information of Park and HGV that was included in our condensed consolidated statement of cash flows:
|
| | | |
| Six Months Ended June 30, 2016 |
| (in millions) |
Non-cash items included in net income: | |
Depreciation and amortization | $ | 157 |
|
Gain on sales of assets, net | (1 | ) |
| |
Investing activities: | |
Capital expenditures for property and equipment | $ | (140 | ) |
Note 4: Consolidated Variable Interest Entities
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, we consolidated three variable interest entities ("VIEs"): two entities that leasedlease hotel properties and one management company. We are the primary beneficiaries of these consolidated VIEs as we have the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our consolidated VIEs are only available to settle the obligations of the respective entities. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised the following:
| | | June 30, | | December 31, | March 31, | | December 31, |
| 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Cash and cash equivalents | $ | 64 |
| | $ | 57 |
| $ | 78 |
| | $ | 73 |
|
Accounts receivable, net | 12 |
| | 14 |
| 15 |
| | 16 |
|
Property and equipment, net | 53 |
| | 52 |
| 59 |
| | 57 |
|
Deferred income tax assets | 60 |
| | 58 |
| 60 |
| | 56 |
|
Other non-current assets | 56 |
| | 53 |
| 61 |
| | 57 |
|
Accounts payable, accrued expenses and other | 37 |
| | 33 |
| 39 |
| | 43 |
|
Long-term debt(1) | 219 |
| | 212 |
| 222 |
| | 212 |
|
____________
| |
(1) | Includes capital lease obligations of $199 million and $191 million as of March 31, 2018 and December 31, 2017, respectively. |
During the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.
Note 5: Goodwill andAmortizing Intangible Assets
GoodwillAmortizing intangible assets were as follows: |
| | | | | | | | | | | |
| March 31, 2018 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
Management and franchise contracts: | | | | | |
Management and franchise contracts recorded at Merger(1) | $ | 2,247 |
| | $ | (1,761 | ) | | $ | 486 |
|
Contract acquisition costs | 436 |
| | (81 | ) | | 355 |
|
Development commissions | 100 |
| | (13 | ) | | 87 |
|
| $ | 2,783 |
| | $ | (1,855 | ) | | $ | 928 |
|
| | | | | |
Other amortizing intangible assets: | | | | | |
Leases(1) | $ | 310 |
| | $ | (162 | ) | | $ | 148 |
|
Capitalized software | 596 |
| | (440 | ) | | 156 |
|
Hilton Honors(1) | 343 |
| | (223 | ) | | 120 |
|
Other | 38 |
| | (34 | ) | | 4 |
|
| $ | 1,287 |
| | $ | (859 | ) | | $ | 428 |
|
Our goodwill balances, by reporting unit, were as follows:
|
| | | | | | | | | | | |
| Ownership(1) | | Management and Franchise(2) | | Total |
| (in millions) |
Balance as of December 31, 2016 | $ | 184 |
| | $ | 5,034 |
| | $ | 5,218 |
|
Spin-offs of Park and HGV | (91 | ) | | — |
| | (91 | ) |
Foreign currency translation | 6 |
| | 31 |
| | 37 |
|
Balance as of June 30, 2017 | $ | 99 |
| | $ | 5,065 |
| | $ | 5,164 |
|
|
| | | | | | | | | | | |
| December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
Management and franchise contracts: | | | | | |
Management and franchise contracts recorded at Merger(1) | $ | 2,242 |
| | $ | (1,716 | ) | | $ | 526 |
|
Contract acquisition costs | 416 |
| | (74 | ) | | 342 |
|
Development commissions | 97 |
| | (12 | ) | | 85 |
|
| $ | 2,755 |
| | $ | (1,802 | ) | | $ | 953 |
|
| | | | | |
Other amortizing intangible assets: | | | | | |
Leases(1) | $ | 301 |
| | $ | (153 | ) | | $ | 148 |
|
Capitalized software | 585 |
| | (428 | ) | | 157 |
|
Hilton Honors(1) | 341 |
| | (217 | ) | | 124 |
|
Other | 38 |
| | (34 | ) | | 4 |
|
| $ | 1,265 |
| | $ | (832 | ) | | $ | 433 |
|
____________
| |
(1) | The balance as of December 31, 2016 excludes goodwill of $2,706 million and accumulated impairment losses of $2,102 million that were attributable to Park and included in non-current assets of discontinued operations in our condensed consolidated balance sheet. Amounts for the ownership reporting unit include the following gross carrying values and accumulated impairment losses for the periods presented: |
|
| | | | | | | | | | | |
| Gross Carrying Value | | Accumulated Impairment Losses | | Net Carrying Value |
| (in millions) |
Balance as of December 31, 2016 | $ | 856 |
| | $ | (672 | ) | | $ | 184 |
|
Spin-offs of Park and HGV | (423 | ) | | 332 |
| | (91 | ) |
Foreign currency translation | 6 |
| | — |
| | 6 |
|
Balance as of June 30, 2017 | $ | 439 |
| | $ | (340 | ) | | $ | 99 |
|
| |
(2)
| There were no accumulated impairment losses for the management and franchise reporting unit as of December 31, 2016 and June 30, 2017. |
Intangible Assets
Intangible assets were as follows:
|
| | | | | | | | | | | |
| June 30, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
Amortizing Intangible Assets: | | | | | |
Management and franchise contracts: | | | | | |
Management and franchise contracts recorded at merger(1) | $ | 2,232 |
| | $ | (1,625 | ) | | $ | 607 |
|
Contract acquisition costs and other | 398 |
| | (75 | ) | | 323 |
|
| $ | 2,630 |
| | $ | (1,700 | ) | | $ | 930 |
|
| | | | | |
Other intangible assets: | | | | | |
Leases(1) | $ | 290 |
| | $ | (140 | ) | | $ | 150 |
|
Capitalized software | 539 |
| | (396 | ) | | 143 |
|
Hilton Honors(1) | 338 |
| | (205 | ) | | 133 |
|
Other | 38 |
| | (32 | ) | | 6 |
|
| $ | 1,205 |
| | $ | (773 | ) | | $ | 432 |
|
| | | | | |
Non-amortizing Intangible Assets: | | | | | |
Brands(1)(2) | $ | 4,872 |
| | $ | — |
| | $ | 4,872 |
|
|
| | | | | | | | | | | |
| December 31, 2016 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
Amortizing Intangible Assets: | | | | | |
Management and franchise contracts: | | | | | |
Management and franchise contracts recorded at merger(1) | $ | 2,221 |
| | $ | (1,534 | ) | | $ | 687 |
|
Contract acquisition costs and other | 343 |
| | (67 | ) | | 276 |
|
| $ | 2,564 |
| | $ | (1,601 | ) | | $ | 963 |
|
| | | | | |
Other intangible assets: | | | | | |
Leases(1) | $ | 276 |
| | $ | (126 | ) | | $ | 150 |
|
Capitalized software | 510 |
| | (362 | ) | | 148 |
|
Hilton Honors(1) | 335 |
| | (192 | ) | | 143 |
|
Other | 37 |
| | (31 | ) | | 6 |
|
| $ | 1,158 |
| | $ | (711 | ) | | $ | 447 |
|
| | | | | |
Non-amortizing Intangible Assets: | | | | | |
Brands(1)(2) | $ | 4,848 |
| | $ | — |
| | $ | 4,848 |
|
____________
| |
(1)
| Represents intangible assets that were initially recorded at their fair value as partat the time of the October 24, 2007 transaction whereby we became a wholly owned subsidiary of an affiliate of Blackstone. |
| |
(2)
| Changes to our brands intangible assets from December 31, 2016 to June 30, 2017 were due to foreign currency translations.Merger. |
We recordedAmortization of our amortizing intangible assets included in depreciation and amortization expense in our condensed consolidated statements of $71operations was $69 million and $77$70 million for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, including $17 million and $21$1 million of amortization expense on capitalized software, respectively. We recorded amortization expenseour development commissions in each period. Amortization of $145our contract acquisition costs recognized as a reduction in franchise fee and base and other management fee revenues was $7 million and $155$3 million for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, respectively, including $34 million and $43 million of amortization expense on capitalized software, respectively.
We estimated our future amortization expense for our amortizing intangible assets as of June 30, 2017March 31, 2018 to be as follows:
| | | | | | Recognized in Depreciation and Amortization Expense | | Recognized as a Reduction of Franchise Fee and Base and Other Management Fee Revenues |
Year | (in millions) | (in millions) |
2017 (remaining) | $ | 152 |
| |
2018 | 264 |
| |
2018 (remaining) | | $ | 205 |
| | $ | 16 |
|
2019 | 249 |
| 261 |
| | 22 |
|
2020 | 204 |
| 210 |
| | 22 |
|
2021 | 76 |
| 71 |
| | 21 |
|
2022 | | 61 |
| | 21 |
|
Thereafter | 417 |
| 193 |
| | 253 |
|
| $ | 1,362 |
| $ | 1,001 |
| | $ | 355 |
|
Note 6: Debt
Long-term Debt
Long-term debt balances, including obligations for capital leases, and associated interest rates as of June 30, 2017,March 31, 2018, were as follows:
| |
| June 30, | | December 31, | March 31, | | December 31, |
| 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Senior notes due 2021 | $ | — |
| | $ | 1,500 |
| |
Senior notes with a rate of 4.250%, due 2024 | 1,000 |
| | 1,000 |
| 1,000 |
| | 1,000 |
|
Senior notes with a rate of 4.625%, due 2025 | 900 |
| | — |
| 900 |
| | 900 |
|
Senior notes with a rate of 4.875%, due 2027 | 600 |
| | — |
| 600 |
| | 600 |
|
Senior secured term loan facility due 2020 | — |
| | 750 |
| |
Senior secured term loan facility with a rate of 3.22%, due 2023 | 3,949 |
| | 3,209 |
| |
Capital lease obligations with an average rate of 6.34%, due 2021 to 2030 | 236 |
| | 227 |
| |
Senior secured term loan facility with a rate of 3.87%, due 2023 | | 3,919 |
| | 3,929 |
|
Capital lease obligations with an average rate of 6.33%, due 2021 to 2030 | | 241 |
| | 233 |
|
Other debt with an average rate of 2.65%, due 2018 to 2026 | 21 |
| | 20 |
| 23 |
| | 21 |
|
| 6,706 |
| | 6,706 |
| 6,683 |
| | 6,683 |
|
Less: unamortized deferred financing costs and discount | (86 | ) | | (90 | ) | (78 | ) | | (81 | ) |
Less: current maturities of long-term debt(1) | (48 | ) | | (33 | ) | (47 | ) | | (46 | ) |
| $ | 6,572 |
| | $ | 6,583 |
| $ | 6,558 |
| | $ | 6,556 |
|
____________
| |
(1) | Net of unamortized deferred financing costs and discount attributable to current maturities of long-term debt. |
Senior Notes
In April 2018, we issued $1.5 billion aggregate principal amount of senior notes, see Note 16: "Subsequent Events" for additional information.
In March 2017, we issued $900 million aggregate principal amount of 4.625% Senior Notes due 2025 (the "2025 Senior Notes") and $600 million aggregate principal amount of 4.875% Senior Notes due 2027 (the "2027 Senior Notes"), and incurred $21 million of debt issuance costs. Interest on the 2025 Senior Notes and the 2027 Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning in October 2017. The 2025 Senior Notes and the 2027 Senior Notes are guaranteed on a senior unsecured basis by us and certain of our wholly owned subsidiaries. We used the net proceeds of the 2025 Senior Notes and the 2027 Senior Notes, along with available cash, to redeem in full our $1.5 billion 5.625% Senior Notes due 2021 (the "2021 Senior Notes"), plus accrued and unpaid interest. In connection with the repayment, we paid a redemption premium of $42 million and accelerated the recognition of $18 million of unamortized debt issuance costs, which were included in loss on debt extinguishment in our condensed consolidated statement of operations for the sixthree months ended June 30,March 31, 2017.
The 4.250% Senior Notes due 2024 (the "2024 Senior Notes"), the 2025 Senior Notes and the 2027 Senior Notes are guaranteed on a senior unsecured basis by the Parent and certain of its wholly owned subsidiaries. See Note 15: "Condensed Consolidating Guarantor Financial Information" for additional details.
Senior Secured Credit Facility
Our senior secured credit facility consists of a $1.0 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loans"). In March 2017, we amendedThe obligations of our senior secured credit facility are unconditionally and irrevocably guaranteed by the Term Loans pursuant to which $750 millionParent and substantially all of outstanding Term Loans due in 2020 were extended, aligning their maturity with the $3,209 million tranche of Term Loans due 2023. Additionally, concurrent with the extension, the entire balance of the Term Loans was repriced with an interest rate of LIBOR plus 200 basis points. In connection with the refinancing of the Term Loans, we incurred $3 million of debt issuance costs, which were included in other non-operating income, net, in our condensed consolidated statement of operations for the six months ended June 30, 2017. its direct and indirect wholly owned domestic subsidiaries.
As of June 30, 2017,March 31, 2018, we had $23$64 million of letters of credit outstanding under our Revolving Credit Facility and a borrowing capacity of $977$936 million.
In April 2018, we repaid approximately $500 million of our Term Loans and reduced the interest rate 25 basis points to LIBOR plus 175 basis points. See Note 16: "Subsequent Events" for additional information.
Debt Maturities
The contractual maturities of our long-term debt as of June 30, 2017March 31, 2018 were as follows:
| | Year | (in millions) | (in millions) |
2017 (remaining) | $ | 24 |
| |
2018 | 58 |
| |
2018 (remaining) | | $ | 41 |
|
2019 | 55 |
| 56 |
|
2020 | 56 |
| 58 |
|
2021 | 57 |
| 59 |
|
2022 | | 59 |
|
Thereafter | 6,456 |
| 6,410 |
|
| $ | 6,706 |
| $ | 6,683 |
|
Note 7: Derivative Instruments and Hedging Activities
During the six months ended June 30, 2017 and 2016, derivatives were used to hedge the interest rate risk associated with variable-rate debt, as well as foreign exchange risk associated with certain foreign currency denominated cash balances. During the six months ended June 30, 2017, derivatives were also used to hedge the foreign exchange risk associated with franchise fees.
Cash Flow Hedges
In May 2017, we began hedging foreign exchange-based cash flow variability in certain of our euroforeign currency denominated management and franchise fees using forward contracts (the "Fee Forward Contracts"). We elected to designate these Fee Forward Contracts as cash flow hedges for accounting purposes, and we record the change in fair value of the effective portions of these contracts in other comprehensive income (loss) until an individual contract matures. The effective portion of the hedges are reclassified from accumulated other comprehensive loss to franchise fees in our condensed consolidated statement of operations in the same period that the franchise fee revenue is earned.purposes. As of June 30, 2017,March 31, 2018, the Fee Forward Contracts had an aggregate notional amount of $10$68 million and maturities of 24 months or less. The fair value and earnings effect of our Fee Forward Contracts as of and for the three and six months ended June 30, 2017 were less than $1 million.
InAs of March 2017,31, 2018, we entered intoheld two interest rate swap agreements with notional amounts of $1.6 billion and $750 million, which swap one-month LIBOR on the Term Loans to fixed rates of 1.98 percent and 2.02 percent, respectively, and expire in March 2022. We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
Non-designated Hedges
As of June 30, 2017,March 31, 2018, we held short-term forward contracts (the "Cash Forward Contracts") with an aggregate notional amount of $281$336 million to offset exposure to fluctuations in certain of our foreign currency denominated cash balances. We elected not to designate these Cash Forwarforward Contractscontracts as hedging instruments.
In August and September 2016, we dedesignated four interest rate swaps (the "2013 Interest Rate Swaps") that were previously designated as cash flow hedges as they no longer met the criteria for hedge accounting. Theseinterest rate swaps, which had an aggregate notional amount of $1.45 billion and swapped three-month LIBOR Depending on the Term Loans to a fixed ratefair value of 1.87 percent, were settled in March 2017.each contract, we classify it as an asset or liability.
Fair Value of Derivative Instruments
We measure our derivative instruments at fair value, which is estimated using a discounted cash flow analysis, and we consider the inputs used to measure the fair value as Level 2 within the fair value hierarchy. The discounted cash flow analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves and spot and forward rates, as applicable, as well as option volatility. The fair values of our derivative instruments in our condensed consolidated balance sheets were as follows: | | | | June 30, | | December 31, | | March 31, | | December 31, |
| Balance Sheet Classification | | 2017 | | 2016 | Balance Sheet Classification | | 2018 | | 2017 |
| | (in millions) | | (in millions) |
Cash Flow Hedges: | | | | | | | | |
Interest rate swaps | Other liabilities | | $ | 16 |
| | N/A |
| Other non-current assets | | $ | 47 |
| | $ | 11 |
|
Forward contracts | | Accounts payable, accrued expenses and other | | 1 |
| | 1 |
|
| | | | | | | | |
Non-designated Hedges: | | | | | | | | |
Interest rate swaps | Other liabilities | | N/A |
| | $ | 12 |
| |
Forward contracts | Other current assets | | 4 |
| | 3 |
| Other current assets | | 1 |
| | 4 |
|
Forward contracts | Accounts payable, accrued expenses and other | | 1 |
| | 4 |
| Accounts payable, accrued expenses and other | | 2 |
| | 1 |
|
Earnings Effect of Derivative Instruments
The gains and losses recognized in our condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:
| | | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| | June 30, | | June 30, | | March 31, |
| Classification of Gain (Loss) Recognized | | 2017 | | 2016 | | 2017 | | 2016 | Classification of Gain (Loss) Recognized | | 2018 | | 2017 |
| | (in millions) | | (in millions) | | (in millions) |
Cash Flow Hedges(1): | | | | | | | | | |
Cash Flow Hedges(1)(2): | | | | | |
Interest rate swaps | Other comprehensive income (loss) | | $ | (9 | ) | | $ | — |
| | $ | (16 | ) | | $ | (10 | ) | Other comprehensive income | | $ | 34 |
| | $ | (9 | ) |
Interest rate swaps | | Interest expense | | (2 | ) | | (2 | ) |
Forward contracts | | Other comprehensive income | | (1 | ) | | N/A |
|
| | | | | | | | | | | | |
Non-designated Hedges: | | | | | | | | | | | | |
Interest rate swaps | Other non-operating income, net | | — |
| | N/A |
| | 2 |
| | N/A |
| Other non-operating income, net | | N/A |
| | 2 |
|
Interest rate swaps(2) | Interest expense | | (2 | ) | | N/A |
| | (5 | ) | | N/A |
| |
Interest rate swaps(3) | | Interest expense | | (3 | ) | | (3 | ) |
Forward contracts | Gain (loss) on foreign currency transactions | | 6 |
| | 2 |
| | 7 |
| | 3 |
| Gain (loss) on foreign currency transactions | | 1 |
| | 1 |
|
____________
| |
(1) | There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the three and six months ended June 30, 2017March 31, 2018 and 2016.2017. |
| |
(2) | The earnings effect of the Fee Forward Contracts on fee revenues for the three months ended March 31, 2018 was less than $1 million. |
| |
(3) | These amounts are related to the dedesignation of interest rate swaps in 2016 that no longer met the 2013 Interest Rate Swaps as cash flow hedgescriteria for hedge accounting and were settled in 2017. The amounts were reclassified from accumulated other comprehensive loss as the underlying transactions occurred. |
Note 8: Fair Value Measurements
We did not elect the fair value measurement option for any of our financial assets or liabilities. The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below, see Note 7: "Derivative Instruments and Hedging Activities" for the fair value information of our derivatives:
| | | June 30, 2017 | March 31, 2018 |
| | | Hierarchy Level | | | Hierarchy Level |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | Carrying Value | | Level 1 | | Level 2 | | Level 3 |
| (in millions) | (in millions) |
Assets: | | | | | | | | | | | | | | |
Cash equivalents | $ | 458 |
| | $ | — |
| | $ | 458 |
| | $ | — |
| $ | 237 |
| | $ | — |
| | $ | 237 |
| | $ | — |
|
Restricted cash equivalents | 12 |
| | — |
| | 12 |
| | — |
| 12 |
| | — |
| | 12 |
| | — |
|
Liabilities: | | | | | | | | | | | | | | |
Long-term debt(1) | 6,363 |
| | 2,567 |
| | — |
| | 3,964 |
| 6,341 |
| | 2,471 |
| | — |
| | 3,951 |
|
| | | December 31, 2016 | December 31, 2017 |
| | | Hierarchy Level | | | Hierarchy Level |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | Carrying Value | | Level 1 | | Level 2 | | Level 3 |
| (in millions) | (in millions) |
Assets: | | | | | | | | | | | | | | |
Cash equivalents | $ | 782 |
| | $ | — |
| | $ | 782 |
| | $ | — |
| $ | 284 |
| | $ | — |
| | $ | 284 |
| | $ | — |
|
Restricted cash equivalents | 11 |
| | — |
| | 11 |
| | — |
| 12 |
| | — |
| | 12 |
| | — |
|
Liabilities: | | | | | | | | | | | | | | |
Long-term debt(1) | 6,369 |
| | 2,516 |
| | — |
| | 4,006 |
| 6,348 |
| | 2,575 |
| | — |
| | 3,954 |
|
____________ | |
(1) | The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude capital lease obligations and other debt. |
The fair values of financial instruments not included in this tablethese tables are estimated to be equal to their carrying values as of June 30, 2017March 31, 2018 and December 31, 2016.2017. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.
Cash equivalents and restricted cash equivalents primarily consisted of short-term interest-bearing money market funds with maturities of less than 90 days and time deposits and commercial paper.deposits. The estimated fair values were based on available market pricing information of similar financial instruments.
The estimated fair values of our Level 1 long-term debt were based on prices in active debt markets. The estimated fair values of our Level 3 long-term debt were based on indicative quotes received for similar issuances.
Note 9: Income Taxes
On December 22, 2017, the TCJ Act, which permanently reduces the federal corporate income tax rate from a graduated 35 percent to a flat 21 percent rate and imposes a one-time transition tax on earnings of foreign subsidiaries that were previously deferred, was signed into law. As of March 31, 2018, we had not completed our accounting for the tax effects of enactment of the TCJ Act; however, where possible, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we were not able to make a reasonable estimate and continued to account for those items based on the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which were able to determine a reasonable estimate, we recognized a provisional benefit at December 31, 2017 of $665 million, of which $517 million was the result of the remeasurement of U.S. deferred tax assets and other tax liabilities. The provisional benefit of $517 million recorded at December 31, 2017 on our existing deferred tax balances excludes the income tax impact of the adoption of ASU 2014-09. Other than the effects of the adoption of ASU 2014-09 on our balance sheet as of December 31, 2017, as of March 31, 2018, we have not recognized any adjustments to the provisional amounts recorded at December 31, 2017.
Provisional Amounts
Deferred tax assets and liabilities and other tax liabilities. We remeasured deferred tax assets and liabilities and other tax liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. The provisional amounts recorded at December 31, 2017 related to the remeasurement of our deferred tax assets and liabilities, uncertain tax position reserves, and other tax liabilities were income tax benefits of $517 million, $33 million and $84 million, respectively. However, this remeasurement is based on estimates as of the enactment date of the TCJ Act and our existing analysis of the numerous complex tax law changes in the TCJ Act. As we finalize our analysis of the tax law changes in the TCJ Act, including the impact on our 2017 tax return filing positions throughout the 2018 fiscal year, we will update our provisional amounts for this remeasurement. As of March 31, 2018, our provisional amounts remain unchanged.
Foreign taxation changes. A one-time transition tax is applied to foreign earnings previously not subjected to U.S. tax. The one-time transition tax is based on our total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes, but is assessed at a lower tax rate than the federal corporate tax rate of 35 percent. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries based on estimates, as of the enactment date of the TCJ Act, for our controlled foreign subsidiaries and estimates of the total post-1986 E&P for noncontrolled foreign subsidiaries. Additionally, the language in the TCJ Act is not specific enough to address all aspects of the calculation of the transition tax and leaves certain components of the calculation open to interpretation. The U.S. Treasury department is expected to issue regulations to provide clarification. We will update our provisional amounts related to the transition tax for the E&P of our noncontrolled foreign subsidiaries, as further guidance is provided by the U.S. Treasury department. We previously recorded a federal deferred tax liability for our deferred earnings at the statutory 35 percent rate. The application of the transition tax results in the deferred earnings previously recorded at 35 percent being subjected to a lower rate, resulting in a provisional income tax benefit at December 31, 2017 of $15 million. We had not recorded certain deferred tax assets, related primarily to E&P deficits, for some foreign subsidiaries based upon an expectation that no tax benefit from such assets would be realized within the foreseeable future. The recognition of tax benefits from the deferred tax assets previously not recorded resulted in a provisional income tax benefit at December 31, 2017 of $16 million. As of March 31, 2018, our provisional amounts remain unchanged. We continue to analyze and refine our calculations related to the measurement of these balances.
We continue to analyze the impact of the TCJ Act on our recognition of deferred tax assets and liabilities for outside basis differences in our investments in foreign subsidiaries and due to the complexity of these calculations on both our U.S. and foreign tax positions and uncertainty regarding the impact of new taxes on certain foreign earnings, we have not recorded provisional amounts. As of March 31, 2018, we had not recorded any deferred tax assets or liabilities for outside basis differences in our investments in foreign subsidiaries. We will further analyze the impact of these new taxes on foreign earnings and their impact on our tax positions throughout fiscal year 2018 to allow us to complete the required accounting for our
outside basis differences in our investments in foreign subsidiaries. We continued to apply Accounting Standards Codification 740 based on the provisions of the tax laws that were in effect immediately prior to the TCJ Act being enacted.
Global Intangible Low-Taxed Income ("GILTI") and Foreign Derived Intangible Income ("FDII")
The TCJ Act subjects a U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. In addition, the TCJ Act provides for FDII to be taxed at a lower effective rate than the statutory rate by allowing a tax deduction against the income. Interpretive guidance on the accounting for GILTI states than an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. At March 31, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have included GILTI and the FDII deduction related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.
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 pre-tax income or loss, which is subject to federal, foreign, state, local and localforeign income taxes.
Our total unrecognized tax benefitsbenefit as of June 30, 2017 were $173March 31, 2018 was $284 million. We accrued approximately $35 million for the payment of interest and penalties as of June 30, 2017. As a result of the expected resolution of examination issues with federal, state and foreign tax authorities, we believe it is reasonably possible that during the next 12 months the amount of unrecognized tax benefits will decrease up to $8 million.March 31, 2018. Included in the balance of unrecognized tax benefits as of June 30, 2017March 31, 2018 was $171$285 million associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.
In April 2014, we received 30-day Letters from the Internal Revenue Service ("IRS") and the Revenue Agents Report ("RAR") for the 2006 and October 2007 tax years. We disagreed with several of the proposed adjustments in the RAR, filed a formal appeals protest with the IRS and did not make any tax payments related to this audit. The issues being protested in appeals relate to assertions by the IRS that: (i) certain foreign currency denominated intercompany loans from our foreign
subsidiaries to certain U.S. subsidiaries should be recharacterized as equity for U.S. federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S. subsidiaries; (ii) in calculating the amount of U.S. taxable income resulting from our Hilton Honors guest loyalty program, we should not reduce gross income by the estimated costs of future redemptions, but rather such costs would be deductible at the time the points are redeemed; and (iii) certain foreign currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is the U.S. dollar ("USD"), should instead be treated as issued by one of our Belgian subsidiaries whose functional currency is the euro, and thus foreign currency gains and losses with respect to such loans should have been measured in euros, instead of USD. Additionally, in January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years. The RAR includes the proposed adjustments for tax years December 2007 through 2010, which reflect the carryover effect of the three protested issues from 2006 through October 2007. These proposed adjustments will also be protested in appeals and formal appeals protests have been submitted. In total, the proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $874 million, excluding interest and penalties and potential state income taxes. The portion of this amount related to Hilton Honors would result in a decrease to our future tax liability when the points are redeemed. We disagree with the IRS's position on each of these assertions and intend to vigorously contest them. However, based on continuing appeals process discussions with the IRS, we believe that it is more likely than not that we will not recognize the full benefit related to certain of the issues being appealed. Accordingly, as of March 31, 2018, we have recorded $47$45 million of unrecognized tax benefits related to these issues.
We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign tax jurisdictions. We are under regular and recurring audit by the IRS and other taxing authorities on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. We are no longer subject to U.S. federal income tax examination for years through 2004. As of June 30, 2017,March 31, 2018, we remain subject to federal examinations from 2005-2015,2005 through 2016, state examinations from 2005-20152005 through 2016 and foreign examinations of our income tax returns for the years 1996 through 2016.
State income tax returns are generally subject to examination for a period of three to five years after filing the respective return; however, the state effect of any federal tax return changes remains subject to examination by various states for a period generally of up to one year after formal notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after filing the respective tax return.2017.
Note 10: Share-Based Compensation
Under our 2013 and 2017 Omnibus Incentive Plans, we issueWe grant time-vesting restricted stock units and restricted stock ("RSUs"(collectively, "RSUs"), nonqualified stock options ("options"), and performance-vesting restricted stock units and restricted stock (collectively, "performance shares") to our
employees and deferred share units ("DSUs"). to members of our board of directors. We recognized share-based compensation expense of $34$28 million and $23$25 million during the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and $59 million and $39 million during the six months ended June 30, 2017 and 2016, respectively, which included amounts reimbursed by hotel owners.respectively. As of June 30, 2017,March 31, 2018, unrecognized compensation costs for unvested awards was approximately $165$223 million, which are expected to be recognized over a weighted-average period of 2.0 years on a straight-line basis. As of June 30, 2017,March 31, 2018, there were 17,979,54316.2 million shares of common stock available for future issuance under our 2017 Omnibus Incentive Plan, plus any shares subject to awards outstanding under our 2013 Omnibus Incentive Plan, which will become available for issuance under our 2017 Omnibus Incentive Plan as a result ofif such outstanding awards expiringexpire or terminatingare terminated or beingare canceled or forfeited.
All historical share and share-related information have been adjusted to reflect the Reverse Stock Split. See Note 1: "Organization and Basis of Presentation" for additional information.
Effect of the Spin-offs on Equity Awards
In connection with the spin-offs, the outstanding share-based compensation awards held by employees transferring to Park and HGV were converted to equity awards in Park and HGV common stock, respectively.
Share-based compensation awards of employees remaining at Hilton were adjusted using a conversion factor in accordance with the anti-dilution provisions of the 2013 Omnibus Incentive Plan with the intent to preserve the intrinsic value of the original awards (the "Conversion Factor"). The adjustments were determined by comparing the fair value of such awards immediately prior to the spin-offs to the fair value of such awards immediately after the spin-offs. The comparison resulted in no incremental compensation expense. Equity awards that were adjusted generally remain subject to the same vesting, expiration and other terms and conditions as applied to the awards immediately prior to the spin-offs.
RSUs
The following table summarizesDuring the activity of our RSUs during the sixthree months ended June 30, 2017:
|
| | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share |
Outstanding as of December 31, 2016 | 1,624,541 |
| | $ | 65.24 |
|
Conversion from performance shares upon completion of the spin-offs(1) | 671,604 |
| | 72.42 |
|
Effect of the spin-offs(2) | 439,113 |
| | 57.60 |
|
Granted | 1,459,473 |
| | 58.77 |
|
Vested(2) | (881,070 | ) | | 47.26 |
|
Forfeited(2) | (81,616 | ) | | 49.07 |
|
Outstanding as of June 30, 2017(2) | 3,232,045 |
| | 52.63 |
|
____________
| |
(1)
| Represents all performance shares outstanding as of December 31, 2016. |
| |
(2)
| The weighted average grant date fair value was adjusted to reflect the Conversion Factor. |
TheMarch 31, 2018, we granted 0.9 million RSUs granted during the six months ended June 30, 2017with a weighted average grant date fair value per share of $79.37, which generally vest in equal annual installments over two or three years from the date of grant.
Options
The following table summarizesDuring the activity of our options during the sixthree months ended June 30, 2017:
|
| | | | | | |
| Number of Options | | Weighted Average Exercise Price per Share |
Outstanding as of December 31, 2016 | 1,076,031 |
| | $ | 66.83 |
|
Effect of the spin-offs(1) | 251,145 |
| | 57.60 |
|
Granted | 748,965 |
| | 58.40 |
|
Exercised(1) | (34,939 | ) | | 45.71 |
|
Forfeited, canceled or expired(1) | (2,149 | ) | | 51.86 |
|
Outstanding as of June 30, 2017(1) | 2,039,053 |
| | 51.23 |
|
Exercisable as of June 30, 2017(1) | 768,747 |
| | 48.31 |
|
____________
| |
(1)
| The weighted average exercise price was adjusted to reflect the Conversion Factor. |
TheMarch 31, 2018, we granted 0.6 million options granted during 2017with an exercise price per share of $79.35, which vest over three years from the date of grant in equal annual installments 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 sixthree months ended June 30, 2017March 31, 2018 was $13.96,$23.78, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
|
| | |
Expected volatility(1) | 24.0027.99 | % |
Dividend yield(2) | 0.92 - 1.03%0.74 | % |
Risk-free rate(3) | 1.93 - 2.03%2.73 | % |
Expected term (in years)(4) | 6.0 |
|
____________
| |
(1) | Estimated using historical movement of Hilton's stock price and, due to limited trading history, historical volatility of our peer group over a time period consistent with our expected term assumption.price. |
| |
(2) | Estimated based on the expected annualizedcurrent quarterly dividend paymentand 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 lives. |
| |
(4) | Estimated using the average of the vesting periods and the contractual term of the options. |
As of March 31, 2018, 1.2 million options were exercisable.
Performance Shares
AsDuring the three months ended March 31, 2018, we granted 0.3 million performance shares with a weighted average grant date fair value per share of December 31, 2016, we had outstanding$79.35. The performance shares are settled at the end of the three-year performance period with 50 percent of the awards subject to achievement based on a measure of the Company’s total shareholder return relative to the total shareholder returns of members of a peer company group ("relative shareholder return") and based on
the Company’sCompany's adjusted earnings before interest expense, a provision for income taxes and depreciation and amortization ("Adjusted EBITDA") compound annual growth rate ("CAGR"). Upon completion of the spin-offs, we converted all 671,604 outstanding performance shares to RSUs based on a 100 percent achievement percentage with the same vesting periods as the original awards and, as of June 30, 2017, there were no outstanding performance shares based on relative shareholder return.
During the six months ended June 30, 2017, we issued performance shares with 50 percent of the shares subject to achievement based on the Company's ("EBITDA CAGRCAGR") and the other 50 percent of the sharesawards subject to achievement based on the Company’s free cash flow ("FCF") per share CAGR ("FCF CAGR"). The performance shares are settled at the end of the three-year performance period. We determined that the performance conditionconditions for these awards isperformance shares issued in 2018 and 2017 are probable of achievement and, as of June 30, 2017,March 31, 2018, we recognized compensation expense based on the following anticipated achievement percentage of 150 percent and 100 percentpercentages for thethese performance awards based on EBITDA CAGR and FCF CAGR, respectively.
The following table summarizes the activity of our performance shares during the six months ended June 30, 2017:shares:
|
| | | | | | | | | | | | | |
| EBITDA CAGR | | FCF CAGR |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share | | Number of Shares | | Weighted Average Grant Date Fair Value per Share |
Outstanding as of December 31, 2016 | 335,802 |
| | $ | 68.09 |
| | — |
| | N/A |
|
Conversion to RSUs upon completion of the spin-offs | (335,802 | ) | | 68.09 |
| | — |
| | N/A |
|
Granted | 179,006 |
| | 58.40 |
| | 178,975 |
| | $ | 58.40 |
|
Outstanding as of June 30, 2017 | 179,006 |
| | 58.40 |
| | 178,975 |
| | 58.40 |
|
|
| | | | | |
| EBITDA CAGR | | FCF CAGR |
2017 performance shares | 200 | % | | 200 | % |
2018 performance shares | 150 | % | | 125 | % |
DSUs
During the six months ended June 30, 2017, we issued to our independent directors 13,740 DSUs with a grant date fair value of $65.48, which are fully vested and non-forfeitable on the grant date. DSUs are settled for shares of our common stock and deliverable upon the earlier of termination of the individual's service on our board of directors or a change in control.
Note 11: Stockholders' Equity and Accumulated Other Comprehensive Loss
The changes in the components of stockholders' equity were as follows:
| | | Equity Attributable to Hilton Stockholders | | | | | Equity Attributable to Hilton Stockholders | | | | |
| | | | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | | | | | | | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit(1) | | Accumulated Other Comprehensive Loss | | | | |
| Common Stock | | Noncontrolling Interests | | | Common Stock | | Noncontrolling Interests | | |
| Shares | | Amount | | Total | Shares | | Amount | | Total |
| (in millions) | (in millions) |
Balance as of December 31, 2016(1) | 329 |
| | $ | 3 |
| | $ | — |
| | $ | 10,220 |
| | $ | (3,323 | ) | | $ | (1,001 | ) | | $ | (50 | ) | | $ | 5,849 |
| |
Balance as of December 31, 2017 | | 317 |
| | $ | 3 |
| | $ | (891 | ) | | $ | 10,298 |
| | $ | (6,981 | ) | | $ | (741 | ) | | $ | 3 |
| | $ | 1,691 |
|
Share-based compensation | 2 |
| | — |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
| 1 |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | (10 | ) |
Repurchases of common stock | (6 | ) | | — |
| | (352 | ) | | — |
| | — |
| | — |
| | — |
| | (352 | ) | (1 | ) | | — |
| | (110 | ) | | — |
| | — |
| | — |
| | — |
| | (110 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 240 |
| | — |
| | 2 |
| | 242 |
| — |
| | — |
| | — |
| | — |
| | 161 |
| | — |
| | 2 |
| | 163 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 71 |
| | — |
| | 71 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 61 |
| | — |
| | 61 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | (99 | ) | | — |
| | — |
| | (99 | ) | — |
| | — |
| | — |
| | — |
| | (48 | ) | | — |
| | — |
| | (48 | ) |
Spin-offs of Park and HGV | — |
| | — |
| | — |
| | — |
| | (4,331 | ) | | 63 |
| | 49 |
| | (4,219 | ) | |
Cumulative effect of the adoption of ASU 2016-09 | — |
| | — |
| | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| |
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | |
Balance as of June 30, 2017 | 325 |
| | $ | 3 |
| | $ | (352 | ) | | $ | 10,245 |
| | $ | (7,514 | ) | | $ | (867 | ) | | $ | — |
| | $ | 1,515 |
| |
Balance as of March 31, 2018 | | 317 |
| | $ | 3 |
| | $ | (1,001 | ) | | $ | 10,288 |
| | $ | (6,868 | ) | | $ | (680 | ) | | $ | 5 |
| | $ | 1,747 |
|
| | | Equity Attributable to Hilton Stockholders | | | | | Equity Attributable to Hilton Stockholders | | | | |
| | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | | | | | | | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit(1) | | Accumulated Other Comprehensive Loss | | | | |
| Common Stock | | Noncontrolling Interests(2) | | | Common Stock | | Noncontrolling Interests(2) | | |
| Shares | | Amount | | Total | Shares | | Amount | | Total |
| (in millions) | (in millions) |
Balance as of December 31, 2015(1) | 329 |
| | $ | 3 |
| | $ | 10,158 |
| | $ | (3,392 | ) | | $ | (784 | ) | | $ | (34 | ) | | $ | 5,951 |
| |
Balance as of December 31, 2016 | | 329 |
| | $ | 3 |
| | $ | — |
| | $ | 10,220 |
| | $ | (3,545 | ) | | $ | (1,001 | ) | | $ | (50 | ) | | $ | 5,627 |
|
Share-based compensation | 1 |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
| 2 |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | — |
| | (7 | ) |
Repurchases of common stock | | (1 | ) | | — |
| | (70 | ) | | — |
| | — |
| | — |
| | — |
| | (70 | ) |
Net income | — |
| | — |
| | — |
| | 548 |
| | — |
| | 6 |
| | 554 |
| — |
| | — |
| | — |
| | — |
| | 47 |
| | — |
| | 1 |
| | 48 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (42 | ) | | (2 | ) | | (44 | ) | |
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | (1 | ) | | 19 |
|
Dividends | — |
| | — |
| | — |
| | (140 | ) | | — |
| | — |
| | (140 | ) | — |
| | — |
| | — |
| | — |
| | (50 | ) | | — |
| | — |
| | (50 | ) |
Cumulative effect of the adoption of ASU 2015-02 | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | 5 |
| |
Spin-offs of Park and HGV | | — |
| | — |
| | — |
| | — |
| | (4,318 | ) | | 63 |
| | 49 |
| | (4,206 | ) |
Cumulative effect of the adoption of ASU 2016-09 | | — |
| | — |
| | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Balance as of June 30, 2016(1) | 330 |
| | $ | 3 |
| | $ | 10,182 |
| | $ | (2,984 | ) | | $ | (826 | ) | | $ | (29 | ) | | $ | 6,346 |
| |
Balance as of March 31, 2017 | | 330 |
| | $ | 3 |
| | $ | (70 | ) | | $ | 10,214 |
| | $ | (7,867 | ) | | $ | (918 | ) | | $ | (2 | ) | | $ | 1,360 |
|
_______________________
| |
(1) | Common stockIncludes adjustments of $385 million and additional paid-in capital were adjusted to reflect$222 million as of December 31, 2017 and 2016, respectively, as a result of the Reverse Stock Split.adoption of ASU 2014-09 as of January 1, 2016. See Note 1: "Organization2: "Basis of Presentation and BasisSummary of Presentation"Significant Accounting Policies" for additional information. |
| |
(2) | Other comprehensive loss attributable to non-controlling interests was related to a currency translation adjustments.adjustment. |
In FebruaryDuring 2017, our board of directors authorized a stock repurchase programrepurchases of up to $1.0$2.0 billion of the Company's common stock. During the sixthree months ended June 30, 2017,March 31, 2018, we repurchased 5,671,4721.3 million shares of common stock under the program at a total cost of $352 million, including the repurchase of 1,500,000 shares from affiliates of Blackstone for a total cost of $99 million in June 2017.program. As of June 30, 2017, $648 millionMarch 31, 2018, approximately $1.0 billion remained available for share repurchases under the program. In April 2018, we repurchased 16.5 million shares of Hilton common stock from HNA for $1.17 billion, which was made apart from, and not pursuant to, the stock repurchase program. See Note 16: "Subsequent Events" for additional information.
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, 2016 | $ | (738 | ) | | $ | (251 | ) | | $ | (12 | ) | | $ | (1,001 | ) |
Other comprehensive income (loss) before reclassifications | 74 |
| | — |
| | (10 | ) | | 64 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | 4 |
| | 3 |
| | 7 |
|
Net current period other comprehensive income (loss) | 74 |
| | 4 |
| | (7 | ) | | 71 |
|
Spin-offs of Park and HGV | 63 |
| | — |
| | — |
| | 63 |
|
Balance as of June 30, 2017 | $ | (601 | ) | | $ | (247 | ) | | $ | (19 | ) | | $ | (867 | ) |
|
| | | | | | | | | | | | | | | |
| Currency Translation Adjustment(1) | | Pension Liability Adjustment(2) | | Cash Flow Hedge Adjustment(3) | | Total |
| (in millions) |
Balance as of December 31, 2017 | $ | (513 | ) | | $ | (229 | ) | | $ | 1 |
| | $ | (741 | ) |
Other comprehensive income (loss) before reclassifications | 32 |
| | (1 | ) | | 24 |
| | 55 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | 2 |
| | 4 |
| | 6 |
|
Net current period other comprehensive income | 32 |
| | 1 |
| | 28 |
| | 61 |
|
Balance as of March 31, 2018 | $ | (481 | ) | | $ | (228 | ) | | $ | 29 |
| | $ | (680 | ) |
|
| | | | | | | | | | | | | | | |
| Currency Translation Adjustment(1) | | Pension Liability Adjustment(2) | | Cash Flow Hedge Adjustment | | Total |
| (in millions) |
Balance as of December 31, 2015 | $ | (580 | ) | | $ | (194 | ) | | $ | (10 | ) | | $ | (784 | ) |
Other comprehensive loss before reclassifications | (37 | ) | | (1 | ) | | (6 | ) | | (44 | ) |
Amounts reclassified from accumulated other comprehensive loss | (1 | ) | | 3 |
| | — |
| | 2 |
|
Net current period other comprehensive income (loss) | (38 | ) | | 2 |
| | (6 | ) | | (42 | ) |
Balance as of June 30, 2016 | $ | (618 | ) | | $ | (192 | ) | | $ | (16 | ) | | $ | (826 | ) |
|
| | | | | | | | | | | | | | | |
| Currency Translation Adjustment(1) | | Pension Liability Adjustment(2) | | Cash Flow Hedge Adjustment(3) | | Total |
| (in millions) |
Balance as of December 31, 2016 | $ | (738 | ) | | $ | (251 | ) | | $ | (12 | ) | | $ | (1,001 | ) |
Other comprehensive income (loss) before reclassifications | 21 |
| | (1 | ) | | (5 | ) | | 15 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | 2 |
| | 3 |
| | 5 |
|
Net current period other comprehensive income (loss) | 21 |
| | 1 |
| | (2 | ) | | 20 |
|
Spin-offs of Park and HGV | 63 |
| | — |
| | — |
| | 63 |
|
Balance as of March 31, 2017 | $ | (654 | ) | | $ | (250 | ) | | $ | (14 | ) | | $ | (918 | ) |
____________
| |
(1) | Includes net investment hedges and intra-entity foreign currency transactions that are of a long-term investment nature. Amounts reclassified related to gains on net investment hedges and were recognized in other non-operating income, net, net of a tax benefit of less than $1 million, in our condensed consolidated statement of operations for the six months ended June 30, 2016. |
| |
(2) | Amounts reclassified include the amortization of prior service cost and the amortization of net loss that were included in our computation of net periodic pension cost. They were recognized in general and administrative expenses,other non-operating income, net of a $2 million tax benefit, in our condensed consolidated statements of operations and are presented net of a $1 million tax benefit for the sixthree months ended June 30, 2017March 31, 2018 and 2016, respectively.2017. |
| |
(3) | AmountAmounts reclassified includes $5 million relatedrelate to the 2013 Interest Rate Swaps, net of a tax benefit of $2 million,designated interest rate swaps, as well as the interest rate swaps that were dedesignated in 2016 and settled in 2017. The amounts were recognized in interest expense in our condensed consolidated statementstatements of operations and are presented net of a tax benefit of $1 million and $2 million for the sixthree months ended June 30, 2017.March 31, 2018 and 2017, respectively. |
Note 12: Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share ("EPS"). All historical share and per share amounts have been adjusted to reflect the Reverse Stock Split. See Note 1: "Organization and Basis of Presentation" for additional information.:
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 |
| (in millions, except per share amounts) | (in millions, except per share amounts) |
Basic EPS: | | | | | | | | | | |
Numerator: | | | | | | | | | | |
Net income from continuing operations attributable to Hilton stockholders | $ | 166 |
| | $ | 96 |
| | $ | 240 |
| | $ | 288 |
| |
Net income attributable to Hilton stockholders | | $ | 161 |
| | $ | 47 |
|
Denominator: | | | | | | | | | | |
Weighted average shares outstanding | 327 |
| | 329 |
| | 328 |
| | 329 |
| 316 |
| | 330 |
|
Basic EPS | $ | 0.51 |
| | $ | 0.29 |
| | $ | 0.73 |
| | $ | 0.88 |
| $ | 0.51 |
| | $ | 0.14 |
|
| | | | | | | | | | |
Diluted EPS: | | | | | | | | | | |
Numerator: | | | | | | | | | | |
Net income from continuing operations attributable to Hilton stockholders | $ | 166 |
| | $ | 96 |
| | $ | 240 |
| | $ | 288 |
| |
Net income attributable to Hilton stockholders | | $ | 161 |
| | $ | 47 |
|
Denominator: | | | | | | | | | | |
Weighted average shares outstanding | 329 |
| | 330 |
| | 330 |
| | 330 |
| 319 |
| | 331 |
|
Diluted EPS | $ | 0.51 |
| | $ | 0.29 |
| | $ | 0.73 |
| | $ | 0.87 |
| $ | 0.51 |
| | $ | 0.14 |
|
ApproximatelyLess than 1 million share-based compensation awards were excluded from the weighted average shares outstanding used in the computation of diluted EPS for the three and six months ended June 30,March 31, 2018 and 2017 and June 30, 2016 because their effect would have been anti-dilutive under the treasury stock method.
Note 13: Business Segments
We are a diversified hospitality company with operations organized in two distinct operating segments following the spin-offs:segments: (i) management and franchise; and (ii) ownership. These segments are managed and reported separately because of their 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 operated or managed by someone other than us. As of June 30, 2017,March 31, 2018, this segment included 633650 managed hotels and 4,3244,570 franchised hotels consisting of 795,312833,421 total rooms, which includes the 67 hotels with 35,425 rooms that were previously owned or leased by Hilton or unconsolidated affiliates of Hilton and, upon completion of the spin-offs, were owned or leased by Park or unconsolidated affiliates of Park.rooms. This segment also earns license fees from HGV and co-brand credit card arrangements and fees for managing properties in our ownership segment and, effective upon completion of the spin-offs, a license fee from HGV for the exclusive right to use certain Hilton marks and intellectual property in HGV's timeshare business.segment.
As of June 30, 2017,March 31, 2018, the ownership segment included 7471 properties totaling 22,33421,718 rooms, comprising 6562 hotels that we wholly owned or leased, one hotel leasedowned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and six hotels owned or leased by unconsolidated affiliates.
Prior to the spin-offs, the performance of our operating segments was evaluated primarily on Adjusted EBITDA. Following the spin-offs, theThe performance of our operating segments is evaluated primarily on operating income, without allocating corporate and other revenues and other expenses or general and administrative expenses, since we have simplified our operating segments and certain adjustments included in Adjusted EBITDA on a segment basis are no longer applicable.
expenses.
The following table presents revenues for our reportable segments, reconciled to consolidated amounts:
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Management and franchise(1) | $ | 523 |
| | $ | 416 |
| | $ | 959 |
| | $ | 773 |
| |
Franchise fees | | $ | 333 |
| | $ | 283 |
|
Base and other management fees(1) | | 90 |
| | 90 |
|
Incentive management fees | | 55 |
| | 49 |
|
Management and franchise | | 478 |
| | 422 |
|
Ownership | 377 |
| | 398 |
| | 677 |
| | 717 |
| 334 |
| | 296 |
|
Segment revenues | 900 |
| | 814 |
| | 1,636 |
| | 1,490 |
| 812 |
| | 718 |
|
Amortization of contract acquisition costs | | (7 | ) | | (3 | ) |
Other revenues | 20 |
| | 18 |
| | 57 |
| | 35 |
| 23 |
| | 37 |
|
Other revenues from managed and franchised properties | 1,436 |
| | 1,130 |
| | 2,831 |
| | 2,171 |
| |
Direct reimbursements from managed and franchised properties
| | 699 |
| | 663 |
|
Indirect reimbursements from managed and franchised properties
| | 555 |
| | 488 |
|
Intersegment fees elimination(1) | (10 | ) | | (12 | ) | | (17 | ) | | (20 | ) | (8 | ) | | (7 | ) |
Total revenues | $ | 2,346 |
| | $ | 1,950 |
| | $ | 4,507 |
| | $ | 3,676 |
| $ | 2,074 |
| | $ | 1,896 |
|
____________
| |
(1) | Includes management, royalty and intellectual property fees charged to our ownership segment, which were eliminated in our condensed consolidated statements of operations. |
The following table presents operating income for our reportable segments, reconciled to consolidated income from continuing operations before income taxes:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Management and franchise(1) | $ | 523 |
| | $ | 416 |
| | $ | 959 |
| | $ | 773 |
|
Ownership(1) | 37 |
| | 37 |
| | 58 |
| | 41 |
|
Segment operating income | 560 |
| | 453 |
| | 1,017 |
| | 814 |
|
Other revenues, less other expenses | 9 |
| | 7 |
| | 23 |
| | 6 |
|
Depreciation and amortization | (87 | ) | | (91 | ) | | (176 | ) | | (183 | ) |
Impairment loss | — |
| | — |
| | — |
| | (15 | ) |
General and administrative | (117 | ) | | (97 | ) | | (222 | ) | | (180 | ) |
Gain on sales of assets, net | — |
| | 1 |
| | — |
| | 1 |
|
Operating income | 365 |
| | 273 |
| | 642 |
| | 443 |
|
Interest expense | (100 | ) | | (99 | ) | | (204 | ) | | (189 | ) |
Gain (loss) on foreign currency transactions | 5 |
| | (14 | ) | | 1 |
| | (26 | ) |
Loss on debt extinguishment | — |
| | — |
| | (60 | ) | | — |
|
Other non-operating income, net | 5 |
| | 3 |
| | 6 |
| | 5 |
|
Income from continuing operations before income taxes | $ | 275 |
| | $ | 163 |
| | $ | 385 |
| | $ | 233 |
|
____________
| |
(1)
| Includes management, royalty and intellectual propertyIP fees charged to 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 for our reportable segments, reconciled to consolidated income before income taxes:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2018 | | 2017 |
| (in millions) |
Management and franchise(1) | $ | 478 |
| | $ | 422 |
|
Ownership(1) | 6 |
| | 21 |
|
Segment operating income | 484 |
| | 443 |
|
Amortization of contract acquisition costs | (7 | ) | | (3 | ) |
Other revenues, less other expenses | 9 |
| | 14 |
|
Net other expenses from managed and franchised properties
| (21 | ) | | (45 | ) |
Depreciation and amortization | (82 | ) | | (86 | ) |
General and administrative | (104 | ) | | (106 | ) |
Operating income | 279 |
| | 217 |
|
Interest expense | (83 | ) | | (89 | ) |
Gain (loss) on foreign currency transactions | 11 |
| | (4 | ) |
Loss on debt extinguishment | — |
| | (60 | ) |
Other non-operating income, net | 14 |
| | 2 |
|
Income before income taxes | $ | 221 |
| | $ | 66 |
|
____________
| |
(1) | Includes management, royalty and IP fees charged to our ownership segment by our management and franchise segment, which were eliminated in our condensed consolidated statements of operations. |
The following table presents total assets for our reportable segments, reconciled to consolidated assets of continuing operations:amounts:
| | | June 30, | | December 31, | March 31, | | December 31, |
| 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Management and franchise | $ | 10,846 |
| | $ | 10,825 |
| $ | 11,435 |
| | $ | 11,505 |
|
Ownership | 970 |
| | 1,032 |
| 994 |
| | 964 |
|
Corporate and other | 2,453 |
| | 2,529 |
| 1,831 |
| | 1,759 |
|
| $ | 14,269 |
| | $ | 14,386 |
| $ | 14,260 |
| | $ | 14,228 |
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated capital expenditures of continuing operations:amounts: | | | Six Months Ended | Three Months Ended |
| June 30, | March 31, |
| 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Ownership | $ | 10 |
| | $ | 25 |
| $ | 7 |
| | $ | 6 |
|
Corporate and other | 8 |
| | 4 |
| 3 |
| | 3 |
|
| $ | 18 |
| | $ | 29 |
| $ | 10 |
| | $ | 9 |
|
Note 14: Commitments and Contingencies
We provide performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified operating performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of June 30, 2017,March 31, 2018, we had sixfour contracts containing performance guarantees, with expirations ranging from 2019 to 2030, withand possible cash outlays totaling approximately $72$47 million. Our obligations under these guarantees in future periods are dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of June 30, 2017March 31, 2018 and December 31, 2016,2017, we recorded $11$14 million and $12 million, respectively, in accounts payable, accrued expenses and other and $14$7 million and $17$9 million, respectively, in other liabilities in our condensed consolidated balance sheets for one and two outstanding performance guarantees, respectively, that are related to VIEs for which we are not the primary beneficiary.
We entered into an agreement with an affiliatereceive fees from managed and franchise properties to operate our marketing, sales and brand programs on behalf of the ownerhotel owners. As of a hotel whereby we agreed to fund a $60 million junior mezzanine loan to finance the construction of the hotel, which is managed by us. The junior mezzanine loan is subordinated to a senior mortgage loanMarch 31, 2018 and senior mezzanine loan provided by third parties unaffiliated with us. During the three months ended June 30,December 31, 2017, we funded the remaining $1had collected an aggregate of $397 million and $402 million in excess of this commitment and, therefore, as of June 30, 2017, the loan was fully funded.net amounts expended, respectively, across all programs.
We are involved in litigationvarious claims and lawsuits arising in the normalordinary course of business, some of which includesinclude 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, 2017March 31, 2018 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 15: Condensed Consolidating Guarantor Financial Information
In October 2013, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (the "HWF Issuers"), entities that are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, issued the 20212025 Senior Notes and 2027 Senior Notes in March 2017 and are guarantors of the 2024 Senior Notes. In September 2016, Hilton Domestic Operating Company Inc. ("HOC"), an entity incorporated in July 2016 that is 100 percent owned by Hilton Worldwide Finance LLC and is a guarantor of the 2021 Senior Notes, 2025 Senior Notes and 2027 Senior Notes, assumed the 2024 Senior Notes that were issued in August 2016 by escrow issuers. In March 2017, the HWF Issuers, which are guarantors of the 2024 Senior Notes, issued the 2025 Senior Notes and 2027 Senior Notes, and used the net proceeds and available cash to repay in full the 2021 Senior Notes. The 2024 Senior Notes, 2025 Senior Notes and 2027 Senior Notes are collectively referred to as the Senior Notes. The HWF Issuers and HOC are collectively referred to as the Subsidiary Issuers.
The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by HWP, the Parent and certain of the Parent's 100 percent owned domestic restricted subsidiaries that are themselves not issuers of the applicable series of Senior Notes (together, the "Guarantors''). The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of the Senior Secured Credit Facilityour senior secured credit facility will guarantee the Senior Notes. As of June 30, 2017,March 31, 2018, none of
our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guarantee the Senior Notes (collectively, the "Non-Guarantors").
In September 2016, certain employees, assets and liabilities of a guarantor subsidiary were transferred into HOC. This transfer was considered to be a transfer of assets rather than a transfer of a business. Accordingly, we have separately presented HOC as a subsidiary issuer in our condensed consolidating financial information prospectively from the date of the transfer.
In connection with the spin-offs, certain entities that were previously guarantors of the 2021 Senior Notes and 2024 Senior Notes were released and no longer guaranteed these senior notes. The condensed consolidating financial information presents the financial information based on the composition of the Guarantors and Non-Guarantors as of June 30, 2017.March 31, 2018.
The guarantees are full and unconditional, subject to certain customary release provisions. The indentures that govern the Senior Notes provide that any Guarantor may be released from its guarantee so long as: (i) the subsidiary is sold or sells all of its assets; (ii) the subsidiary is released from its guaranty under the Senior Secured Credit Facility;our senior secured credit facility; (iii) the subsidiary is declared "unrestricted" for covenant purposes; (iv) the subsidiary is merged with or into the applicable Subsidiary Issuers or another Guarantor or the Guarantor liquidates after transferring all of its assets to the applicable Subsidiary Issuers or another Guarantor; or (v) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied, in each case in compliance with applicable provisions of the indentures.
The following schedulestables present the condensed consolidating financial information as of June 30, 2017March 31, 2018 and December 31, 2016,2017, and for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors.
| | | June 30, 2017 | March 31, 2018 |
Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total | Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) | (in millions) |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 11 |
| | $ | 770 |
| | $ | — |
| | $ | 784 |
| $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 14 |
| | $ | 594 |
| | $ | — |
| | $ | 610 |
|
Restricted cash and cash equivalents | — |
| | — |
| | 87 |
| | 10 |
| | 28 |
| | — |
| | 125 |
| — |
| | — |
| | 33 |
| | 10 |
| | 30 |
| | — |
| | 73 |
|
Accounts receivable, net | — |
| | — |
| | 11 |
| | 620 |
| | 290 |
| | — |
| | 921 |
| — |
| | — |
| | 17 |
| | 700 |
| | 263 |
| | — |
| | 980 |
|
Intercompany receivables | — |
| | — |
| | — |
| | — |
| | 40 |
| | (40 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | 40 |
| | (40 | ) | | — |
|
Prepaid expenses | — |
| | — |
| | 6 |
| | 45 |
| | 73 |
| | (1 | ) | | 123 |
| — |
| | — |
| | 18 |
| | 51 |
| | 95 |
| | (3 | ) | | 161 |
|
Income taxes receivable | — |
| | — |
| | — |
| | 27 |
| | — |
| | (27 | ) | | — |
| |
Other | — |
| | — |
| | 1 |
| | 4 |
| | 41 |
| | — |
| | 46 |
| — |
| | — |
| | 1 |
| | 17 |
| | 166 |
| | — |
| | 184 |
|
Total current assets | — |
| | — |
| | 108 |
| | 717 |
| | 1,242 |
| | (68 | ) | | 1,999 |
| — |
| | — |
| | 71 |
| | 792 |
| | 1,188 |
| | (43 | ) | | 2,008 |
|
Intangibles and Other Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in subsidiaries | 1,506 |
| | 6,911 |
| | 8,097 |
| | 1,506 |
| | — |
| | (18,020 | ) | | — |
| 1,737 |
| | 7,092 |
| | 8,301 |
| | 1,737 |
| | — |
| | (18,867 | ) | | — |
|
Goodwill | — |
| | — |
| | — |
| | 3,824 |
| | 1,340 |
| | — |
| | 5,164 |
| — |
| | — |
| | — |
| | 3,824 |
| | 1,387 |
| | — |
| | 5,211 |
|
Brands | — |
| | — |
| | — |
| | 4,404 |
| | 468 |
| | — |
| | 4,872 |
| — |
| | — |
| | — |
| | 4,404 |
| | 498 |
| | — |
| | 4,902 |
|
Management and franchise contracts, net | — |
| | — |
| | — |
| | 677 |
| | 253 |
| | — |
| | 930 |
| — |
| | — |
| | — |
| | 620 |
| | 308 |
| | — |
| | 928 |
|
Other intangible assets, net | — |
| | — |
| | 1 |
| | 281 |
| | 150 |
| | — |
| | 432 |
| — |
| | — |
| | — |
| | 278 |
| | 150 |
| | — |
| | 428 |
|
Property and equipment, net | — |
| | — |
| | 13 |
| | 61 |
| | 264 |
| | — |
| | 338 |
| — |
| | — |
| | 19 |
| | 66 |
| | 273 |
| | — |
| | 358 |
|
Deferred income tax assets | 9 |
| | 4 |
| | 166 |
| | — |
| | 87 |
| | (184 | ) | | 82 |
| 5 |
| | — |
| | 104 |
| | — |
| | 136 |
| | (134 | ) | | 111 |
|
Other | — |
| | 10 |
| | 32 |
| | 218 |
| | 192 |
| | — |
| | 452 |
| — |
| | 55 |
| | 33 |
| | 67 |
| | 159 |
| | — |
| | 314 |
|
Total intangibles and other assets | 1,515 |
| | 6,925 |
| | 8,309 |
| | 10,971 |
| | 2,754 |
| | (18,204 | ) | | 12,270 |
| 1,742 |
| | 7,147 |
| | 8,457 |
| | 10,996 |
| | 2,911 |
| | (19,001 | ) | | 12,252 |
|
TOTAL ASSETS | $ | 1,515 |
| | $ | 6,925 |
| | $ | 8,417 |
| | $ | 11,688 |
| | $ | 3,996 |
| | $ | (18,272 | ) | | $ | 14,269 |
| $ | 1,742 |
| | $ | 7,147 |
| | $ | 8,528 |
| | $ | 11,788 |
| | $ | 4,099 |
| | $ | (19,044 | ) | | $ | 14,260 |
|
LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable, accrued expenses and other | $ | — |
| | $ | 23 |
| | $ | 204 |
| | $ | 1,193 |
| | $ | 460 |
| | $ | (1 | ) | | $ | 1,879 |
| $ | — |
| | $ | 39 |
| | $ | 126 |
| | $ | 555 |
| | $ | 625 |
| | $ | (1 | ) | | $ | 1,344 |
|
Current portion of deferred revenues | | — |
| | — |
| | 63 |
| | 268 |
| | 13 |
| | (2 | ) | | 342 |
|
Intercompany payables | — |
| | — |
| | 40 |
| | — |
| | — |
| | (40 | ) | | — |
| — |
| | — |
| | 40 |
| | — |
| | — |
| | (40 | ) | | — |
|
Current maturities of long-term debt | — |
| | 32 |
| | — |
| | — |
| | 16 |
| | — |
| | 48 |
| — |
| | 32 |
| | — |
| | — |
| | 15 |
| | — |
| | 47 |
|
Income taxes payable | — |
| | — |
| | — |
| | 5 |
| | 84 |
| | (27 | ) | | 62 |
| — |
| | — |
| | — |
| | 22 |
| | 41 |
| | — |
| | 63 |
|
Current portion of liability for guest loyalty program | | — |
| | — |
| | — |
| | 692 |
| | — |
| | — |
| | 692 |
|
Total current liabilities | — |
| | 55 |
| | 244 |
| | 1,198 |
| | 560 |
| | (68 | ) | | 1,989 |
| — |
| | 71 |
| | 229 |
| | 1,537 |
| | 694 |
| | (43 | ) | | 2,488 |
|
Long-term debt | — |
| | 5,349 |
| | 982 |
| | — |
| | 241 |
| | — |
| | 6,572 |
| — |
| | 5,325 |
| | 984 |
| | — |
| | 249 |
| | — |
| | 6,558 |
|
Deferred revenues | — |
| | — |
| | — |
| | 99 |
| | — |
| | — |
| | 99 |
| — |
| | — |
| | — |
| | 766 |
| | 62 |
| | — |
| | 828 |
|
Deferred income tax liabilities | — |
| | — |
| | — |
| | 1,857 |
| | — |
| | (184 | ) | | 1,673 |
| — |
| | 14 |
| | — |
| | 1,021 |
| | — |
| | (134 | ) | | 901 |
|
Liability for guest loyalty program | — |
| | — |
| | — |
| | 884 |
| | — |
| | — |
| | 884 |
| — |
| | — |
| | — |
| | 841 |
| | — |
| | — |
| | 841 |
|
Other | — |
| | 15 |
| | 280 |
| | 526 |
| | 716 |
| | — |
| | 1,537 |
| — |
| | — |
| | 223 |
| | 61 |
| | 613 |
| | — |
| | 897 |
|
Total liabilities | — |
| | 5,419 |
| | 1,506 |
| | 4,564 |
| | 1,517 |
| | (252 | ) | | 12,754 |
| — |
| | 5,410 |
| | 1,436 |
| | 4,226 |
| | 1,618 |
| | (177 | ) | | 12,513 |
|
Equity: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Hilton stockholders' equity | 1,515 |
| | 1,506 |
| | 6,911 |
| | 7,124 |
| | 2,479 |
| | (18,020 | ) | | 1,515 |
| 1,742 |
| | 1,737 |
| | 7,092 |
| | 7,562 |
| | 2,476 |
| | (18,867 | ) | | 1,742 |
|
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Total equity | 1,515 |
| | 1,506 |
| | 6,911 |
| | 7,124 |
| | 2,479 |
| | (18,020 | ) | | 1,515 |
| 1,742 |
| | 1,737 |
| | 7,092 |
| | 7,562 |
| | 2,481 |
| | (18,867 | ) | | 1,747 |
|
TOTAL LIABILITIES AND EQUITY | $ | 1,515 |
| | $ | 6,925 |
| | $ | 8,417 |
| | $ | 11,688 |
| | $ | 3,996 |
| | $ | (18,272 | ) | | $ | 14,269 |
| $ | 1,742 |
| | $ | 7,147 |
| | $ | 8,528 |
| | $ | 11,788 |
| | $ | 4,099 |
| | $ | (19,044 | ) | | $ | 14,260 |
|
| | | December 31, 2016 | December 31, 2017 |
Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total | Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) | (in millions) |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 22 |
| | $ | 1,037 |
| | $ | — |
| | $ | 1,062 |
| $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 18 |
| | $ | 550 |
| | $ | — |
| | $ | 570 |
|
Restricted cash and cash equivalents | — |
| | — |
| | 87 |
| | 9 |
| | 25 |
| | — |
| | 121 |
| — |
| | — |
| | 61 |
| | 10 |
| | 29 |
| | — |
| | 100 |
|
Accounts receivable, net | — |
| | — |
| | 7 |
| | 484 |
| | 264 |
| | — |
| | 755 |
| — |
| | — |
| | 18 |
| | 712 |
| | 275 |
| | — |
| | 1,005 |
|
Intercompany receivables | — |
| | — |
| | — |
| | — |
| | 42 |
| | (42 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | 40 |
| | (40 | ) | | — |
|
Prepaid expenses | — |
| | — |
| | 6 |
| | 21 |
| | 65 |
| | (3 | ) | | 89 |
| — |
| | — |
| | 25 |
| | 24 |
| | 84 |
| | (6 | ) | | 127 |
|
Income taxes receivable | — |
| | — |
| | — |
| | 30 |
| | — |
| | (17 | ) | | 13 |
| — |
| | — |
| | — |
| | 60 |
| | — |
| | (24 | ) | | 36 |
|
Other | — |
| | — |
| | 1 |
| | 5 |
| | 33 |
| | — |
| | 39 |
| — |
| | — |
| | 1 |
| | 13 |
| | 155 |
| | — |
| | 169 |
|
Current assets of discontinued operations | — |
| | — |
| | — |
| | — |
| | 1,502 |
| | (24 | ) | | 1,478 |
| |
Total current assets | — |
| | — |
| | 104 |
| | 571 |
| | 2,968 |
| | (86 | ) | | 3,557 |
| — |
| | — |
| | 107 |
| | 837 |
| | 1,133 |
| | (70 | ) | | 2,007 |
|
Intangibles and Other Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in subsidiaries | 5,889 |
| | 11,300 |
| | 12,583 |
| | 5,889 |
| | — |
| | (35,661 | ) | | — |
| 1,697 |
| | 7,067 |
| | 8,326 |
| | 1,697 |
| | — |
| | (18,787 | ) | | — |
|
Goodwill | — |
| | — |
| | — |
| | 3,824 |
| | 1,394 |
| | — |
| | 5,218 |
| — |
| | — |
| | — |
| | 3,824 |
| | 1,366 |
| | — |
| | 5,190 |
|
Brands | — |
| | — |
| | — |
| | 4,404 |
| | 444 |
| | — |
| | 4,848 |
| — |
| | — |
| | — |
| | 4,405 |
| | 485 |
| | — |
| | 4,890 |
|
Management and franchise contracts, net | — |
| | — |
| | — |
| | 716 |
| | 247 |
| | — |
| | 963 |
| — |
| | — |
| | 2 |
| | 645 |
| | 306 |
| | — |
| | 953 |
|
Other intangible assets, net | — |
| | — |
| | 1 |
| | 296 |
| | 150 |
| | — |
| | 447 |
| — |
| | — |
| | 1 |
| | 283 |
| | 149 |
| | — |
| | 433 |
|
Property and equipment, net | — |
| | — |
| | 12 |
| | 62 |
| | 267 |
| | — |
| | 341 |
| — |
| | — |
| | 20 |
| | 67 |
| | 266 |
| | — |
| | 353 |
|
Deferred income tax assets | 10 |
| | 2 |
| | 167 |
| | — |
| | 82 |
| | (179 | ) | | 82 |
| 6 |
| | — |
| | 104 |
| | — |
| | 127 |
| | (126 | ) | | 111 |
|
Other | — |
| | 12 |
| | 30 |
| | 213 |
| | 153 |
| | — |
| | 408 |
| — |
| | 20 |
| | 32 |
| | 67 |
| | 172 |
| | — |
| | 291 |
|
Non-current assets of discontinued operations | — |
| | — |
| | — |
| | 12 |
| | 10,345 |
| | (10 | ) | | 10,347 |
| |
Total intangibles and other assets | 5,899 |
| | 11,314 |
| | 12,793 |
| | 15,416 |
| | 13,082 |
| | (35,850 | ) | | 22,654 |
| 1,703 |
| | 7,087 |
| | 8,485 |
| | 10,988 |
| | 2,871 |
| | (18,913 | ) | | 12,221 |
|
TOTAL ASSETS | $ | 5,899 |
| | $ | 11,314 |
| | $ | 12,897 |
| | $ | 15,987 |
| | $ | 16,050 |
| | $ | (35,936 | ) | | $ | 26,211 |
| $ | 1,703 |
| | $ | 7,087 |
| | $ | 8,592 |
| | $ | 11,825 |
| | $ | 4,004 |
| | $ | (18,983 | ) | | $ | 14,228 |
|
LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable, accrued expenses and other | $ | — |
| | $ | 26 |
| | $ | 293 |
| | $ | 1,091 |
| | $ | 414 |
| | $ | (3 | ) | | $ | 1,821 |
| $ | 15 |
| | $ | 20 |
| | $ | 184 |
| | $ | 576 |
| | $ | 624 |
| | $ | (3 | ) | | $ | 1,416 |
|
Current portion of deferred revenues | | — |
| | — |
| | 90 |
| | 266 |
| | 13 |
| | (3 | ) | | 366 |
|
Intercompany payables | — |
| | — |
| | 42 |
| | — |
| | — |
| | (42 | ) | | — |
| — |
| | — |
| | 40 |
| | — |
| | — |
| | (40 | ) | | — |
|
Current maturities of long-term debt | — |
| | 26 |
| | — |
| | — |
| | 7 |
| | — |
| | 33 |
| — |
| | 32 |
| | — |
| | — |
| | 14 |
| | — |
| | 46 |
|
Income taxes payable | — |
| | — |
| | — |
| | — |
| | 73 |
| | (17 | ) | | 56 |
| — |
| | — |
| | — |
| | — |
| | 36 |
| | (24 | ) | | 12 |
|
Current liabilities of discontinued operations | — |
| | — |
| | — |
| | 77 |
| | 721 |
| | (24 | ) | | 774 |
| |
Current portion of liability for guest loyalty program | | — |
| | — |
| | — |
| | 622 |
| | — |
| | — |
| | 622 |
|
Total current liabilities | — |
| | 52 |
| | 335 |
| | 1,168 |
| | 1,215 |
| | (86 | ) | | 2,684 |
| 15 |
| | 52 |
| | 314 |
| | 1,464 |
| | 687 |
| | (70 | ) | | 2,462 |
|
Long-term debt | — |
| | 5,361 |
| | 981 |
| | — |
| | 241 |
| | — |
| | 6,583 |
| — |
| | 5,333 |
| | 983 |
| | — |
| | 240 |
| | — |
| | 6,556 |
|
Deferred revenues | — |
| | — |
| | — |
| | 42 |
| | — |
| | — |
| | 42 |
| — |
| | — |
| | — |
| | 770 |
| | 59 |
| | — |
| | 829 |
|
Deferred income tax liabilities | — |
| | — |
| | — |
| | 1,919 |
| | 38 |
| | (179 | ) | | 1,778 |
| — |
| | 5 |
| | — |
| | 1,052 |
| | — |
| | (126 | ) | | 931 |
|
Liability for guest loyalty program | — |
| | — |
| | — |
| | 889 |
| | — |
| | — |
| | 889 |
| — |
| | — |
| | — |
| | 839 |
| | — |
| | — |
| | 839 |
|
Other | — |
| | 12 |
| | 277 |
| | 490 |
| | 713 |
| | — |
| | 1,492 |
| — |
| | — |
| | 228 |
| | 64 |
| | 628 |
| | — |
| | 920 |
|
Non-current liabilities of discontinued operations | — |
| | — |
| | 4 |
| | — |
| | 6,900 |
| | (10 | ) | | 6,894 |
| |
Total liabilities | — |
| | 5,425 |
| | 1,597 |
| | 4,508 |
| | 9,107 |
| | (275 | ) | | 20,362 |
| 15 |
| | 5,390 |
| | 1,525 |
| | 4,189 |
| | 1,614 |
| | (196 | ) | | 12,537 |
|
Equity: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Hilton stockholders' equity | 5,899 |
| | 5,889 |
| | 11,300 |
| | 11,479 |
| | 6,993 |
| | (35,661 | ) | | 5,899 |
| 1,688 |
| | 1,697 |
| | 7,067 |
| | 7,636 |
| | 2,387 |
| | (18,787 | ) | | 1,688 |
|
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (50 | ) | | — |
| | (50 | ) | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Total equity | 5,899 |
| | 5,889 |
| | 11,300 |
| | 11,479 |
| | 6,943 |
| | (35,661 | ) | | 5,849 |
| 1,688 |
| | 1,697 |
| | 7,067 |
| | 7,636 |
| | 2,390 |
| | (18,787 | ) | | 1,691 |
|
TOTAL LIABILITIES AND EQUITY | $ | 5,899 |
| | $ | 11,314 |
| | $ | 12,897 |
| | $ | 15,987 |
| | $ | 16,050 |
| | $ | (35,936 | ) | | $ | 26,211 |
| $ | 1,703 |
| | $ | 7,087 |
| | $ | 8,592 |
| | $ | 11,825 |
| | $ | 4,004 |
| | $ | (18,983 | ) | | $ | 14,228 |
|
| | | Three Months Ended June 30, 2017 | Three Months Ended March 31, 2018 |
| Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total | Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) | (in millions) |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franchise fees | $ | — |
| | $ | — |
| | $ | 49 |
| | $ | 296 |
| | $ | 32 |
| | $ | (5 | ) | | $ | 372 |
| $ | — |
| | $ | — |
| | $ | 44 |
| | $ | 262 |
| | $ | 29 |
| | $ | (4 | ) | | $ | 331 |
|
Base and other management fees | — |
| | — |
| | — |
| | 53 |
| | 32 |
| | — |
| | 85 |
| — |
| | — |
| | — |
| | 51 |
| | 26 |
| | — |
| | 77 |
|
Incentive management fees | — |
| | — |
| | — |
| | 21 |
| | 35 |
| | — |
| | 56 |
| — |
| | — |
| | — |
| | 21 |
| | 34 |
| | — |
| | 55 |
|
Owned and leased hotels | — |
| | — |
| | — |
| | — |
| | 377 |
| | — |
| | 377 |
| — |
| | — |
| | — |
| | — |
| | 334 |
| | — |
| | 334 |
|
Other revenues | — |
| | — |
| | 2 |
| | 16 |
| | 2 |
| | — |
| | 20 |
| — |
| | — |
| | 2 |
| | 24 |
| | 2 |
| | (5 | ) | | 23 |
|
| — |
| | — |
| | 51 |
| | 386 |
| | 478 |
| | (5 | ) | | 910 |
| — |
| | — |
| | 46 |
| | 358 |
| | 425 |
| | (9 | ) | | 820 |
|
Other revenues from managed and franchised properties | — |
| | — |
| | 41 |
| | 1,229 |
| | 166 |
| | — |
| | 1,436 |
| — |
| | — |
| | 44 |
| | 1,070 |
| | 140 |
| | — |
| | 1,254 |
|
Total revenues | — |
| | — |
| | 92 |
| | 1,615 |
| | 644 |
| | (5 | ) | | 2,346 |
| — |
| | — |
| | 90 |
| | 1,428 |
| | 565 |
| | (9 | ) | | 2,074 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owned and leased hotels | — |
| | — |
| | — |
| | — |
| | 330 |
| | — |
| | 330 |
| — |
| | — |
| | — |
| | — |
| | 320 |
| | — |
| | 320 |
|
Depreciation and amortization | — |
| | — |
| | 2 |
| | 61 |
| | 24 |
| | — |
| | 87 |
| — |
| | — |
| | 1 |
| | 60 |
| | 21 |
| | — |
| | 82 |
|
General and administrative | — |
| | — |
| | 92 |
| | (2 | ) | | 27 |
| | — |
| | 117 |
| — |
| | — |
| | 73 |
| | — |
| | 35 |
| | (4 | ) | | 104 |
|
Other expenses | — |
| | — |
| | 3 |
| | 9 |
| | 4 |
| | (5 | ) | | 11 |
| — |
| | — |
| | 2 |
| | 7 |
| | 9 |
| | (4 | ) | | 14 |
|
| — |
| | — |
| | 97 |
| | 68 |
| | 385 |
| | (5 | ) | | 545 |
| — |
| | — |
| | 76 |
| | 67 |
| | 385 |
| | (8 | ) | | 520 |
|
Other expenses from managed and franchised properties | — |
| | — |
| | 41 |
| | 1,229 |
| | 166 |
| | — |
| | 1,436 |
| — |
| | — |
| | 46 |
| | 1,084 |
| | 145 |
| | — |
| | 1,275 |
|
Total expenses | — |
| | — |
| | 138 |
| | 1,297 |
| | 551 |
| | (5 | ) | | 1,981 |
| — |
| | — |
| | 122 |
| | 1,151 |
| | 530 |
| | (8 | ) | | 1,795 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | — |
| | — |
| | (46 | ) | | 318 |
| | 93 |
| | — |
| | 365 |
| — |
| | — |
| | (32 | ) | | 277 |
| | 35 |
| | (1 | ) | | 279 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | — |
| | (60 | ) | | (26 | ) | | — |
| | (14 | ) | | — |
| | (100 | ) | — |
| | (61 | ) | | (13 | ) | | — |
| | (10 | ) | | 1 |
| | (83 | ) |
Gain (loss) on foreign currency transactions | — |
| | — |
| | 2 |
| | 53 |
| | (50 | ) | | — |
| | 5 |
| — |
| | — |
| | (3 | ) | | 8 |
| | 6 |
| | — |
| | 11 |
|
Other non-operating income, net | — |
| | — |
| | 2 |
| | 3 |
| | — |
| | — |
| | 5 |
| — |
| | — |
| | 3 |
| | 8 |
| | 3 |
| | — |
| | 14 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes and equity in earnings from subsidiaries | — |
| | (60 | ) | | (68 | ) | | 374 |
| | 29 |
| | — |
| | 275 |
| |
Income (loss) before income taxes and equity in earnings from subsidiaries | | — |
| | (61 | ) | | (45 | ) | | 293 |
| | 34 |
| | — |
| | 221 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax benefit (expense) | — |
| | 24 |
| | 25 |
| | (147 | ) | | (10 | ) | | — |
| | (108 | ) | — |
| | 15 |
| | 13 |
| | (73 | ) | | (13 | ) | | — |
| | (58 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before equity in earnings from subsidiaries | — |
| | (36 | ) | | (43 | ) | | 227 |
| | 19 |
| | — |
| | 167 |
| |
Income (loss) before equity in earnings from subsidiaries | | — |
| | (46 | ) | | (32 | ) | | 220 |
| | 21 |
| | — |
| | 163 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity in earnings from subsidiaries | 166 |
| | 202 |
| | 245 |
| | 166 |
| | — |
| | (779 | ) | | — |
| 161 |
| | 207 |
| | 239 |
| | 161 |
| | — |
| | (768 | ) | | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | 166 |
| | 166 |
| | 202 |
| | 393 |
| | 19 |
| | (779 | ) | | 167 |
| 161 |
| | 161 |
| | 207 |
| | 381 |
| | 21 |
| | (768 | ) | | 163 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Net income attributable to Hilton stockholders | $ | 166 |
| | $ | 166 |
| | $ | 202 |
| | $ | 393 |
| | $ | 18 |
| | $ | (779 | ) | | $ | 166 |
| $ | 161 |
| | $ | 161 |
| | $ | 207 |
| | $ | 381 |
| | $ | 19 |
| | $ | (768 | ) | | $ | 161 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | $ | 217 |
| | $ | 161 |
| | $ | 201 |
| | $ | 394 |
| | $ | 76 |
| | $ | (830 | ) | | $ | 219 |
| $ | 222 |
| | $ | 190 |
| | $ | 207 |
| | $ | 382 |
| | $ | 52 |
| | $ | (829 | ) | | $ | 224 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Comprehensive income attributable to Hilton stockholders | $ | 217 |
| | $ | 161 |
| | $ | 201 |
| | $ | 394 |
| | $ | 74 |
| | $ | (830 | ) | | $ | 217 |
| $ | 222 |
| | $ | 190 |
| | $ | 207 |
| | $ | 382 |
| | $ | 50 |
| | $ | (829 | ) | | $ | 222 |
|
| | | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2017 |
| Parent | | HWF Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total | Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) | (in millions) |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Franchise fees | $ | — |
| | $ | — |
| | $ | 284 |
| | $ | 29 |
| | $ | (2 | ) | | $ | 311 |
| $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 244 |
| | $ | 23 |
| | $ | (4 | ) | | $ | 282 |
|
Base and other management fees | — |
| | — |
| | 33 |
| | 27 |
| | — |
| | 60 |
| — |
| | — |
| | — |
| | 49 |
| | 32 |
| | — |
| | 81 |
|
Incentive management fees | — |
| | — |
| | 3 |
| | 30 |
| | — |
| | 33 |
| — |
| | — |
| | — |
| | 20 |
| | 29 |
| | — |
| | 49 |
|
Owned and leased hotels | ��� |
| | — |
| | — |
| | 398 |
| | — |
| | 398 |
| — |
| | — |
| | — |
| | — |
| | 296 |
| | — |
| | 296 |
|
Other revenues | — |
| | — |
| | 14 |
| | 4 |
| | — |
| | 18 |
| — |
| | — |
| | 20 |
| | 13 |
| | 4 |
| | — |
| | 37 |
|
| — |
| | — |
| | 334 |
| | 488 |
| | (2 | ) | | 820 |
| — |
| | — |
| | 39 |
| | 326 |
| | 384 |
| | (4 | ) | | 745 |
|
Other revenues from managed and franchised properties | — |
| | — |
| | 993 |
| | 137 |
| | — |
| | 1,130 |
| — |
| | — |
| | 41 |
| | 981 |
| | 129 |
| | — |
| | 1,151 |
|
Total revenues | — |
| | — |
| | 1,327 |
| | 625 |
| | (2 | ) | | 1,950 |
| — |
| | — |
| | 80 |
| | 1,307 |
| | 513 |
| | (4 | ) | | 1,896 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Owned and leased hotels | — |
| | — |
| | — |
| | 349 |
| | — |
| | 349 |
| — |
| | — |
| | — |
| | — |
| | 268 |
| | — |
| | 268 |
|
Depreciation and amortization | — |
| | — |
| | 68 |
| | 23 |
| | — |
| | 91 |
| — |
| | — |
| | 1 |
| | 62 |
| | 23 |
| | — |
| | 86 |
|
General and administrative | — |
| | — |
| | 66 |
| | 31 |
| | — |
| | 97 |
| — |
| | — |
| | 79 |
| | 2 |
| | 25 |
| | — |
| | 106 |
|
Other expenses | — |
| | — |
| | 8 |
| | 5 |
| | (2 | ) | | 11 |
| — |
| | — |
| | 12 |
| | 7 |
| | 8 |
| | (4 | ) | | 23 |
|
| — |
| | — |
| | 142 |
| | 408 |
| | (2 | ) | | 548 |
| — |
| | — |
| | 92 |
| | 71 |
| | 324 |
| | (4 | ) | | 483 |
|
Other expenses from managed and franchised properties | — |
| | — |
| | 993 |
| | 137 |
| | — |
| | 1,130 |
| — |
| | — |
| | 42 |
| | 1,026 |
| | 128 |
| | — |
| | 1,196 |
|
Total expenses | — |
| | — |
| | 1,135 |
| | 545 |
| | (2 | ) | | 1,678 |
| — |
| | — |
| | 134 |
| | 1,097 |
| | 452 |
| | (4 | ) | | 1,679 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Gain on sales of assets, net | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| |
| | | | | | | | | | | | |
Operating income | — |
| | — |
| | 192 |
| | 81 |
| | — |
| | 273 |
| |
Operating income (loss) | | — |
| | — |
| | (54 | ) | | 210 |
| | 61 |
| | — |
| | 217 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | — |
| | (67 | ) | | (20 | ) | | (12 | ) | | — |
| | (99 | ) | — |
| | (63 | ) | | (16 | ) | | — |
| | (10 | ) | | — |
| | (89 | ) |
Gain (loss) on foreign currency transactions | — |
| | — |
| | (69 | ) | | 55 |
| | — |
| | (14 | ) | — |
| | — |
| | 11 |
| | 21 |
| | (36 | ) | | — |
| | (4 | ) |
Loss on debt extinguishment | | — |
| | (60 | ) | | — |
| | — |
| | — |
| | — |
| | (60 | ) |
Other non-operating income (loss), net | — |
| | — |
| | 4 |
| | (1 | ) | | — |
| | 3 |
| — |
| | (3 | ) | | 1 |
| | 1 |
| | 3 |
| | — |
| | 2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes and equity in earnings from subsidiaries | — |
| | (67 | ) | | 107 |
| | 123 |
| | — |
| | 163 |
| |
Income (loss) before income taxes and equity in earnings from subsidiaries | | — |
| | (126 | ) | | (58 | ) | | 232 |
| | 18 |
| | — |
| | 66 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Income tax benefit (expense) | — |
| | 25 |
| | (42 | ) | | (46 | ) | | — |
| | (63 | ) | — |
| | 50 |
| | 24 |
| | (87 | ) | | (5 | ) | | — |
| | (18 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before equity in earnings from subsidiaries | — |
| | (42 | ) | | 65 |
| | 77 |
| | — |
| | 100 |
| |
Income (loss) before equity in earnings from subsidiaries | | — |
| | (76 | ) | | (34 | ) | | 145 |
| | 13 |
| | — |
| | 48 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity in earnings from subsidiaries | 96 |
| | 138 |
| | 73 |
| | — |
| | (307 | ) | | — |
| 47 |
| | 123 |
| | 157 |
| | 47 |
| | — |
| | (374 | ) | | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations, net of taxes | 96 |
| | 96 |
| | 138 |
| | 77 |
| | (307 | ) | | 100 |
| |
Income from discontinued operations, net of taxes | 143 |
| | 143 |
| | 143 |
| | 134 |
| | (419 | ) | | 144 |
| |
Net income | 239 |
| | 239 |
| | 281 |
| | 211 |
| | (726 | ) | | 244 |
| 47 |
| | 47 |
| | 123 |
| | 192 |
| | 13 |
| | (374 | ) | | 48 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income attributable to Hilton stockholders | $ | 239 |
| | $ | 239 |
| | $ | 281 |
| | $ | 206 |
| | $ | (726 | ) | | $ | 239 |
| $ | 47 |
| | $ | 47 |
| | $ | 123 |
| | $ | 192 |
| | $ | 12 |
| | $ | (374 | ) | | $ | 47 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | $ | 187 |
| | $ | 239 |
| | $ | 251 |
| | $ | 189 |
| | $ | (674 | ) | | $ | 192 |
| $ | 67 |
| | $ | 45 |
| | $ | 127 |
| | $ | 192 |
| | $ | 30 |
| | $ | (394 | ) | | $ | 67 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Comprehensive income attributable to Hilton stockholders | $ | 187 |
| | $ | 239 |
| | $ | 251 |
| | $ | 184 |
| | $ | (674 | ) | | $ | 187 |
| $ | 67 |
| | $ | 45 |
| | $ | 127 |
| | $ | 192 |
| | $ | 30 |
| | $ | (394 | ) | | $ | 67 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2017 |
| Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Revenues | | | | | | | | | | | | | |
Franchise fees | $ | — |
| | $ | — |
| | $ | 68 |
| | $ | 551 |
| | $ | 56 |
| | $ | (9 | ) | | $ | 666 |
|
Base and other management fees | — |
| | — |
| | — |
| | 103 |
| | 65 |
| | — |
| | 168 |
|
Incentive management fees | — |
| | — |
| | — |
| | 43 |
| | 65 |
| | — |
| | 108 |
|
Owned and leased hotels | — |
| | — |
| | — |
| | — |
| | 677 |
| | — |
| | 677 |
|
Other revenues | — |
| | — |
| | 22 |
| | 29 |
| | 6 |
| | — |
| | 57 |
|
| — |
| | — |
| | 90 |
| | 726 |
| | 869 |
| | (9 | ) | | 1,676 |
|
Other revenues from managed and franchised properties | — |
| | — |
| | 86 |
| | 2,449 |
| | 296 |
| | — |
| | 2,831 |
|
Total revenues | — |
| | — |
| | 176 |
| | 3,175 |
| | 1,165 |
| | (9 | ) | | 4,507 |
|
| | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | |
Owned and leased hotels | — |
| | — |
| | — |
| | — |
| | 602 |
| | — |
| | 602 |
|
Depreciation and amortization | — |
| | — |
| | 3 |
| | 125 |
| | 48 |
| | — |
| | 176 |
|
General and administrative | — |
| | — |
| | 171 |
| | — |
| | 51 |
| | — |
| | 222 |
|
Other expenses | — |
| | — |
| | 15 |
| | 16 |
| | 12 |
| | (9 | ) | | 34 |
|
| — |
| | — |
| | 189 |
| | 141 |
| | 713 |
| | (9 | ) | | 1,034 |
|
Other expenses from managed and franchised properties | — |
| | — |
| | 86 |
| | 2,449 |
| | 296 |
| | — |
| | 2,831 |
|
Total expenses | — |
| | — |
| | 275 |
| | 2,590 |
| | 1,009 |
| | (9 | ) | | 3,865 |
|
| | | | | | | | | | | | | |
Operating income (loss) | — |
| | — |
| | (99 | ) | | 585 |
| | 156 |
| | — |
| | 642 |
|
| | | | | | | | | | | | | |
Interest expense | — |
| | (123 | ) | | (54 | ) | | — |
| | (27 | ) | | — |
| | (204 | ) |
Gain (loss) on foreign currency transactions | — |
| | — |
| | 13 |
| | 74 |
| | (86 | ) | | — |
| | 1 |
|
Loss on debt extinguishment | — |
| | (60 | ) | | — |
| | — |
| | — |
| | — |
| | (60 | ) |
Other non-operating income (loss), net | — |
| | (3 | ) | | 3 |
| | 4 |
| | 2 |
| | — |
| | 6 |
|
| | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes and equity in earnings from subsidiaries | — |
| | (186 | ) | | (137 | ) | | 663 |
| | 45 |
| | — |
| | 385 |
|
| | | | | | | | | | | | | |
Income tax benefit (expense) | — |
| | 73 |
| | 52 |
| | (255 | ) | | (13 | ) | | — |
| | (143 | ) |
| | | | | | | | | | | | | |
Income (loss) from continuing operations before equity in earnings from subsidiaries | — |
| | (113 | ) | | (85 | ) | | 408 |
| | 32 |
| | — |
| | 242 |
|
| | | | | | | | | | | | | |
Equity in earnings from subsidiaries | 240 |
| | 353 |
| | 438 |
| | 240 |
| | — |
| | (1,271 | ) | | — |
|
| | | | | | | | | | | | | |
Net income | 240 |
| | 240 |
| | 353 |
| | 648 |
| | 32 |
| | (1,271 | ) | | 242 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Net income attributable to Hilton stockholders | $ | 240 |
| | $ | 240 |
| | $ | 353 |
| | $ | 648 |
| | $ | 30 |
| | $ | (1,271 | ) | | $ | 240 |
|
| | | | | | | | | | | | | |
Comprehensive income | $ | 311 |
| | $ | 233 |
| | $ | 356 |
| | $ | 649 |
| | $ | 106 |
| | $ | (1,342 | ) | | $ | 313 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Comprehensive income attributable to Hilton stockholders | $ | 311 |
| | $ | 233 |
| | $ | 356 |
| | $ | 649 |
| | $ | 104 |
| | $ | (1,342 | ) | | $ | 311 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Operating Activities: | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | — |
| | $ | (46 | ) | | $ | (29 | ) | | $ | 307 |
| | $ | 11 |
| | $ | — |
| | $ | 243 |
|
Investing Activities: | | | | | | | | | | | | | |
Capital expenditures for property and equipment | — |
| | — |
| | — |
| | (1 | ) | | (9 | ) | | — |
| | (10 | ) |
Capitalized software costs | — |
| | — |
| | — |
| | (15 | ) | | — |
| | — |
| | (15 | ) |
Other | — |
| | — |
| | — |
| | (2 | ) | | 1 |
| | — |
| | (1 | ) |
Net cash used in investing activities | — |
| | — |
| | — |
| | (18 | ) | | (8 | ) | | — |
| | (26 | ) |
Financing Activities: | | | | | | | | | | | | | |
Repayment of debt | — |
| | (10 | ) | | — |
| | — |
| | (4 | ) | | — |
| | (14 | ) |
Intercompany transfers | 157 |
| | 56 |
| | 41 |
| | (293 | ) | | 39 |
| | — |
| | — |
|
Dividends paid | (47 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (47 | ) |
Repurchases of common stock | (110 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (110 | ) |
Tax withholdings on share-based compensation | — |
| | — |
| | (40 | ) | | — |
| | — |
| | — |
| | (40 | ) |
Net cash provided by (used in) financing activities | — |
| | 46 |
| | 1 |
| | (293 | ) | | 35 |
| | — |
| | (211 | ) |
Effect of exchange rate changes on cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Net increase (decrease) in cash, restricted cash and cash equivalents | — |
| | — |
| | (28 | ) | | (4 | ) | | 45 |
| | — |
| | 13 |
|
Cash, restricted cash and cash equivalents, beginning of period | — |
| | — |
| | 63 |
| | 28 |
| | 579 |
| | — |
| | 670 |
|
Cash, restricted cash and cash equivalents, end of period | $ | — |
| | $ | — |
| | $ | 35 |
| | $ | 24 |
| | $ | 624 |
| | $ | — |
| | $ | 683 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| Parent | | HWF Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Revenues | | | | | | | | | | | |
Franchise fees | $ | — |
| | $ | — |
| | $ | 518 |
| | $ | 51 |
| | $ | (5 | ) | | $ | 564 |
|
Base and other management fees | — |
| | — |
| | 65 |
| | 55 |
| | — |
| | 120 |
|
Incentive management fees | — |
| | — |
| | 11 |
| | 58 |
| | — |
| | 69 |
|
Owned and leased hotels | — |
| | — |
| | — |
| | 717 |
| | — |
| | 717 |
|
Other revenues | — |
| | — |
| | 28 |
| | 7 |
| | — |
| | 35 |
|
| — |
| | — |
| | 622 |
| | 888 |
| | (5 | ) | | 1,505 |
|
Other revenues from managed and franchised properties | — |
| | — |
| | 1,917 |
| | 254 |
| | — |
| | 2,171 |
|
Total revenues | — |
| | — |
| | 2,539 |
| | 1,142 |
| | (5 | ) | | 3,676 |
|
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Owned and leased hotels | — |
| | — |
| | — |
| | 656 |
| | — |
| | 656 |
|
Depreciation and amortization | — |
| | — |
| | 136 |
| | 47 |
| | — |
| | 183 |
|
Impairment loss | — |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
General and administrative | — |
| | — |
| | 123 |
| | 57 |
| | — |
| | 180 |
|
Other expenses | — |
| | — |
| | 17 |
| | 17 |
| | (5 | ) | | 29 |
|
| — |
| | — |
| | 276 |
| | 792 |
| | (5 | ) | | 1,063 |
|
Other expenses from managed and franchised properties | — |
| | — |
| | 1,917 |
| | 254 |
| | — |
| | 2,171 |
|
Total expenses | — |
| | — |
| | 2,193 |
| | 1,046 |
| | (5 | ) | | 3,234 |
|
| | | | | | | | | | | |
Gain on sales of assets, net | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| | | | | | | | | | | |
Operating income | — |
| | — |
| | 346 |
| | 97 |
| | — |
| | 443 |
|
| | | | | | | | | | | |
Interest expense | — |
| | (134 | ) | | (31 | ) | | (24 | ) | | — |
| | (189 | ) |
Gain (loss) on foreign currency transactions | — |
| | — |
| | (64 | ) | | 38 |
| | — |
| | (26 | ) |
Other non-operating income (loss), net | — |
| | — |
| | 6 |
| | (1 | ) | | — |
| | 5 |
|
| | | | | | | | | | | |
Income (loss) from continuing operations before income taxes and equity in earnings from subsidiaries | — |
| | (134 | ) | | 257 |
| | 110 |
| | — |
| | 233 |
|
| | | | | | | | | | | |
Income tax benefit (expense) | 192 |
| | 51 |
| | (142 | ) | | (43 | ) | | — |
| | 58 |
|
| | | | | | | | | | | |
Income (loss) from continuing operations before equity in earnings from subsidiaries | 192 |
| | (83 | ) | | 115 |
| | 67 |
| | — |
| | 291 |
|
| | | | | | | | | | | |
Equity in earnings from subsidiaries | 96 |
| | 179 |
| | 64 |
| | — |
| | (339 | ) | | — |
|
| | | | | | | | | | | |
Income from continuing operations, net of taxes | 288 |
| | 96 |
| | 179 |
| | 67 |
| | (339 | ) | | 291 |
|
Income from discontinued operations, net of taxes | 260 |
| | 260 |
| | 260 |
| | 240 |
| | (757 | ) | | 263 |
|
Net income | 548 |
| | 356 |
| | 439 |
| | 307 |
| | (1,096 | ) | | 554 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
Net income attributable to Hilton stockholders | $ | 548 |
| | $ | 356 |
| | $ | 439 |
| | $ | 301 |
| | $ | (1,096 | ) | | $ | 548 |
|
| | | | | | | | | | | |
Comprehensive income | $ | 506 |
| | $ | 350 |
| | $ | 400 |
| | $ | 308 |
| | $ | (1,054 | ) | | $ | 510 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Comprehensive income attributable to Hilton stockholders | $ | 506 |
| | $ | 350 |
| | $ | 400 |
| | $ | 304 |
| | $ | (1,054 | ) | | $ | 506 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Operating Activities: | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | — |
| | $ | — |
| | $ | (102 | ) | | $ | 48 |
| | $ | 107 |
| | $ | (3 | ) | | $ | 50 |
|
Investing Activities: | | | | | | | | | | | | | |
Capital expenditures for property and equipment | — |
| | — |
| | — |
| | (1 | ) | | (8 | ) | | — |
| | (9 | ) |
Capitalized software costs | — |
| | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Other | — |
| | (13 | ) | | — |
| | (6 | ) | | — |
| | — |
| | (19 | ) |
Net cash used in investing activities | — |
| | (13 | ) | | — |
| | (16 | ) | | (8 | ) | | — |
| | (37 | ) |
Financing Activities: | | | | | | | | | | | | | |
Borrowings | — |
| | 1,823 |
| | — |
| | — |
| | — |
| | — |
| | 1,823 |
|
Repayment of debt | — |
| | (1,823 | ) | | — |
| | — |
| | (1 | ) | | — |
| | (1,824 | ) |
Debt issuance costs and redemption premium | — |
| | (66 | ) | | — |
| | — |
| | — |
| | — |
| | (66 | ) |
Repayment of intercompany borrowings | — |
| | — |
| | (3 | ) | | — |
| | — |
| | 3 |
| | — |
|
Intercompany transfers | 119 |
| | 79 |
| | 133 |
| | (42 | ) | | (289 | ) | | — |
| | — |
|
Dividends paid | (49 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (49 | ) |
Cash transferred in spin-offs of Park and HGV | — |
| | — |
| | — |
| | — |
| | (501 | ) | | — |
| | (501 | ) |
Repurchases of common stock | (70 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (70 | ) |
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Tax withholdings on share-based compensation | — |
| | — |
| | (28 | ) | | — |
| | — |
| | — |
| | (28 | ) |
Net cash provided by (used in) financing activities | — |
| | 13 |
| | 102 |
| | (42 | ) | | (792 | ) | | 3 |
| | (716 | ) |
Effect of exchange rate changes on cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net decrease in cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | (10 | ) | | (688 | ) | | — |
| | (698 | ) |
Cash, restricted cash and cash equivalents from continuing operations, beginning of period | — |
| | — |
| | 90 |
| | 31 |
| | 1,062 |
| | — |
| | 1,183 |
|
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period | — |
| | — |
| | — |
| | — |
| | 501 |
| | — |
| | 501 |
|
Cash, restricted cash and cash equivalents, beginning of period | — |
| | — |
| | 90 |
| | 31 |
| | 1,563 |
| | — |
| | 1,684 |
|
Cash, restricted cash and cash equivalents, end of period | $ | — |
| | $ | — |
| | $ | 90 |
| | $ | 21 |
| | $ | 875 |
| | $ | — |
| | $ | 986 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2017 |
| Parent | | HWF Issuers | | HOC | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Operating Activities: | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | — |
| | $ | (69 | ) | | $ | (58 | ) | | $ | 395 |
| | $ | 108 |
| | $ | — |
| | $ | 376 |
|
Investing Activities: | | | | | | | | | | | | | |
Capital expenditures for property and equipment | — |
| | — |
| | (3 | ) | | (3 | ) | | (12 | ) | | — |
| | (18 | ) |
Contract acquisition costs | — |
| | — |
| | — |
| | (17 | ) | | (15 | ) | | — |
| | (32 | ) |
Capitalized software costs | — |
| | — |
| | — |
| | (29 | ) | | — |
| | — |
| | (29 | ) |
Other | — |
| | (13 | ) | | — |
| | (5 | ) | | 3 |
| | (3 | ) | | (18 | ) |
Net cash used in investing activities | — |
| | (13 | ) | | (3 | ) | | (54 | ) | | (24 | ) | | (3 | ) | | (97 | ) |
Financing Activities: | | | | | | | | | | | | | |
Borrowings | — |
| | 1,823 |
| | — |
| | — |
| | — |
| | — |
| | 1,823 |
|
Repayment of debt | — |
| | (1,832 | ) | | — |
| | — |
| | (4 | ) | | — |
| | (1,836 | ) |
Debt issuance costs and redemption premium | — |
| | (68 | ) | | — |
| | — |
| | — |
| | — |
| | (68 | ) |
Repayment of intercompany borrowings | — |
| | — |
| | (3 | ) | | — |
| | — |
| | 3 |
| | — |
|
Intercompany transfers | 450 |
| | 159 |
| | 92 |
| | (351 | ) | | (350 | ) | | — |
| | — |
|
Dividends paid | (98 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (98 | ) |
Cash transferred in spin-offs of Park and HGV | — |
| | — |
| | — |
| | — |
| | (501 | ) | | — |
| | (501 | ) |
Repurchases of common stock | (352 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (352 | ) |
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Tax withholdings on share-based compensation | — |
| | — |
| | (28 | ) | | — |
| | — |
| | — |
| | (28 | ) |
Net cash provided by (used in) financing activities | — |
| | 82 |
| | 61 |
| | (351 | ) | | (856 | ) | | 3 |
| | (1,061 | ) |
Effect of exchange rate changes on cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Net decrease in cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | (10 | ) | | (765 | ) | | — |
| | (775 | ) |
Cash, restricted cash and cash equivalents from continuing operations, beginning of period | — |
| | — |
| | 90 |
| | 31 |
| | 1,062 |
| | — |
| | 1,183 |
|
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period | — |
| | — |
| | — |
| | — |
| | 501 |
| | — |
| | 501 |
|
Cash, restricted cash and cash equivalents, beginning of period | — |
| | — |
| | 90 |
| | 31 |
| | 1,563 |
| | — |
| | 1,684 |
|
Cash, restricted cash and cash equivalents, end of period | $ | — |
| | $ | — |
| | $ | 90 |
| | $ | 21 |
| | $ | 798 |
| | $ | — |
| | $ | 909 |
|
Note 16: Subsequent Events
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| Parent | | HWF Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (in millions) |
Operating Activities: | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | — |
| | $ | — |
| | $ | (133 | ) | | $ | 861 |
| | $ | (54 | ) | | $ | 674 |
|
Investing Activities: | | | | | | | | | | | |
Capital expenditures for property and equipment | — |
| | — |
| | (1 | ) | | (168 | ) | | — |
| | (169 | ) |
Proceeds from asset dispositions | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Contract acquisition costs | — |
| | — |
| | (16 | ) | | (2 | ) | | — |
| | (18 | ) |
Capitalized software costs | — |
| | — |
| | (32 | ) | | (3 | ) | | — |
| | (35 | ) |
Other | — |
| | — |
| | (18 | ) | | 3 |
| | — |
| | (15 | ) |
Net cash used in investing activities | — |
| | — |
| | (67 | ) | | (169 | ) | | — |
| | (236 | ) |
Financing Activities: | | | | | | | | | | | |
Repayment of debt | — |
| | — |
| | — |
| | (64 | ) | | — |
| | (64 | ) |
Intercompany transfers | 138 |
| | — |
| | 214 |
| | (352 | ) | | — |
| | — |
|
Dividends paid | (138 | ) | | — |
| | — |
| | — |
| | — |
| | (138 | ) |
Intercompany dividends | — |
| | — |
| | — |
| | (54 | ) | | 54 |
| | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Tax withholdings on share-based compensation | — |
| | — |
| | (13 | ) | | — |
| | — |
| | (13 | ) |
Net cash provided by (used in) financing activities | — |
| | — |
| | 201 |
| | (474 | ) | | 54 |
| | (219 | ) |
Effect of exchange rate changes on cash, restricted cash and cash equivalents | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Net increase in cash, restricted cash and cash equivalents | — |
| | — |
| | 1 |
| | 224 |
| | — |
| | 225 |
|
Cash, restricted cash and cash equivalents from continuing operations, beginning of period | — |
| | — |
| | 109 |
| | 524 |
| | — |
| | 633 |
|
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period | — |
| | — |
| | — |
| | 223 |
| | — |
| | 223 |
|
Cash, restricted cash and cash equivalents, beginning of period | — |
| | — |
| | 109 |
| | 747 |
| | — |
| | 856 |
|
Cash, restricted cash and cash equivalents from continuing operations, end of period | — |
| | — |
| | 110 |
| | 608 |
| | — |
| | 718 |
|
Cash, restricted cash and cash equivalents from discontinued operations, end of period | — |
| | — |
| | — |
| | 363 |
| | — |
| | 363 |
|
Cash, restricted cash and cash equivalents, end of period | $ | — |
| | $ | — |
| | $ | 110 |
| | $ | 971 |
| | $ | — |
| | $ | 1,081 |
|
In April 2018, HOC issued $1.5 billion aggregate principal amount of 5.125% Senior Notes due 2026 (the "2026 Senior Notes"), guaranteed on a senior unsecured basis by the Parent and certain of its wholly owned subsidiaries. We used a portion of the net proceeds from the issuance, together with borrowings under our Revolving Credit Facility and available cash to repurchase 16.5 million shares of our common stock from HNA for $1,171 million. HNA also sold 66 million shares of Hilton common stock in an underwritten, public offering and no longer has any beneficial ownership in Hilton. Additionally, we used the remaining proceeds from the issuance of the 2026 Senior Notes to repay approximately $500 million of our Term Loans.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements present the consolidated financial position of Hilton as of June 30, 201710-Q and December 31, 2016 and the results of operations of Hilton for the three and six months ended June 30, 2017 and 2016 giving effect to the spin-offs, with the historical financial results of Park and HGV reflected as discontinued operations. Unless indicated otherwise, the following discussion and analysis herein refers to Hilton's continuing operations. Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. As previously discussed, we adopted the requirements of ASU 2014-09 as of January 1, 2016 as updated byusing the full retrospective approach; refer to Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our Current Reportsunaudited condensed consolidated financial statements for additional information. All amounts and disclosures set forth in this Quarterly Report on Form 8-K dated May 24, 2017 and July 26, 2017 (Item 8.01) for the presentation of Hilton's consolidated results of operations and financial position as of and for the year ended December 31, 2016 giving effect to the spin-offs, and for other additional information, including our significant accounting policies and principal components and factors affecting our results of operations.10-Q reflect this adoption.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources the spin-offs and other non-historical statements. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, competition for hotel guests and management and franchise agreements,contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S. and our indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Part I—Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Overview
Our Business
Hilton is one of the largest and fastest growing hospitality companies in the world, with 5,0795,339 properties comprising 825,747863,241 rooms in 103106 countries and territories as of June 30, 2017.March 31, 2018. Our premier brand portfolio includes: our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts and Canopy by Hilton; our full-servicefull service hotel brands, Hilton Hotels & Resorts, Curio - A Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton; our focused-servicefocused service hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. WeAs of March 31, 2018, we had approximately 6774 million members in our award-winning guest loyalty program, Hilton Honors, as of June 30,a 20 percent increase from March 31, 2017.
Recent Events
On January 3, 2017, we completed the spin-offs of Park and HGV. The historical financial results of Park and HGV are reflected in our unaudited condensed consolidated financial statements as discontinued operations. See Note 3: "Discontinued Operations" in our unaudited condensed consolidated financial statements for additional information.
On January 3, 2017, we completed a 1-for-3 reverse stock split of Hilton's outstanding common stock. See Note 1: "Organization and Basis of Presentation" in our unaudited condensed consolidated financial statements for additional information.
Segments and Regions
Management analyzes our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments following the spin-offs that are based on similar products or services: (i) management and franchise; and (ii) ownership. The management and franchise segment provides services, including hotel management and licensing of our brands. This segment generates its revenue fromfrom: (i) management and franchise fees charged to: (i)to third-party hotel owners; (ii) owned and leased hotels; and (iii) license fees for the exclusive right to use certain Hilton marks and intellectual property.IP; and (iii) affiliate fees charged to owned and leased hotels. As a manager of hotels, we typically are responsible for supervising or operating the property in exchange for management fees. As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services. The ownership segment primarily derives earnings from providing hotel room rentals, food and beverage sales and other services at our owned and leased hotels.
Geographically, management conducts business through three distinct geographic regions: (i) the Americas; (ii) Europe, Middle East and Africa ("EMEA"); and (iii) Asia Pacific. The Americas region includes North America, South America and Central America, including all Caribbean nations. Although the U.S. is included in the Americas, it represents a significant portionrepresented 74 percent of our system-wide hotel rooms which was 74 percent as of June 30, 2017;March 31, 2018; therefore, the U.S. is often analyzed separately and apart from the
Americas geographic region overall and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from IrelandIceland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East region and all African nations, including the Indian Ocean island nations. Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific island nations.
System Growth and Pipeline
We continue to expandOur strategic priorities include the continued expansion of our global footprintnetwork and fee-based business. As we enter into new management and franchise agreements,contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide the management or franchise services. Additionally, prior to approving the addition of new hotelsproperties to our management and franchise development pipeline, we evaluate the economic viability of the hotelproperty based on theits geographic location, the credit quality of the third-party owner and other factors. By increasing the number of management and franchise agreementscontracts with third-party owners, we expect to increase overall return on invested capital.capital and cash available for return to stockholders.
As of June 30, 2017,March 31, 2018, we had a total of 2,1532,343 hotels in our development pipeline that we expect to add as open hotels in our system, representing approximately 332,000355,000 rooms under construction or approved for development throughout 104106 countries and territories, including 3638 countries and territories where we do not currently have any open hotels. All of the rooms in the pipeline are within our management and franchise segment. Of theNearly 187,000 rooms in the pipeline, 169,000 rooms, or more than half, of the pipeline, were located outside the U.S., and over 169,000 Additionally, approximately 184,000 rooms in the pipeline, or more than half, were under construction. We do not consider any individual development project to be material to us.
Key Business and Financial Metrics Used by Management
Comparable Hotels
We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported, excluding the hotels distributed in the spin-offs; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results are not available. Of the 5,0315,291 hotels in our system as of June 30, 2017, 4,012March 31, 2018, 4,343 hotels have been classified as comparable hotels. Our 1,019948 non-comparable hotels included 234211 hotels, or approximately fivefour percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were not available.
Occupancy
Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period. Occupancy measures the utilization of our hotels' available capacity. Management uses
occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable average daily rate levels as demand for hotel rooms increases or decreases.
Average Daily Rate ("ADR")
ADR represents hotel room revenue divided by total number of room nights sold for a given period. ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.
Revenue per Available Room ("RevPAR")
RevPAR is calculated by dividing hotel room revenue by total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.
References to RevPAR, ADR and occupancy are presented on a comparable basis and references to RevPAR and ADR are presented on a currency neutral basis, (all periods presentedunless otherwise noted. As such, comparisons of these hotel operating statistics for the
three months ended March 31, 2018 and 2017 use the actual exchange rates for the three and six months ended June 30, 2017, as applicable), unless otherwise noted.March 31, 2018.
EBITDA and Adjusted EBITDA
EBITDA reflects net income (loss) from continuing operations, net of taxes,, excluding interest expense, a provision for income taxes and depreciation and amortization.
Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment ("FF&E") replacement reserves required under certain lease agreements; (v) reorganization costs; (vi) share-based compensation expense; (vii) non-cash impairment losses; (viii) severance, relocation and other expenses; (ix) amortization of contract acquisition costs; (x) the net effect of reimbursable costs included in other revenues and (ix)expenses from managed and franchised properties; and (xi) other items.
Beginning with the three months ended March 31, 2018, we modified the definition of Adjusted EBITDA to also exclude the amortization of contract acquisition costs and the net effect of reimbursable costs included in other revenues and expenses from managed and franchised properties. We believe that excluding these impacts is useful for the reasons set forth below and have applied the modified definition of Adjusted EBITDA to all prior periods.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry. For instance, interest expense and the provision for income taxes are dependent on company specifics, including, among other things, our capital structure and operating jurisdictions, respectively, and, therefore could vary significantly across companies. Depreciation and amortization, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used. For Adjusted EBITDA, we also exclude items such as: (i) share-based compensation expense, as this could vary widely among companies due to the different plans in place and the usage of them; (ii) FF&E replacement reserve to be consistent with the treatment of FF&E for owned and leased hotels where it is capitalized and depreciated over the life of the FF&E; (ii) share-based compensation expense, as this could vary widely among companies due to the different plans in place and the usage of them; (iii) the net effect of our reimbursable revenues and related expenses, as we do not operate the related programs to generate a profit over the term of the respective agreements; and (iv) other items that are not core to our operations and are not reflective of our performance.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are:
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
EBITDA and Adjusted EBITDA do not reflect oura provision for income tax expensetaxes or the cash requirements to pay our taxes;
EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Results of Operations
The hotel operating statistics by region for our system-wide comparable hotels were as follows:
| | | Three Months Ended | | Variance | | Six Months Ended | | Variance | Three Months Ended | | Variance |
| June 30, 2017 | | 2017 vs. 2016 | | June 30, 2017 | | 2017 vs. 2016 | March 31, 2018 | | 2018 vs. 2017 |
U.S. | | | | | | | | | | | | |
Occupancy | 80.3 | % | | (0.5 | )% | pts. | | 76.2 | % | | 0.2 | % | pts. | 72.4 | % | | 1.1 | % | pts. |
ADR | $ | 149.27 |
| | 1.1 | % | | $ | 147.19 |
| | 1.2 | % | | $ | 146.61 |
| | 1.2 | % | |
RevPAR | $ | 119.89 |
| | 0.5 | % | | $ | 112.13 |
| | 1.5 | % | | $ | 106.09 |
| | 2.8 | % | |
| | | | | | | | | | | | |
Americas (excluding U.S.) | | | | | | | | | | | | |
Occupancy | 74.0 | % | | 2.5 | % | pts. | | 70.8 | % | | 2.1 | % | pts. | 67.2 | % | | 2.6 | % | pts. |
ADR | $ | 123.27 |
| | 2.9 | % | | $ | 125.80 |
| | 1.5 | % | | $ | 131.14 |
| | 3.2 | % | |
RevPAR | $ | 91.24 |
| | 6.5 | % | | $ | 89.10 |
| | 4.6 | % | | $ | 88.15 |
| | 7.3 | % | |
| | | | | | | | | | | | |
Europe | | | | | | | | | | | | |
Occupancy | 78.2 | % | | 2.6 | % | pts. | | 73.0 | % | | 3.5 | % | pts. | 70.1 | % | | 3.9 | % | pts. |
ADR | $ | 145.41 |
| | 2.9 | % | | $ | 135.26 |
| | 2.1 | % | | $ | 138.94 |
| | 1.2 | % | |
RevPAR | $ | 113.69 |
| | 6.5 | % | | $ | 98.75 |
| | 7.3 | % | | $ | 97.39 |
| | 7.1 | % | |
| | | | | | | | | | | | |
MEA | | | | | | | | | | | | |
Occupancy | 64.1 | % | | 4.5 | % | pts. | | 65.4 | % | | 3.7 | % | pts. | 73.6 | % | | 5.1 | % | pts. |
ADR | $ | 171.44 |
| | 2.0 | % | | $ | 162.86 |
| | (2.7 | )% | | $ | 156.56 |
| | (2.1 | )% | |
RevPAR | $ | 109.96 |
| | 9.6 | % | | $ | 106.58 |
| | 3.1 | % | | $ | 115.28 |
| | 5.3 | % | |
| | | | | | | | | | | | |
Asia Pacific | | | | | | | | | | | | |
Occupancy | 71.9 | % | | 5.2 | % | pts. | | 70.7 | % | | 5.7 | % | pts. | 70.4 | % | | 5.5 | % | pts. |
ADR | $ | 136.15 |
| | (0.9 | )% | | $ | 138.21 |
| | (2.3 | )% | | $ | 142.39 |
| | 2.3 | % | |
RevPAR | $ | 97.89 |
| | 6.9 | % | | $ | 97.70 |
| | 6.3 | % | | $ | 100.18 |
| | 11.0 | % | |
| | | | | | | | | | | | |
System-wide | | | | | | | | | | | | |
Occupancy | 78.8 | % | | 0.4 | % | pts. | | 74.9 | % | | 1.1 | % | pts. | 71.8 | % | | 1.8 | % | pts. |
ADR | $ | 147.37 |
| | 1.2 | % | | $ | 144.89 |
| | 0.9 | % | | $ | 145.21 |
| | 1.2 | % | |
RevPAR | $ | 116.09 |
| | 1.8 | % | | $ | 108.58 |
| | 2.4 | % | | $ | 104.27 |
| | 3.9 | % | |
During the three months ended June 30, 2017,March 31, 2018, we experienced system-wide RevPAR growth across all regions, particularly in Europe and Asia Pacific, MEA and Europe. EuropePacific. RevPAR growth resultedin Europe was primarily driven by increased demand in Eastern Europe where Turkey continues to lead the region as it recovers from the geopolitical and economic turmoil of 2016, while benefiting from strong demand, particularly in London, as well as several continental European countries.domestic demand. Additionally, RevPAR increasedgrowth in Asia Pacific also due to strong demand growth and in MEA as a result of increased occupancy driven by favorable holiday shifts.
During the six months ended June 30, 2017, we also experienced system-wide RevPAR growth across all regions,was primarily driven by demand growth in occupancy. EuropeChina attributable to the continued stabilization of new hotels. MEA experienced RevPAR growth as a result of demand growthincreased occupancy, particularly in continental Europe, as well as strong ADREgypt and Saudi Arabia, despite minor declines in ADR. Canada was the primary driver of positive performance in the United KingdomAmericas (excluding U.S.), which was largely attributable to increasing leisure travel during the three months ended March 31, 2018. U.S. RevPAR and Ireland. MEA experienced solid occupancy growth as a result of increased demand in Egypt, Saudi Arabia and the United Arab Emirates, while Asia Pacific experienced occupancy growth due to new hotels in the region stabilizing in our system.was driven by strength across all segments, particularly leisure travel.
The table below provides a reconciliation of income from continuing operations, net of taxesincome, to EBITDA and Adjusted EBITDA:
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 |
| (in millions) | (in millions) |
Income from continuing operations, net of taxes | $ | 167 |
| | $ | 100 |
| | $ | 242 |
| | $ | 291 |
| |
Net income | | $ | 163 |
| | $ | 48 |
|
Interest expense | 100 |
| | 99 |
| | 204 |
| | 189 |
| 83 |
| | 89 |
|
Income tax expense (benefit) | 108 |
| | 63 |
| | 143 |
| | (58 | ) | |
Income tax expense | | 58 |
| | 18 |
|
Depreciation and amortization | 87 |
| | 91 |
| | 176 |
| | 183 |
| 82 |
| | 86 |
|
EBITDA | 462 |
| | 353 |
| | 765 |
| | 605 |
| 386 |
| | 241 |
|
Gain on sales of assets, net | — |
| | (1 | ) | | — |
| | (1 | ) | |
Loss (gain) on foreign currency transactions | (5 | ) | | 14 |
| | (1 | ) | | 26 |
| (11 | ) | | 4 |
|
Loss on debt extinguishment | — |
| | — |
| | 60 |
| | — |
| — |
| | 60 |
|
FF&E replacement reserve | 15 |
| | 16 |
| | 21 |
| | 28 |
| 12 |
| | 6 |
|
Share-based compensation expense | 34 |
| | 23 |
| | 59 |
| | 39 |
| 28 |
| | 25 |
|
Impairment loss | — |
| | — |
| | — |
| | 15 |
| |
Amortization of contract acquisition costs | | 7 |
| | 3 |
|
Net other expenses from managed and franchised properties
| | 21 |
| | 45 |
|
Other adjustment items(1) | 13 |
| | 7 |
| | 39 |
| | 15 |
| 2 |
| | 26 |
|
Adjusted EBITDA | $ | 519 |
| | $ | 412 |
| | $ | 943 |
| | $ | 727 |
| $ | 445 |
| | $ | 410 |
|
____________
| |
(1) | Includes adjustments for severance, transaction costs and other items and, for the three and six months ended June 30, 2017, also includes transaction costs.items. |
Revenues
| | | Three Months Ended | | Percent | | Six Months Ended | | Percent | Three Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change | March 31, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 | 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | (in millions) | | (in millions) | |
Franchise fees | $ | 372 |
| | $ | 311 |
| | 19.6 | | $ | 666 |
| | $ | 564 |
| | 18.1 | $ | 331 |
| | $ | 282 |
| | 17.4 |
| | | | | | | | | | | | |
Base and other management fees | $ | 85 |
| | $ | 60 |
| | 41.7 | | $ | 168 |
| | $ | 120 |
| | 40.0 | $ | 77 |
| | $ | 81 |
| | (4.9) |
Incentive management fees | 56 |
| | 33 |
| | 69.7 | | 108 |
| | 69 |
| | 56.5 | 55 |
| | 49 |
| | 12.2 |
Total management fees | $ | 141 |
| | $ | 93 |
| | 51.6 | | $ | 276 |
| | $ | 189 |
| | 46.0 | $ | 132 |
| | $ | 130 |
| | 1.5 |
The increase increases in management and franchise fees during the three and six months ended June 30, 2017 werewas driven by the addition of new managed and franchised properties to our portfolio. portfolio, as well as the increase in RevPAR at our comparable managed and franchised hotels.
Including new development and ownership type transfers, from January 1, 20162017 to June 30, 2017,March 31, 2018, we added 538486 managed and franchised properties on a net basis, providing an additional 103,42594,697 rooms to our managed and franchised segment, including the properties that were owned by Park and managed or franchised by Hilton upon completion of the spin-offs.segment. As new hotels stabilize in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods. Franchise
In addition to new franchised hotels added to the system, franchise fees also increased as a result of an increase in licensing and other fees and an increase in RevPAR at our comparable franchised hotels of $45 million3.1 percent, due to increases in ADR and $68 million during the threeoccupancy of 1.1 percent and six months ended June 30, 2017, respectively, primarily attributable to license fees from HGV recognized during the periods.1.4 percentage points, respectively.
On a comparable basis, ourBase and other management fees increased during the three and six months ended June 30, 2017decreased as a result of increasesa termination fee that was recognized during the three months ended March 31, 2017, partially offset by an increase from the addition of new managed hotels added to our system, as well as a 5.4 percent increase in RevPAR at our comparable managed hotels, due to increases in ADR and occupancy of 3.91.0 percent and 3.3 percent, respectively, primarily due to an3.1 percentage points, respectively. The increase in occupancy of 2.3 percentage points for both periods. On a comparable basis, our franchiseincentive management fees increased duringwas driven by the six months ended June 30, 2017 as a result of an increase in RevPAR at our comparable franchised hotels of 1.8 percent primarily due to an increase in ADR of 1.0 percent.managed hotels.
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percent | | Six Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 |
| 2016 | | 2017 vs. 2016 |
| (in millions) | | | | (in millions) | | |
Owned and leased hotels | $ | 377 |
| | $ | 398 |
| | (5.3) | | $ | 677 |
| | $ | 717 |
| | (5.6) |
|
| | | | | | | | | |
| Three Months Ended | | Percent |
| March 31, | | Change |
| 2018 |
| 2017 | | 2018 vs. 2017 |
| (in millions) | | |
Owned and leased hotels | $ | 334 |
| | $ | 296 |
| | 12.8 |
Owned and leased hotel revenues decreased during the three and six months ended June 30, 2017revenues increased primarily as a result of the effect offavorable foreign currency changes of $26 million and $49 million during the three and six months ended June 30, 2017, respectively.exchange rates, which increased revenues by $29 million. On a currency neutral basis, owned and leased hotel revenues increased $5 million and $9 million during the three and six months ended June 30, 2017, respectively, primarily as a result of increases at our comparable owned and leased hotels of $9 million and $13 million, respectively, due to increasesan increase in RevPAR of 4.35.8 percent, driven by increases in ADR and occupancy of 3.5 percent and 4.5 percent,1.5 percentage points, respectively. TheThis increase was partially offset by a decrease in RevPARrevenues at comparableour non-comparable owned and leased hotels for the three and six months ended June 30, 2017 were driven by increased occupancy and ADR. The increases to comparable owned and leased hotels were partially offset by net decreases of $5 million and$11 million during the three and six months ended June 30, 2017, respectively, from properties opened or disposed between January 1, 2016 and June 30, 2017.hotels.
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percent | | Six Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 |
| (in millions) | | | | (in millions) | | |
Other revenues | $ | 20 |
| | $ | 18 |
| | 11.1 | | $ | 57 |
| | $ | 35 |
| | 62.9 |
|
| | | | | | | | | |
| Three Months Ended | | Percent |
| March 31, | | Change |
| 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | |
Other revenues | $ | 23 |
| | $ | 37 |
| | (37.8) |
Other revenues increased during the six months ended June 30, 2017decreased primarily as a result of a $20 million recovery from the settlement of a claim by Hilton to a third party relating to our defined benefit plans during the period.three months ended March 31, 2017.
Operating Expenses
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percent | | Six Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 |
| (in millions) | | | | (in millions) | | |
Owned and leased hotels | $ | 330 |
| | $ | 349 |
| | (5.4) | | $ | 602 |
| | $ | 656 |
| | (8.2) |
|
| | | | | | | | | |
| Three Months Ended | | Percent |
| March 31, | | Change |
| 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | |
Owned and leased hotels | $ | 320 |
| | $ | 268 |
| | 19.4 |
Owned and leased hotel expenses decreased $19 million during the three months ended June 30, 2017increased primarily as a result of the effect of foreign currency exchange rate changes of $24 million.$27 million. On a currency neutral basis, owned and leased hotel expenses increased $25 million primarily due to increases at our increased $5 million during the three months ended June 30, 2017, resulting from an $11 million increase from comparable hotels, partially offset by a $6 million decrease from non-comparable hotels. The increase in comparable owned and leased hotels expenses was driven by an increase in variable operating costs duerelated to increased occupancy at our comparable owned and leased hotels.occupancy. The decrease in non-comparable owned and leased hotel expensesincrease also included the effect of a $4 million refund of rent related to a lease termination that was recognized during the three months ended June 30, 2017 was primarily attributable to a net decrease of $5 million in expenses from properties opened or disposed between January 1, 2016 and June 30,March 31, 2017.
Owned and leased hotel expenses decreased $54 million during the six months ended June 30, 2017 primarily as a result of the effect of foreign currency changes of $49 million. On a currency neutral basis, owned and leased hotel expenses decreased $5 million during the six months ended June 30, 2017 as a result of a decrease of $17 million from non-comparable owned and leased hotels, partially offset by an increase from comparable hotels of $12 million. The decrease in non-comparable owned and leased hotel expenses was primarily attributable to a net decrease of $16 million in expenses from properties opened or disposed between January 1, 2016 and June 30, 2017. The increase in comparable owned and leased hotel expenses resulted from an increase in variable operating costs due to increased occupancy at our comparable owned and leased hotels.
| | | Three Months Ended | | Percent | | Six Months Ended | | Percent | Three Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change | March 31, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 | 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | | | (in millions) | | (in millions) | |
Depreciation and amortization | $ | 87 |
| | $ | 91 |
| | (4.4) | | $ | 176 |
| | $ | 183 |
| | (3.8) | $ | 82 |
| | $ | 86 |
| | (4.7) |
General and administrative | 117 |
| | 97 |
| | 20.6 | | 222 |
| | 180 |
| | 23.3 | 104 |
| | 106 |
| | (1.9) |
Other expenses | 11 |
| | 11 |
| | — | | 34 |
| | 29 |
| | 17.2 | 14 |
| | 23 |
| | (39.1) |
The decreases in depreciation and amortization expense during the three and six months ended June 30, 2017 were primarily a result of decreases in amortization expense due to certain capitalized software costs being fully amortized between June 30, 2016 and June 30, 2017.
The increasesdecrease in general and administrative expense during the three and six months ended June 30, 2017 wereexpenses was primarily thea result of increases in share-based compensation expense of $9a $5 million and $14 million, respectively, due to an increase in retirement eligible participants, resulting in the acceleration of expense recognition, as well as additional expense from a special equity grant to certain participants in connection with the spin-offs. Additionally, there were $5 million and $15 million in costs associated with the spin-offs incurred during the three and six months ended June 30, 2017, respectively. Costs incurred in 2016 related to the spin-offs are included in discontinued operations. Further, during the six months ended June 30, 2017, there was an increase of $7 milliondecrease in severance costs related to the 2015 sale of the Waldorf Astoria New York.York, as well as a decrease of $10 million in costs associated with the spin-offs. These decreases were partially offset by an increase in payroll and compensation costs, including share-based compensation.
The increase in otherOther expenses during the six months ended June 30, 2017 wasdecreased primarily as a result of costs relating to the settlement of the claim relating to our defined benefit plans.plans that were recognized during the three months ended March 31, 2017.
Non-operating Income and Expenses
| | | Three Months Ended | | Percent | | Six Months Ended | | Percent | Three Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change | March 31, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 | 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | | | (in millions) | | | (in millions) | | |
Interest expense | $ | (100 | ) | | $ | (99 | ) | | 1.0 | | $ | (204 | ) | | $ | (189 | ) | | 7.9 | $ | (83 | ) | | $ | (89 | ) | | (6.7) |
Gain (loss) on foreign currency transactions | 5 |
| | (14 | ) | | NM(1) | | 1 |
| | (26 | ) | | NM(1) | 11 |
| | (4 | ) | | NM(1) |
Loss on debt extinguishment | — |
| | — |
| | NM(1) | | (60 | ) | | — |
| | NM(1) | — |
| | (60 | ) | | NM(1) |
Other non-operating income, net | 5 |
| | 3 |
| | 66.7 | | 6 |
| | 5 |
| | 20.0 | 14 |
| | 2 |
| | NM(1) |
Income tax benefit (expense) | (108 | ) | | (63 | ) | | 71.4 | | (143 | ) | | 58 |
| | NM(1) | |
Income tax expense | | (58 | ) | | (18 | ) | | NM(1) |
____________
| |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The increasesdecrease in interest expense duringwas primarily due to a decrease in our weighted average interest rate as a result of the three and six months ended June 30,March 2017 were primarilyrepayment of the 2021 Senior Notes, largely offset by increased interest expense due to the issuances of the 2025 Senior Notes and the 2027 Senior Notes in March 2017 and the 2024 Senior Notes in August 2016, as well as the reclassification of losses from accumulated other comprehensive loss related to the dedesignation of the 2013 Interest Rate Swaps. These increases were largely offset by decreases in interest expense due to the March 2017 repayment of the 2021 Senior Notes and the refinancing of the Term Loans in March 2017, which reduced the interest rate on these instruments.2017. See Note 6: "Debt" and Note 7: "Derivative Instruments and Hedging Activities" in our unaudited condensed consolidated financial statements for additional details.information.
The gains and losses on foreign currency transactions primarily related to changes in foreign currency exchange rates on our short-term cross-currency intercompany loans for allboth periods. During the three and six months ended June 30,March 31, 2018 and 2017, the changes were predominantly for loans denominated in the British pound, euro and the British pound ("GBP") and, for the six months ended June 30, 2017, also for loans denominated in the Australian dollar ("AUD"). During the three and six months ended June 30, 2016, the changes were predominantly for loans denominated in AUD, GBP and the Brazilian real.dollar.
The loss on debt extinguishment related to the repayment of the 2021 Senior Notes and included a redemption premium of $42 million and the accelerated recognition of $18 million of unamortized debt issuance costs during the sixthree months ended June 30,March 31, 2017.
Other non-operating income, net for the three months ended March 31, 2018 included a $6 million gain on the refinancing of a loan that financed the construction of a hotel that we manage.
Income tax expense increased for the three and six months ended June 30, 2017March 31, 2018 primarily as a result of increasedthe increase in income from continuing operations before income taxes, and a net reductionpartially offset by the decrease in our unrecognizedthe annual effective tax benefits of $155 million inrate due to the
prior year, respectively. TCJ Act. See Note 9: "Income Taxes" in our unaudited condensed consolidated financial statements for additional information.
Segment Results
We evaluate our business segment operating performance using operating income, as described inincome. Refer to Note 13: "Business Segments" in our unaudited condensed consolidated financial statements. Refer to those financial statements for a reconciliation of segment operating income to income from continuing operations before income taxes.taxes and additional information on the evaluation of the performance of our segments using operating income. The following table sets forth revenues and operating income by segment:
| | | Three Months Ended | | Percent | | Six Months Ended | | Percent | Three Months Ended | | Percent |
| June 30, | | Change | | June 30, | | Change | March 31, | | Change |
| 2017 | | 2016 | | 2017 vs. 2016 | | 2017 | | 2016 | | 2017 vs. 2016 | 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | (in millions) | | (in millions) | |
Revenues: | | | | | | | | | | | | |
Management and franchise(1) | $ | 523 |
| | $ | 416 |
| | 25.7 | | $ | 959 |
| | $ | 773 |
| | 24.1 | 478 |
| | 422 |
| | 13.3 |
Ownership | 377 |
| | 398 |
| | (5.3) | | 677 |
| | 717 |
| | (5.6) | 334 |
| | 296 |
| | 12.8 |
Segment revenues | 900 |
| | 814 |
| | 10.6 | | 1,636 |
| | 1,490 |
| | 9.8 | 812 |
| | 718 |
| | 13.1 |
Amortization of contract acquisition costs | | (7 | ) | | (3 | ) | | NM(2) |
Other revenues | 20 |
| | 18 |
| | 11.1 | | 57 |
| | 35 |
| | 62.9 | 23 |
| | 37 |
| | (37.8) |
Other revenues from managed and franchised properties | 1,436 |
| | 1,130 |
| | 27.1 | | 2,831 |
| | 2,171 |
| | 30.4 | 1,254 |
| | 1,151 |
| | 8.9 |
Intersegment fees elimination(1) | (10 | ) | | (12 | ) | | (16.7) | | (17 | ) | | (20 | ) | | (15.0) | (8 | ) | | (7 | ) | | 14.3 |
Total revenues | $ | 2,346 |
| | $ | 1,950 |
| | 20.3 | | $ | 4,507 |
| | $ | 3,676 |
| | 22.6 | $ | 2,074 |
| | $ | 1,896 |
| | 9.4 |
| | | | | | | | | | | | |
Operating Income(1): | | | | | | | | | | | | |
Management and franchise | $ | 523 |
| | $ | 416 |
| | 25.7 | | $ | 959 |
| | $ | 773 |
| | 24.1 | $ | 478 |
| | $ | 422 |
| | 13.3 |
Ownership | 37 |
| | 37 |
| | — | | 58 |
| | 41 |
| | 41.5 | 6 |
| | 21 |
| | (71.4) |
Segment operating income | $ | 560 |
| | $ | 453 |
| | 23.6 | | $ | 1,017 |
| | $ | 814 |
| | 24.9 | $ | 484 |
| | $ | 443 |
| | 9.3 |
____________
| |
(1) | Includes management, royalty and intellectual propertyIP fees charged to our ownership segment by our management and franchise segment, which were eliminated in our unaudited condensed consolidated statements of operations. |
| |
(2) | Fluctuation in terms of percentage change is not meaningful. |
Management and franchise segment revenues and operating income increased during the three and six months ended June 30, 2017$56 million as a result of the net addition of managed and franchised hotels to our managedsystem, an increase in licensing and franchised systemother fees and increases an increase in RevPAR at our comparable managed and franchised properties of 1.7 percent and 2.3 percent, respectively.3.8 percent. Refer to "—Revenues" for further discussion of the increases in revenues from our managed and franchised properties.
Ownership segment revenues decreased $21increased $38 million and $40 million during the three and six months ended June 30, 2017, respectively, as a result of decreasesan increase in owned and leased hotel revenues, which werewas primarily attributable to favorable foreign currency changes.exchange rates and the increase in revenue at our comparable owned and leased hotels due to an increase in RevPAR of 5.8 percent. Ownership operating income was unchanged for the three months ended June 30, 2017decreased $15 million as a result of the decreaseincrease in segment revenues being almost entirelyoperating expenses at owned and leased hotels, only partially offset by the decreaseincrease in operating expenses from owned and leased hotels. Ownership operating income increased $17 million for the six months ended June 30, 2017 primarily as a result of the decrease in owned and leased hotel operating expenses of $54 million, partially offset by the decrease in ownership segment revenues. Refer to "—Revenues" and "—Operating Expenses" for further discussion of the changes in revenues and operating expenses at our owned and leased hotels.
Liquidity and Capital Resources
Overview
As of June 30, 2017,March 31, 2018, we had total cash and cash equivalents of $909$683 million, including $125$73 million of restricted cash and cash equivalents. The majority of our restricted cash and cash equivalents balance related to cash collateral on our self-insurance programs.
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including corporate expenses, payroll and related benefits, legal costs, costs associated with the management and franchising of hotels, corporate expenses, payroll and related benefits, legal costs, interest and scheduled principal payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for renovations and maintenance inat the hotels within our ownership segment. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements into the hotels
within our ownership segment, commitments to owners in our management and franchise segment, dividends as declared, share repurchases and corporate capital and information technology expenditures.
We finance our business activities primarily with existing cash and cash generated from our operations. We believe that this cash will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, legal costs and other commitments for the foreseeable future. The objectives of our cash management policy are to maintain the availability of liquidity and minimize operational costs. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders.stockholders through dividends and share repurchases.
We and our affiliates may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
In February 2017, our board of directors authorized a stock repurchase program of up to $1 billion of the Company's common stock. During the sixthree months ended June 30, 2017,March 31, 2018, we repurchased $3521.3 million shares of our common stock under the program,for $110 million. In April 2018, we repurchased from HNA an additional 16.5 million shares for $1,171 million in connection with HNA's sale of all of our common stock it owned. We funded this repurchase with additional borrowings and as of June 30, 2017, $648 million remained available cash. See Note 16: "Subsequent Events" in our unaudited condensed consolidated financial statements for share repurchases. The repurchase program does not have an expiration date and may be suspended or discontinued at any time.additional information.
Sources and Uses of Our Cash and Cash Equivalents
The following table summarizes our net cash flows:
| | | Six Months Ended June 30, | | Percent Change | Three Months Ended March 31, | | Percent Change |
| 2017 | | 2016(1) | | 2017 vs. 2016 | 2018 | | 2017 | | 2018 vs. 2017 |
| (in millions) | | (in millions) | |
Net cash provided by operating activities | $ | 376 |
| | $ | 674 |
| | (44.2) | $ | 243 |
| | $ | 50 |
| | NM(1) |
Net cash used in investing activities | (97 | ) | | (236 | ) | | (58.9) | (26 | ) | | (37 | ) | | (29.7) |
Net cash used in financing activities | (1,061 | ) | | (219 | ) | | NM(2) | (211 | ) | | (716 | ) | | (70.5) |
____________
| |
(1) | Includes the cash flows from operating activities, investing activities and financing activities of Hilton, Park and HGV. |
| |
(2)
| Fluctuation in terms of percentage change is not meaningful. |
As of June 30, 2017 and December 31, 2016, our working capital surplus, which is calculated as current assets less current liabilities excluding assets and liabilities of discontinued operations, was $10 million and $169 million, respectively, and our ratio of current assets to current liabilities was 1.01 and 1.09, respectively.
Operating Activities
Cash flowflows from operating activities iswere primarily generated from management and franchise fee revenue and operating income from our owned and leased hotels and, for the six months ended June 30, 2016, sales of timeshare units.hotels.
The $298$193 million decreaseincrease in net cash provided by operating activities was primarily a result of a decreaseimproved operating results in operating income from our ownedmanagement and leased propertiesfranchise business. Additionally, we incur contract acquisition costs to incentivize hotel owners to enter into management and sales of timeshare units as a result of the spin-offs.franchise contracts with us.
Investing Activities
For the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, net cash used in investing activities was $97 million and $236 million, respectively, and consisted primarily of capital expenditures including contract acquisition costsfor property and equipment and capitalized software costs. Our capital expenditures for property and equipment primarily consisted of expenditures related to our corporate facilities and the renovation of hotels in our ownership segment including those owned by Park following completion of the spin-offs for the six months ended June 30, 2016.and our corporate facilities. Our capitalized software costs related to various systems initiatives for the benefit of our hotel owners and our overall corporate operations.
Financing Activities
The $842$505 million increasedecrease in net cash used in financing activities was primarily as a resultattributable to the transfer of cash transferred in connection with the spin-offs.spin-offs during the three months ended March 31, 2017. In addition, during the sixthree months ended June 30,March 31, 2017, we issuedreceived $1.5 billion in proceeds from the issuance of the 2025 Senior Notes and the 2027
Senior Notes, and received proceeds of $1.5 billion, which we used with available cash to repay in full our 2021 Senior Notes, including a redemption premium of $42 million. We alsoThese decreases were partially offset by $157 million of capital returned additional capital to our stockholders, of $312 million, includingwhich includes dividends and share repurchases, during the sixthree months ended June 30, 2017March 31, 2018 compared to $119 million during the sixthree months ended June 30, 2016.March 31, 2017.
Debt and Borrowing Capacity
As of June 30, 2017,March 31, 2018, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $6.7 billion. In April 2018, we issued $1.5 billion in senior notes and used a portion of the net proceeds to repay approximately $500 million of our Term Loans. For furtheradditional information on our total indebtedness, recent financing transactions,debt issuances and repayments, availability under our credit facility and guarantees on our debt, refer to Note 6: "Debt""Debt," Note 15: "Condensed Consolidating Guarantor Financial Information" and Note 16: "Subsequent Events" in our unaudited condensed consolidated financial statements.
If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures, issue additional equity securities or draw on our Revolving Credit Facility.senior secured revolving credit facility. Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that aremay be beyond our control.
Off-Balance Sheet Arrangements
See Note 14: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our CurrentAnnual Report on Form 8-K dated May 24, 2017, which presents Hilton's consolidated financial position and results of operations as of and10-K for the fiscal year ended December 31, 2016, giving effect to the spin-offs.2017. Since the date of our CurrentAnnual Report on Form 8-K, there have been no10-K, we adopted ASU 2014-09, which has changed our critical accounting policies and estimates related to Hilton Honors. See Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our unaudited condensed consolidated financial statements for additional information.
Hilton Honors
Hilton Honors records a point redemption liability for amounts received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that require judgment, including an estimate of "breakage" (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of the points to be redeemed. The cost of the points to be redeemed includes further estimates of available room nights, occupancy rates, room rates and any devaluation or appreciation of points based on changes in reward prices or changes in points earned per stay. Any amounts received from participating hotels and program partners in excess of the actuarial determined cost per point are recorded as deferred revenues and recognized as revenue upon point redemption.
In addition to the Hilton Honors fees we receive from hotel owners to operate the program, we earn fees from co-brand credit card arrangements for the use of our IP license and the issuance of Hilton Honors points. The allocation of the overall fees from the co-brand credit card arrangements between the IP license and the Hilton Honors points is based on their estimated standalone selling prices. The estimated standalone selling price of the IP license is determined using a relief-from-royalty method using statistical formulas based on factors that require significant judgment, including estimates of credit card usage, an appropriate royalty rate and a discount rate to be applied to the projected cash flows. The estimated standalone selling price of the future reward redemptions under the co-brand credit card arrangements is calculated using a discounted cash flow analysis with the same assumptions related to the point redemption liability as discussed above, adjusted for an appropriate margin.
As of March 31, 2018, we had a guest loyalty program liability of $1,533 million, including $692 million reflected as a current liability, and deferred revenues of $535 million, including $218 million reflected as a current liability. Changes in the estimates used in developing our breakage rate or other expected future program operations could result in material changes to our critical accounting policies or the methods or assumptions we apply under them.guest loyalty program liability and deferred revenues.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may affect future income, cash flows and the fair value of the Company.Company, depending on changes to interest rates or foreign currency
exchange rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent that they are not hedged. We enter into derivative financial arrangements to the extent they meet the objectiveobjectives described above and we do not use derivatives for trading or speculative purposes. See Note 7: "Derivative Instruments and Hedging Activities" in our unaudited condensed consolidated financial statements for additional information. Our exposure to market risk has not materially changed from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, including after giving effect to the spin-offs.2017.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission ("SEC") rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various claims and lawsuits arising in the normalordinary course of business, some of which include claims for substantial sums, including proceedings involving tort and other general liability claims, employee claims, consumer protection claims and claims related to our management of certain hotel properties. We recognize a liability when we believe the loss is probable and can be reasonably estimated. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. The ultimate results of claims and litigation cannot be predicted with certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity.cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.
Item 1A. Risk Factors
As of June 30, 2017,March 31, 2018, there have been no material changes from the risk factors previously disclosed in response to "Part I —Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Securities
None.
(b) Use of Proceeds
None.
(c) Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of our common stock during the three months ended June 30, 2017:March 31, 2018:
|
| | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(2) (in millions) |
April 1, 2017 to April 30, 2017 | 927,000 |
| | $ | 57.56 |
| | 927,000 |
| | $ | 877 |
|
May 1, 2017 to May 31, 2017 | 1,675,678 |
| | 63.44 |
| | 1,675,678 |
| | 770 |
|
June 1, 2017 to June 30, 2017 | 1,855,379 |
| | 66.07 |
| | 1,855,379 |
| | 648 |
|
Total | 4,458,057 |
| | 63.31 |
| | 4,458,057 |
| |
|
|
| | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(2) (in millions) |
January 1, 2018 to January 31, 2018 | 1,094,564 |
| | $ | 84.19 |
| | 1,094,564 |
| | $ | 1,017 |
|
February 1, 2018 to February 28, 2018 | 214,763 |
| | 83.13 |
| | 214,763 |
| | 999 |
|
March 1, 2018 to March 31, 2018 | — |
| | — |
| | — |
| | 999 |
|
Total | 1,309,327 |
| | 84.01 |
| | 1,309,327 |
| |
|
____________
| |
(1) | This price includes per share commissions paid for all share repurchases.repurchases made under the Company's share repurchase program. |
| |
(2) | In FebruaryDuring 2017, our board of directors authorized a stock repurchase programrepurchases of up to $1.0$2.0 billion of the Company's common stock. Under this publicly announced repurchase program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The repurchase program does not have an expiration date and may be suspended or discontinued at any time. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
As of July 24, 2017, the roles and responsibilities of James E. Holthouser were modified such that Mr. Holthouser is no longer an "executive officer" of the Company within the meaning of Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended. Mr. Holthouser remains employed by the Company.
None.
Item 6. Exhibits
|
| | |
Exhibit Number | | Exhibit Description |
3.1 | | |
3.2 | | |
3.3 | | |
4.1 | | |
4.2 | | |
4.3 | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.2 | | Form of Deferred Share Unit Agreement for Independent Directors.* |
10.3 | | Share Repurchase Agreement, dated June 6, 2017, by and among Hilton Worldwide Holdings Inc. and each of the entities identified on Schedule 1 thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-36243) filed on June 12, 2017). |
12 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | XBRL Instance Document. |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
____________
| |
* | This document has been identified as a management contract or compensatory plan or arrangement. |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents
were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
HILTON WORLDWIDE HOLDINGS INC. |
| | |
By: | | /s/ Christopher J. Nassetta |
Name: | | Christopher J. Nassetta |
| | President and Chief Executive Officer |
| | |
By: | | /s/ Kevin J. Jacobs |
Name: | | Kevin J. Jacobs |
| | Executive Vice President and Chief Financial Officer |
Date: JulyApril 26, 20172018