Company Quick10K Filing
Quick10K
Hilton Worldwide Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$91.14 291 $26,530
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-10 Other Events
8-K 2019-06-05 Enter Agreement, Exhibits
8-K 2019-05-13 Officers, Shareholder Vote, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-08-03 Officers
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-10 Shareholder Vote, Other Events
8-K 2018-04-19 Enter Agreement, Other Events, Exhibits
8-K 2018-04-10 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-04-09 Enter Agreement, Earnings, Officers, Exhibits
PYPL PayPal 128,930
CELG Celgene 67,330
SIX Six Flags Entertainment 4,650
ALEC Alector 1,370
EQBK Equity Bancshares 427
DGICA Donegal Group 398
RAND Rand Capital 19
NSPR Inspiremd 6
TKOI Telkonet 0
PBSV Pharma-Bio Serv 0
HLT 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1: Organization
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Note 3: Revenues From Contracts with Customers
Note 4: Consolidated Variable Interest Entities
Note 5: Amortizing Intangible Assets
Note 6: Debt
Note 7: Fair Value Measurements
Note 8: Leases
Note 9: Income Taxes
Note 10: Share-Based Compensation
Note 11: Earnings per Share
Note 12: Stockholders' Equity and Accumulated Other Comprehensive Loss
Note 13: Business Segments
Note 14: Commitments and Contingencies
Note 15: Condensed Consolidating Guarantor Financial Information
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
Part II. Other Information
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
EX-4.1 sixthsupplementalindenture.htm
EX-4.2 secondsupplementalindenture.htm
EX-4.3 firstsupplementalindenture.htm
EX-10.1 a2019performanceebtidagree.htm
EX-10.2 a2019performancefcfagreeme.htm
EX-10.3 a2019rsuagreement.htm
EX-10.4 a2019optionagreement.htm
EX-31.1 q12019ceocertification_311.htm
EX-31.2 q12019cfocertification_312.htm
EX-32.1 q12019ceocertification_321.htm
EX-32.2 q12019cfocertification_322.htm

Hilton Worldwide Holdings Earnings 2019-03-31

HLT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 q12019hwhfsandmda.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨
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)
Delaware
 
27-4384691
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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:

Large accelerated filer x
 
Accelerated filer ¨
Non-accelerated filer ¨
 
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 April 24, 2019 was 291,062,641.




HILTON WORLDWIDE HOLDINGS INC.
FORM 10-Q TABLE OF CONTENTS

 
 
Page No.
PART I
FINANCIAL INFORMATION
 
 
 
 
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
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
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


1



PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
 
March 31,
 
December 31,
2019
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
382

 
$
403

Restricted cash and cash equivalents
79

 
81

Accounts receivable, net of allowance for doubtful accounts of $43 and $42
1,102

 
1,150

Prepaid expenses
140

 
160

Other
173

 
189

Total current assets (variable interest entities  $84 and $90)
1,876

 
1,983

Intangibles and Other Assets:
 
 
 
Goodwill
5,162

 
5,160

Brands
4,872

 
4,869

Management and franchise contracts, net
841

 
872

Other intangible assets, net
408

 
415

Operating lease right-of-use assets
916

 

Property and equipment, net
412

 
367

Deferred income tax assets
146

 
90

Other
220

 
239

Total intangibles and other assets (variable interest entities  $179 and $178)
12,977

 
12,012

TOTAL ASSETS
$
14,853

 
$
13,995

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable, accrued expenses and other
$
1,679

 
$
1,549

Current maturities of long-term debt
35

 
16

Current portion of deferred revenues
323

 
350

Current portion of liability for guest loyalty program
757

 
700

Total current liabilities (variable interest entities  $55 and $56)
2,794

 
2,615

Long-term debt
7,330

 
7,266

Operating lease liabilities
1,103

 

Deferred revenues
830

 
826

Deferred income tax liabilities
850

 
898

Liability for guest loyalty program
987

 
969

Other
851

 
863

Total liabilities (variable interest entities  $257 and $263)
14,745

 
13,437

Commitments and contingencies - see Note 14


 


Equity:
 
 
 
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of March 31, 2019 and December 31, 2018

 

Common stock, $0.01 par value; 10,000,000,000 authorized shares, 332,869,893 issued and 291,720,450 outstanding as of March 31, 2019 and 332,105,163 issued and 294,815,890 outstanding as of December 31, 2018
3

 
3

Treasury stock, at cost; 41,149,443 shares as of March 31, 2019 and 37,289,273 shares as of December 31, 2018
(2,921
)
 
(2,625
)
Additional paid-in capital
10,374

 
10,372

Accumulated deficit
(6,558
)
 
(6,417
)
Accumulated other comprehensive loss
(798
)
 
(782
)
Total Hilton stockholders' equity
100

 
551

Noncontrolling interests
8

 
7

Total equity
108

 
558

TOTAL LIABILITIES AND EQUITY
$
14,853

 
$
13,995


See notes to condensed consolidated financial statements.

2



HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues
 
 
 
Franchise and licensing fees

$
382

 
$
331

Base and other management fees
80

 
77

Incentive management fees
55

 
55

Owned and leased hotels
312

 
334

Other revenues
26

 
23

 
855

 
820

Other revenues from managed and franchised properties
1,349

 
1,254

Total revenues
2,204

 
2,074

 
 
 
 
Expenses
 
 
 
Owned and leased hotels
298

 
320

Depreciation and amortization
84

 
82

General and administrative
107

 
104

Other expenses
20

 
14

 
509

 
520

Other expenses from managed and franchised properties
1,383

 
1,275

Total expenses
1,892

 
1,795

 
 
 
 
Operating income
312

 
279

 
 
 
 
Interest expense
(98
)
 
(83
)
Gain on foreign currency transactions

 
11

Other non-operating income, net
4

 
14


 
 
 
Income before income taxes
218

 
221

 
 
 
 
Income tax expense
(59
)
 
(58
)
 
 
 
 
Net income
159

 
163

Net income attributable to noncontrolling interests
(1
)
 
(2
)
Net income attributable to Hilton stockholders
$
158

 
$
161

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.54

 
$
0.51

Diluted
$
0.54

 
$
0.51

 
 
 
 
Cash dividends declared per share
$
0.15

 
$
0.15


See notes to condensed consolidated financial statements.

3



HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Net income
$
159

 
$
163

Other comprehensive income (loss), net of tax benefit (expense):
 
 
 
Currency translation adjustment, net of tax of $(8) and $1
(3
)
 
32

Pension liability adjustment, net of tax of $(1) and $—
2

 
1

Cash flow hedge adjustment, net of tax of $5 and $(10)
(15
)
 
28

Total other comprehensive income (loss)
(16
)
 
61

 
 
 
 
Comprehensive income
143

 
224

Comprehensive income attributable to noncontrolling interests
(1
)
 
(2
)
Comprehensive income attributable to Hilton stockholders
$
142

 
$
222


See notes to condensed consolidated financial statements.

4



HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Operating Activities:
 
 
 
Net income
$
159

 
$
163

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of contract acquisition costs
7

 
7

Depreciation and amortization
84

 
82

Gain on foreign currency transactions

 
(11
)
Share-based compensation
34

 
28

Deferred income taxes
(26
)
 
(37
)
Contract acquisition costs
(15
)
 
(14
)
Working capital changes and other
121

 
25

Net cash provided by operating activities
364

 
243

Investing Activities:
 
 
 
Capital expenditures for property and equipment
(23
)
 
(10
)
Capitalized software costs
(19
)
 
(15
)
Other
(2
)
 
(1
)
Net cash used in investing activities
(44
)
 
(26
)
Financing Activities:
 
 
 
Borrowings
375

 

Repayment of debt
(336
)
 
(14
)
Dividends paid
(44
)
 
(47
)
Repurchases of common stock
(296
)
 
(110
)
Tax withholdings on share-based compensation
(42
)
 
(40
)
Net cash used in financing activities
(343
)
 
(211
)
 
 
 
 
Effect of exchange rate changes on cash, restricted cash and cash equivalents

 
7

Net increase (decrease) in cash, restricted cash and cash equivalents
(23
)
 
13

Cash, restricted cash and cash equivalents, beginning of period
484

 
670

Cash, restricted cash and cash equivalents, end of period
$
461

 
$
683

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid during the year:
 
 
 
Interest
$
71

 
$
72

Income taxes, net of refunds
13

 
9


See notes to condensed consolidated financial statements.

5



HILTON WORLDWIDE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1: Organization

Hilton Worldwide Holdings Inc. (the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts and licensing its brands and intellectual property ("IP"). As of March 31, 2019, we managed, franchised, owned or leased 5,757 hotels and resorts, including timeshare properties, totaling 923,110 rooms in 113 countries and territories.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements for the three months ended March 31, 2019 and 2018 have been prepared in accordance with United States ("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 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Certain prior year amounts in our condensed consolidated balance sheets have been reclassified to conform to current year presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Additionally, interim results are not necessarily indicative of full year performance. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.

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, 2018. On January 1, 2019, we adopted the requirements of Accounting Standards Update ("ASU") No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), and the significant accounting policies that changed as a result of the adoption are set forth below.

Leases

We determine if a contract is or contains a lease at the inception of the contract, and we classify that lease as a finance lease if it meets certain criteria or as an operating lease when it does not. We reassess if a contract is or contains a leasing arrangement upon modification of the contract. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted.

At the commencement date of a lease, we recognize a lease liability for future fixed lease payments and a right-of-use ("ROU") asset representing our right to use the underlying asset during the lease term. The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term. The lease term includes lessee options to extend the lease and periods occurring after a lessee early termination option, only to the extent it is reasonably certain that we will exercise such extension options and not exercise such early termination options, respectively. The future fixed lease payments are discounted using the rate implicit in the lease, if available, or our incremental borrowing rate. Our incremental borrowing rate is estimated on a portfolio basis and incorporates lease term, currency risk, credit risk and an adjustment for collateral. Upon adoption of ASU 2016-02, we elected to use the remaining lease term as of January 1, 2019 in our estimation of the applicable discount rate for leases that were in place at adoption. For the initial measurement of the lease liability for leases commencing after January 1, 2019, we use the discount rate as of the commencement date of the lease, incorporating the entire lease term. Additionally, we elected not to recognize leases with lease terms of 12 months or less at the commencement date in our consolidated balance sheets. Current maturities and long-term portions of operating lease liabilities are classified as accounts payable, accrued expenses and other and operating lease liabilities, respectively, and current maturities and long-term portions of finance lease liabilities are classified as current maturities of long-term debt and long-term debt, respectively, in our consolidated balance sheets.

6



The ROU asset is measured at the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by us and lease incentives. We evaluate the carrying value of ROU assets if there are indicators of impairment, and we perform the analysis with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, we record an impairment loss in our consolidated statements of operations. ROU assets of operating leases are classified as operating lease right-of-use assets and ROU assets of finance leases are classified as property and equipment, net in our consolidated balance sheets.

Our operating leases require: (i) fixed lease payments, or minimum payments, as contractually stated in the lease agreement; (ii) variable lease payments, which, for our hotels, are generally based on a percentage of the underlying asset's revenues or are dependent on changes in an index; or (iii) lease payments equal to the greater of the fixed or variable lease payments. In addition, we may be required to pay some, or all, of the capital costs for furniture, equipment and leasehold improvements in a hotel property that we lease during the term of the lease. For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term and lease expense relating to variable payments is expensed as incurred, with amounts recognized in owned and leased hotel expenses and general and administrative expenses in our consolidated statements of operations. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset within depreciation and amortization expense and other expenses from managed and franchised properties in our consolidated statements of operations. The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statements of operations.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-15 ("ASU 2018-15"), Intangibles – Goodwill and Other – Internal-use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns guidance for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with guidance for capitalizing implementation costs to develop or obtain internal-use software. Capitalized implementation costs will be amortized over the term of the arrangement and presented in the same line item in the statement of operations as the fees associated with the service contract. We elected, as permitted by the standard, to early adopt ASU 2018-05 on a prospective basis as of January 1, 2019. The adoption did not have a material effect on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, 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 of lessees as ROU assets and lease liabilities, with certain practical expedients available. Subsequent to ASU 2016-02, the FASB issued related ASUs, including ASU No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, which provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative adjustment to the opening balance of retained earnings in the period of adoption.

As described above, we adopted ASU 2016-02 on January 1, 2019 and applied the package of practical expedients included therein, as well as utilized the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the presentation of financial information for periods prior to January 1, 2019 remain unchanged and in accordance with Leases (Topic 840). On January 1, 2019, we recognized a $256 million cumulative adjustment to accumulated deficit, net of taxes of $81 million related to a decrease to our deferred liability, as a result of the impairment of ROU assets that occurred in periods prior to the adoption date.


7



Note 3: Revenues from Contracts with Customers

Contract Liabilities

The following table summarizes the activity of our contract liabilities, which are classified as a component of current and long-term deferred revenues, during the three months ended March 31, 2019:
 
(in millions)
Balance as of December 31, 2018
$
1,060

Cash received in advance and not recognized as revenue(1)
106

Revenue recognized(1)
(57
)
Other(2)
(46
)
Balance as of March 31, 2019
$
1,063

____________
(1) 
Primarily related to Hilton Honors, our guest loyalty program.
(2) 
Primarily the result of changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors, which had no effect on revenues.

We recognized revenues that were previously deferred as contract liabilities of $60 million during the three months ended March 31, 2018.

Performance Obligations

As of March 31, 2019, we had $459 million of deferred revenues related to unsatisfied performance obligations related to Hilton Honors that will be recognized as revenues when the points are redeemed, which we estimate will occur over the next two years. Additionally, we had $604 million of deferred revenues related to application, initiation and licensing fees, which are expected to be recognized as revenues in future periods over the terms of the related contracts.

Note 4: Consolidated Variable Interest Entities

As of March 31, 2019 and December 31, 2018, we consolidated three variable interest entities ("VIEs"): two entities that lease hotel properties and one management company. We consolidated these VIEs, since we are the primary beneficiaries of them 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:
 
March 31,
 
December 31,
 
2019
 
2018
 
(in millions)
Cash and cash equivalents
$
66

 
$
71

Property and equipment, net
69

 
68

Deferred income tax assets
52

 
53

Other non-current assets
58

 
58

Accounts payable, accrued expenses and other
41

 
41

Long-term debt(1)
201

 
205

Other long-term liabilities
15

 
15

____________
(1) 
Includes finance lease liabilities of $183 million and $187 million as of March 31, 2019 and December 31, 2018, respectively.

During the three months ended March 31, 2019 and 2018, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide.


8



Note 5: Amortizing Intangible Assets

Amortizing intangible assets were as follows:
 
March 31, 2019
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
(in millions)
Management and franchise contracts:
 
 
 
 
 
Management and franchise contracts recorded at Merger(1)
$
2,231

 
$
(1,917
)
 
$
314

Contract acquisition costs
542

 
(108
)
 
434

Development commissions
109

 
(16
)
 
93

 
$
2,882

 
$
(2,041
)
 
$
841

 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
Leases(1)
$
290

 
$
(165
)
 
$
125

Capitalized software costs
522

 
(339
)
 
183

Hilton Honors(1)
338

 
(242
)
 
96

Other(1)
38

 
(34
)
 
4

 
$
1,188

 
$
(780
)
 
$
408


 
December 31, 2018
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
(in millions)
Management and franchise contracts:
 
 
 
 
 
Management and franchise contracts recorded at Merger(1)
$
2,228

 
$
(1,873
)
 
$
355

Contract acquisition costs
525

 
(101
)
 
424

Development commissions
108

 
(15
)
 
93

 
$
2,861

 
$
(1,989
)
 
$
872

 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
Leases(1)
$
288

 
$
(161
)
 
$
127

Capitalized software costs
503

 
(321
)
 
182

Hilton Honors(1)
338

 
(236
)
 
102

Other(1)
38

 
(34
)
 
4

 
$
1,167

 
$
(752
)
 
$
415

____________
(1) 
Represents intangible assets that were initially recorded at their fair value as part of the October 24, 2007 transaction whereby we became a wholly owned subsidiary of affiliates of The Blackstone Group L.P (the "Merger").

Amortization of our amortizing intangible assets was as follows:
 
Three Months Ended
 
March 31,
 
2019
 
2018
 
(in millions)
Recognized in depreciation and amortization expense(1)
$
70

 
$
69

Recognized as a reduction of franchise and licensing fees and base and other management fees
7

 
7

____________
(1) 
Includes amortization expense of $51 million for the three months ended March 31, 2019 and 2018 associated with assets that were initially recorded at their fair value at the time of the Merger.


9



We estimate future amortization of our amortizing intangible assets as of March 31, 2019 to be as follows:
 
Recognized in Depreciation and Amortization Expense
 
Recognized as a Reduction of Franchise and Licensing Fees and Base and Other Management Fees
Year
(in millions)
2019 (remaining)
$
212

 
$
20

2020
240

 
25

2021
102

 
25

2022
71

 
23

2023
52

 
22

Thereafter
138

 
319

 
$
815

 
$
434


Note 6: Debt

Long-term debt balances, including obligations for finance leases, and associated interest rates as of March 31, 2019, were as follows:

March 31,
 
December 31,

2019
 
2018

(in millions)
Senior notes with a rate of 4.250%, due 2024
$
1,000

 
$
1,000

Senior notes with a rate of 4.625%, due 2025
900

 
900

Senior notes with a rate of 5.125%, due 2026
1,500

 
1,500

Senior notes with a rate of 4.875%, due 2027
600

 
600

Senior secured revolving credit facility with a rate of 3.98%, due 2021
50

 

Senior secured term loan facility with a rate of 4.24%, due 2023
3,119

 
3,119

Finance lease liabilities with an average rate of 5.84%, due 2019 to 2030
255

 
225

Other debt with a rate of 3.08% due 2026
17

 
17


7,441

 
7,361

Less: unamortized deferred financing costs and discount
(76
)
 
(79
)
Less: current maturities of long-term debt(1)
(35
)
 
(16
)

$
7,330

 
$
7,266

____________
(1) 
Represents current maturities of finance lease liabilities.

The 4.250% Senior Notes due 2024 (the "2024 Senior Notes"), the 4.625% Senior Notes due 2025 (the "2025 Senior Notes"), the 5.125% Senior Notes due 2026 (the "2026 Senior Notes") and the 4.875% Senior Notes due 2027 (the "2027 Senior Notes") are guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries that are themselves not issuers of the applicable series of senior notes. See Note 15: "Condensed Consolidating Guarantor Financial Information" for additional information.

Our senior secured credit facilities consist of the $1.0 billion senior secured revolving credit facility (the "Revolving Credit Facility") and the senior secured term loan facility (the "Term Loans"). The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries. As of March 31, 2019, in addition to the $50 million outstanding under the Revolving Credit Facility, we had $59 million of letters of credit outstanding, resulting in an available borrowing capacity under the Revolving Credit Facility of $891 million. Subsequent to March 31, 2019, we drew an additional net $125 million under the Revolving Credit Facility.


10



The contractual maturities of our long-term debt as of March 31, 2019 were as follows:
Year
(in millions)
2019 (remaining)
$
27

2020
32

2021
74

2022
18

2023
3,139

Thereafter
4,151

 
$
7,441


Note 7: 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; the fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of March 31, 2019 and December 31, 2018:
 
March 31, 2019
 
 
 
Hierarchy Level
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
20

 
$

 
$
20

 
$

Restricted cash equivalents
17

 

 
17

 

Liabilities:
 
 
 
 
 
 
 
Long-term debt(1)
7,093

 
4,047

 

 
3,162

Interest rate swaps
4

 

 
4

 


 
December 31, 2018
 
 
 
Hierarchy Level
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
87

 
$

 
$
87

 
$

Restricted cash equivalents
18

 

 
18

 

Interest rate swaps
16

 

 
16

 

Liabilities:
 
 
 
 
 
 
 
Long-term debt(1)
7,040

 
3,809

 

 
3,039

____________
(1)
The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude finance lease liabilities and other debt.

We measure our interest rate swaps at fair value, which were estimated using a discounted cash flow analysis that reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves, as applicable. Our interest rate swaps are included in other non-current assets or other long-term liabilities in our condensed consolidated balance sheets depending on the fair value of the derivatives.

Note 8: Leases

We lease hotel properties, land, corporate office space and equipment used at hotels and corporate offices, with our most significant lease liabilities related to hotel properties. As of March 31, 2019, we leased 53 hotels under operating leases and six hotels under finance leases, two of which were the liabilities of consolidated VIEs and were non-recourse to us. Our hotel leases expire at various dates, with varying renewal and termination options.
 

11



Supplemental balance sheet information related to leases as of March 31, 2019 was as follows:
 
(dollars
 in millions)
Operating leases:
 
Operating lease right-of-use assets
$
916

Accounts payable, accrued expenses and other
131

Operating lease liabilities
1,103

Finance leases:
 
Property and equipment, net
$
55

Current maturities of long-term debt
35

Long-term debt
220

 
 
Weighted average remaining lease term:
 
Operating leases
13.3 years

Finance leases
9.2 years

Weighted average discount rate:
 
Operating leases
3.74
%
Finance leases
5.84
%

The components of lease expense for the three months ended March 31, 2019 were as follows:
 
(in millions)
Operating lease expense for fixed payments
$
37

Finance lease expense:
 
Amortization of ROU assets
8

Interest on lease liabilities
4

Variable lease expense(1)
19

____________
(1) 
Includes amounts related to operating leases and interest payments on finance leases.

Lease expense for our operating leases for the year ended December 31, 2018 included $225 million of fixed lease expense and $142 million of variable lease expense.

Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as follows:
 
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
48

Financing cash flows from finance leases
11

ROU assets obtained in exchange for lease liabilities in non-cash transactions:
 
Operating leases(1)

Finance leases
42

____________
(1) 
Amount is less than $1 million.




12



Our future minimum lease payments as of March 31, 2019 were as follows:
 
Operating
Leases
 
Finance
Leases
Year
(in millions)
2019 (remaining)
$
132

 
$
38

2020
174

 
45

2021
160

 
36

2022
136

 
29

2023
121

 
29

Thereafter
889

 
162

Total minimum lease payments
1,612

 
339

Less: imputed interest
(378
)
 
(84
)
Total lease liabilities
$
1,234

 
$
255


Note 9: Income Taxes

At the end of each quarter, we estimate the effective income tax rate expected to be applied for the full year. The effective income tax rate is determined by the level and composition of income (loss) before income taxes, which is subject to federal, state, local and foreign income taxes.

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 tax years through 2004. As of March 31, 2019, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2017 and foreign examinations of our income tax returns for tax years from 1996 through 2018.

Our total unrecognized tax benefits as of March 31, 2019 and December 31, 2018 were $320 million and $318 million, respectively. As of March 31, 2019 and December 31, 2018, we had accrued approximately $42 million and $40 million, respectively, for interest and penalties related to our unrecognized tax benefits in our condensed consolidated balance sheets. Included in the balances of unrecognized tax benefits as of March 31, 2019 and December 31, 2018 was $310 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 Hilton Honors, 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 ("EUR"), and thus foreign currency gains and losses with respect to such loans should have been measured in EUR, instead of USD. In January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years, which included proposed adjustments that reflect the carryover effect of the three protested issues from 2006 through October 2007. These proposed adjustments are also being protested in appeals and formal appeals protests have been submitted. In April 2016, we requested a Technical Advice Memorandum ("TAM") from the IRS with respect to the treatment of the foreign currency gains and losses on loans issued by our Luxembourg subsidiary. We received a taxpayer favorable TAM in October 2018 and this issue is no longer being pursued by IRS Appeals for any of the open tax years. In September 2018, we received a 30-day Letter from the IRS and the RAR for the 2011 through 2013 tax years, which reflects proposed adjustments for the carryover effect of the two remaining protested issues from 2006 through October 2007. The adjustments for tax years 2011 through 2013 will also be protested in appeals and formal protests have been submitted. After receipt of the TAM relating to the Luxembourg subsidiary, in total, the two remaining proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $817 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

13



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, 2019, we had recorded $54 million of unrecognized tax benefits related to these issues.

Note 10: Share-Based Compensation

We grant time-vesting restricted stock units and restricted stock (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 million and $28 million during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, unrecognized compensation costs for unvested awards was approximately $231 million, which are expected to be recognized over a weighted-average period of 2.0 years on a straight-line basis. As of March 31, 2019, there were 14.2 million shares of common stock available for future issuance under the Hilton 2017 Omnibus Incentive Plan, plus any shares subject to awards outstanding under our 2013 Omnibus Incentive Plan, which will become available for issuance under the Hilton 2017 Omnibus Incentive Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

RSUs

During the three months ended March 31, 2019, we granted 0.9 million RSUs with a weighted average grant date fair value per share of $83.10, which generally vest in equal annual installments over two or three years from the date of grant.

Options

During the three months ended March 31, 2019, we granted 0.8 million options with a weighted average exercise price per share of $83.10, 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 three months ended March 31, 2019 was $21.08, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
Expected volatility(1)
23.51
%
Dividend yield(2)
0.81
%
Risk-free rate(3)
2.47
%
Expected term (in years)(4)
6.0

____________
(1) 
Estimated using historical movement of Hilton's stock price.
(2) 
Estimated based on the quarterly dividend and the three-month average stock price at the date of grant.
(3) 
Based on the yields of U.S. Department of Treasury instruments with similar expected lives.
(4) 
Estimated using the average of the vesting periods and the contractual term of the options.

As of March 31, 2019, 1.7 million options were exercisable.

Performance Shares

During the three months ended March 31, 2019, we granted 0.4 million performance shares with a weighted average grant date fair value per share of $83.10. The performance shares are settled at the end of the three-year performance period with: (i) 50 percent of the awards subject to achievement based on the compound annual growth rate ("CAGR") of the Company's adjusted earnings before interest expense, a provision for income taxes and depreciation and amortization ("Adjusted EBITDA"), referred to as EBITDA CAGR and (ii) 50 percent of the awards subject to achievement based on the Company’s free cash flow ("FCF") per share CAGR, referred to as FCF CAGR. The total number of performance shares that vest related to each performance measure is based on an achievement factor that ranges from a zero percent to 200 percent payout, with 100 percent being the target. As of March 31, 2019, we determined that the performance conditions for the performance shares are probable of achievement and we recognized compensation expense, for both our outstanding EBITDA CAGR and FCF CAGR performance shares, at the maximum achievement percentage for the 2017 grants, between target and maximum for the 2018 grants and at target for the 2019 grants.


14



Note 11: Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share ("EPS"):
 
Three Months Ended
 
March 31,
 
2019
 
2018
 
(in millions, except per share amounts)
Basic EPS:
 
 
 
Numerator:
 
 
 
Net income attributable to Hilton stockholders
$
158

 
$
161

Denominator:
 
 
 
Weighted average shares outstanding
293

 
316

Basic EPS
$
0.54

 
$
0.51

 
 
 
 
Diluted EPS:
 
 
 
Numerator:
 
 
 
Net income attributable to Hilton stockholders
$
158

 
$
161

Denominator:
 
 
 
Weighted average shares outstanding
295

 
319

Diluted EPS
$
0.54

 
$
0.51


For the three months ended March 31, 2019 and 2018, 1 million and less than 1 million share-based compensation awards, respectively, were excluded from the weighted average shares outstanding used in the computation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method.

Note 12: Stockholders' Equity and Accumulated Other Comprehensive Loss

The changes in the components of stockholders' equity were as follows:
 
Equity Attributable to Hilton Stockholders
 
 
 
 
 
 
 
 
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
Common Stock
 
 
 
 
 
Noncontrolling
Interests
 
 
 
Shares
 
Amount
 
 
 
 
 
 
Total
 
(in millions)
Balance as of December 31, 2018
295

 
$
3

 
$
(2,625
)
 
$
10,372

 
$
(6,417
)
 
$
(782
)
 
$
7

 
$
558

Net income

 

 

 

 
158

 

 
1

 
159

Other comprehensive loss

 

 

 

 

 
(16
)
 

 
(16
)
Dividends

 

 

 

 
(43
)
 

 

 
(43
)
Repurchases of common stock
(4
)
 

 
(296
)
 

 

 

 

 
(296
)
Share-based compensation
1

 

 

 
2

 

 

 

 
2

Cumulative effect of the adoption of ASU 2016-02

 

 

 

 
(256
)
 

 

 
(256
)
Balance as of March 31, 2019
292

 
$
3

 
$
(2,921
)
 
$
10,374

 
$
(6,558
)
 
$
(798
)
 
$
8

 
$
108



15



 
Equity Attributable to Hilton Stockholders
 
 
 
 
 
 
 
 
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
Common Stock
 
 
 
 
 
Noncontrolling
Interests
 
 
 
Shares
 
Amount
 
 
 
 
 
 
Total
 
(in millions)
Balance as of December 31, 2017
317

 
$
3

 
$
(891
)
 
$
10,298

 
$
(6,981
)
 
$
(741
)
 
$
3

 
$
1,691

Net income

 

 

 

 
161

 

 
2

 
163

Other comprehensive income

 

 

 

 

 
61

 

 
61

Dividends

 

 

 

 
(48
)
 

 

 
(48
)
Repurchases of common stock
(1
)
 

 
(110
)
 

 

 

 

 
(110
)
Share-based compensation
1

 

 

 
(10
)
 

 

 

 
(10
)
Balance as of March 31, 2018
317

 
$
3

 
$
(1,001
)
 
$
10,288

 
$
(6,868
)
 
$
(680
)
 
$
5

 
$
1,747


In February 2019, our board of directors authorized the repurchase of an additional $1.5 billion of our common stock under our existing stock repurchase program. During the three months ended March 31, 2019, we repurchased 3.9 million shares of common stock. As of March 31, 2019, approximately $1.8 billion remained available for share repurchases under the program.

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, 2018
$
(545
)
 
$
(260
)
 
$
23

 
$
(782
)
Other comprehensive loss before reclassifications
(3
)
 

 
(13
)
 
(16
)
Amounts reclassified from accumulated other comprehensive loss

 
2

 
(2
)
 

Net current period other comprehensive income (loss)
(3
)
 
2

 
(15
)
 
(16
)
Balance as of March 31, 2019
$
(548
)
 
$
(258
)
 
$
8

 
$
(798
)

 
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
)
____________
(1) 
Includes net investment hedges and intra-entity foreign currency transactions that are of a long-term investment nature.
(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 other non-operating income, net in our condensed consolidated statements of operations and are presented net of a tax benefit of $1 million for the three months ended March 31, 2019 and 2018.
(3) 
Amounts reclassified relate to designated interest rate swaps, as well as interest rate swaps that were dedesignated and settled. The amounts were recognized in interest expense in our condensed consolidated statements of operations and are presented net of a tax expense of $1 million and a tax benefit of $1 million for the three months ended March 31, 2019 and 2018, respectively.

Note 13: Business Segments

We are a hospitality company with operations organized in two distinct operating 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 March 31, 2019, this segment included 689 managed hotels and 4,947 franchised hotels consisting of 893,494 total rooms. This segment also earns licensing fees from Hilton Grand

16



Vacations and co-brand credit card arrangements for the exclusive right to use certain Hilton marks and IP, as well as fees for managing properties in our ownership segment.

As of March 31, 2019, the ownership segment included 68 properties totaling 21,139 rooms, comprising 59 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and six hotels owned or leased by unconsolidated affiliates.

The performance of our operating segments is evaluated primarily on operating income, without allocating other revenues and expenses or general and administrative expenses.

The following table presents revenues for our reportable segments, reconciled to consolidated amounts:
 
Three Months Ended
 
March 31,
 
2019
 
2018
 
(in millions)
Franchise and licensing fees
$
385

 
$
333

Base and other management fees(1)
92

 
90

Incentive management fees
55

 
55

Management and franchise
532

 
478

Ownership
312

 
334

Segment revenues
844

 
812

Amortization of contract acquisition costs
(7
)
 
(7
)
Other revenues
26

 
23

Direct reimbursements from managed and franchised properties(2)

775

 
699

Indirect reimbursements from managed and franchised properties(2)

574

 
555

Intersegment fees elimination(1)
(8
)
 
(8
)
Total revenues
$
2,204

 
$
2,074

____________
(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.
(2) 
Included in other revenues from managed and franchised properties 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,
 
2019
 
2018
 
(in millions)
Management and franchise(1)
$
532

 
$
478

Ownership(1)
6

 
6

Segment operating income
538

 
484

Amortization of contract acquisition costs
(7
)
 
(7
)
Other revenues, less other expenses
6

 
9

Net other expenses from managed and franchised properties


(34
)
 
(21
)
Depreciation and amortization
(84
)
 
(82
)
General and administrative
(107
)
 
(104
)
Operating income
312

 
279

Interest expense
(98
)
 
(83
)
Gain on foreign currency transactions

 
11

Other non-operating income, net
4

 
14

Income before income taxes
$
218

 
$
221

____________
(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.


17



The following table presents total assets for our reportable segments, reconciled to consolidated amounts:
 
March 31,
 
December 31,
 
2019
 
2018
 
(in millions)
Management and franchise
$
11,365

 
$
11,362

Ownership
1,737

 
927

Corporate and other
1,751

 
1,706

 
$
14,853

 
$
13,995


The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
 
Three Months Ended
 
March 31,
 
2019
 
2018
 
(in millions)
Ownership
$
11

 
$
7

Corporate and other
12

 
3

 
$
23

 
$
10


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 March 31, 2019, we had five performance guarantees, with expirations ranging from December 2019 to 2030, and possible cash outlays totaling approximately $36 million. Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee. As of March 31, 2019 and December 31, 2018, we accrued current liabilities of $12 million for one performance guarantee related to a hotel owned by a VIE for which we were not the primary beneficiary. We may enter into new contracts containing performance guarantees in the future, which could increase our possible cash outlays.

As of March 31, 2019, we had a $20 million guarantee for debt of a hotel that we franchise, which has an initial maturity date of February 2022 with two one-year extension options. Although we believe it is unlikely that material payments will be required under this guarantee, there can be no assurance that this will be the case. We do not have any letters of credit pledged as collateral against this guarantee or our performance guarantees.

We hold interests in VIEs, for which we are not the primary beneficiary, that have entered into loan agreements with third parties. Under the terms of our contractual arrangements with certain of these VIEs, we may provide financial support to such entities under specified circumstances, including default of such a VIE under a third-party loan agreement, and may have the option to acquire a controlling interest in such an entity at a predetermined amount. In a circumstance that we provide financial support or exercise our option to acquire an additional interest in a VIE, we may be required to reassess whether we are the primary beneficiary of the VIE. If we determine that we are the primary beneficiary of the VIE, we would be required to consolidate the total assets, liabilities and results of operations of the VIE, which may be material upon consolidation.

We have entered into agreements with owners of certain hotels that we manage or will manage or franchise to finance capital expenditures at the hotels for approximately $29 million. As of March 31, 2019, we had not funded any of these commitments and expect to fund $19 million in the remainder of 2019 and $10 million in 2020.

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of
hotel owners. As of March 31, 2019 and December 31, 2018, we had collected an aggregate of $355 million and $375 million in excess of amounts expended, respectively, across all programs.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of March 31, 2019 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.


18



Note 15: Condensed Consolidating Guarantor Financial Information

Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (together, the "HWF Issuers") are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, and issued the 2025 Senior Notes and 2027 Senior Notes. Hilton Domestic Operating Company Inc. ("HOC"), which is 100 percent owned by Hilton Worldwide Finance LLC, issued the 2026 Senior Notes and assumed the 2024 Senior Notes. The 2024 Senior Notes, 2025 Senior Notes, 2026 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 wholly 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 our senior secured credit facilities will guarantee the Senior Notes. Additionally, the HWF Issuers are guarantors of the 2026 Senior Notes and the 2024 Senior Notes and HOC is a guarantor of the 2025 Senior Notes and the 2027 Senior Notes. As of March 31, 2019, 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").

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 our senior secured credit facilities; (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 tables present the condensed consolidating financial information as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors. The condensed consolidating financial information presents the financial information for all periods based on the composition of the Guarantors and Non-Guarantors as of March 31, 2019.

19



 
March 31, 2019
Parent
 
HWF Issuers
 
HOC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
 
(in millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
3

 
$
31

 
$
348

 
$

 
$
382

Restricted cash and cash equivalents

 

 
34

 
15

 
30

 

 
79

Accounts receivable, net

 

 
10

 
818

 
274

 

 
1,102

Intercompany receivables

 

 

 

 
40

 
(40
)
 

Prepaid expenses

 

 
28

 
55

 
62

 
(5
)
 
140

Other

 
2

 
1

 
21

 
149

 

 
173

Total current assets

 
2

 
76

 
940

 
903

 
(45
)
 
1,876

Intangibles and Other Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
105

 
4,767

 
7,515

 
105

 

 
(12,492
)
 

Goodwill

 

 

 
3,824

 
1,338

 

 
5,162

Brands

 

 

 
4,405

 
467

 

 
4,872

Management and franchise contracts, net

 

 

 
527

 
314

 

 
841

Other intangible assets, net

 

 

 
282

 
126

 

 
408

Operating lease right-of-use assets

 

 
33

 
11

 
872

 

 
916

Property and equipment, net

 

 
63

 
67

 
282

 

 
412

Deferred income tax assets
4

 

 
89

 

 
147

 
(94
)
 
146

Other

 
6

 
32

 
22

 
160

 

 
220

Total intangibles and other assets
109

 
4,773

 
7,732

 
9,243

 
3,706

 
(12,586
)
 
12,977

TOTAL ASSETS
$
109

 
$
4,775

 
$
7,808

 
$
10,183

 
$
4,609

 
$
(12,631
)
 
$
14,853

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other
$
9

 
$
38

 
$
187

 
$
706

 
$
739

 
$

 
$
1,679

Current maturities of long-term debt

 

 
19

 

 
16

 

 
35

Current portion of deferred revenues

 

 
73

 
240

 
15

 
(5
)
 
323

Intercompany payables

 

 
40

 

 

 
(40
)
 

Current portion of liability for guest loyalty program

 

 

 
757

 

 

 
757

Total current liabilities
9

 
38

 
319

 
1,703

 
770

 
(45
)
 
2,794

Long-term debt

 
4,625

 
2,484

 

 
221

 

 
7,330

Operating lease liabilities

 

 
40

 
12

 
1,051

 

 
1,103

Deferred revenues

 

 

 
763

 
67

 

 
830

Deferred income tax liabilities

 
3

 

 
941

 

 
(94
)
 
850

Liability for guest loyalty program

 

 

 
987

 

 

 
987

Other

 
4

 
198

 
95

 
554

 

 
851

Total liabilities
9

 
4,670

 
3,041

 
4,501

 
2,663

 
(139
)
 
14,745

Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Hilton stockholders' equity
100

 
105

 
4,767

 
5,682

 
1,938

 
(12,492
)
 
100

Noncontrolling interests

 

 

 

 
8

 

 
8

Total equity
100

 
105

 
4,767

 
5,682

 
1,946

 
(12,492
)
 
108

TOTAL LIABILITIES AND EQUITY
$
109

 
$
4,775

 
$
7,808

 
$
10,183

 
$
4,609

 
$
(12,631
)
 
$
14,853



20



 
December 31, 2018
Parent
 
HWF Issuers
 
HOC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
 
(in millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
3

 
$
17

 
$
383

 
$

 
$
403

Restricted cash and cash equivalents

 

 
34

 
15

 
32

 

 
81

Accounts receivable, net

 

 
10

 
735

 
405

 

 
1,150

Intercompany receivables

 

 

 

 
40

 
(40
)
 

Prepaid expenses

 

 
52

 
37

 
80

 
(9
)
 
160

Other

 
1

 
1

 
36

 
154

 
(3
)
 
189

Total current assets

 
1

 
100

 
840

 
1,094

 
(52
)