10-Q 1 hlt-20220331.htm 10-Q hlt-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareHLTNew York Stock Exchange

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 ☒ 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 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
Accelerated filer
Non-accelerated filerSmaller 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 ☒

The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of April 26, 2022 was 278,331,690.



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

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,
20222021
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$1,432 $1,427 
Restricted cash and cash equivalents
78 85 
Accounts receivable, net of allowance for credit losses of $127 and $126
1,054 1,068 
Prepaid expenses165 89 
Other
132 202 
Total current assets (variable interest entities $34 and $30)
2,861 2,871 
Intangibles and Other Assets:
Goodwill
5,061 5,071 
Brands
4,875 4,883 
Management and franchise contracts, net778 758 
Other intangible assets, net178 194 
Operating lease right-of-use assets
659 694 
Property and equipment, net
290 305 
Deferred income tax assets
213 213 
Other
544 452 
Total intangibles and other assets (variable interest entities $172 and $184)
12,598 12,570 
TOTAL ASSETS$15,459 $15,441 
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other
$1,604 $1,568 
Current maturities of long-term debt
45 54 
Current portion of deferred revenues
271 350 
Current portion of liability for guest loyalty program1,165 1,047 
Total current liabilities (variable interest entities $43 and $50)
3,085 3,019 
Long-term debt8,720 8,712 
Operating lease liabilities823 870 
Deferred revenues
846 896 
Deferred income tax liabilities719 700 
Liability for guest loyalty program1,271 1,317 
Other692 746 
Total liabilities (variable interest entities $210 and $212)
16,156 16,260 
Commitments and contingencies see Note 12
Equity (Deficit):
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 10,000,000,000 authorized shares, 332,821,509 issued and 278,994,111 outstanding as of March 31, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021
3 3 
Treasury stock, at cost; 53,827,398 shares as of March 31, 2022 and 52,920,350 shares as of December 31, 2021
(4,573)(4,443)
Additional paid-in capital
10,702 10,720 
Accumulated deficit(6,110)(6,322)
Accumulated other comprehensive loss
(720)(779)
Total Hilton stockholders' deficit
(698)(821)
Noncontrolling interests
1 2 
Total deficit(697)(819)
TOTAL LIABILITIES AND EQUITY (DEFICIT)$15,459 $15,441 

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,
20222021
Revenues
Franchise and licensing fees$413 $242 
Base and other management fees55 25 
Incentive management fees34 13 
Owned and leased hotels150 56 
Other revenues18 17 
670 353 
Other revenues from managed and franchised properties
1,051 521 
Total revenues1,721 874 
Expenses
Owned and leased hotels
185 110 
Depreciation and amortization44 51 
General and administrative91 97 
Other expenses11 10 
331 268 
Other expenses from managed and franchised properties
1,021 585 
Total expenses1,352 853 
Operating income369 21 
Interest expense(90)(103)
Gain (loss) on foreign currency transactions
(4)2 
Loss on debt extinguishment (69)
Other non-operating income, net
16 5 
Income (loss) before income taxes291 (144)
Income tax benefit (expense)
(80)35 
Net income (loss)211 (109)
Net loss attributable to noncontrolling interests
1 1 
Net income (loss) attributable to Hilton stockholders$212 $(108)
Earnings (loss) per share:
Basic$0.76 $(0.39)
Diluted$0.75 $(0.39)

See notes to condensed consolidated financial statements.
3


HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)

Three Months Ended
March 31,
20222021
Net income (loss)$211 $(109)
Other comprehensive income (loss), net of tax expense:
Currency translation adjustment, net of tax of $(1) and $(3)
(2)(29)
Pension liability adjustment, net of tax(1)
1 2 
Cash flow hedge adjustment, net of tax of $(20) and $(2)
60 7 
Total other comprehensive income (loss)59 (20)
Comprehensive income (loss)270 (129)
Comprehensive loss attributable to noncontrolling interests
1 1 
Comprehensive income (loss) attributable to Hilton stockholders
$271 $(128)
____________
(1)Amounts were less than $1 million.

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,
20222021
Operating Activities:
Net income (loss)$211 $(109)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of contract acquisition costs8 7 
Depreciation and amortization expenses44 51 
Loss (gain) on foreign currency transactions4 (2)
Share-based compensation expense37 39 
Deferred income taxes(3)(39)
Contract acquisition costs, net of refunds(15)(43)
Working capital changes and other(91)(75)
Net cash provided by (used in) operating activities195 (171)
Investing Activities:
Capital expenditures for property and equipment
(4)(3)
Capitalized software costs(10)(8)
Investments in unconsolidated affiliates(20) 
Other8 (5)
Net cash used in investing activities(26)(16)
Financing Activities:
Borrowings18 1,500 
Repayment of debt(13)(2,016)
Debt issuance costs and redemption premium (74)
Repurchases of common stock(121) 
Share-based compensation tax withholdings(55)(46)
Proceeds from share-based compensation4 12 
Net cash used in financing activities(167)(624)
Effect of exchange rate changes on cash, restricted cash and cash equivalents(4)(5)
Net decrease in cash, restricted cash and cash equivalents(2)(816)
Cash, restricted cash and cash equivalents, beginning of period1,512 3,263 
Cash, restricted cash and cash equivalents, end of period$1,510 $2,447 
Supplemental Disclosures:
Cash paid (received) during the period:
Interest$78 $72 
Income taxes, net of refunds(44)25 

See notes to condensed consolidated financial statements.
5


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, and licensing its intellectual property ("IP"), including brand names, trademarks and service marks. As of March 31, 2022, we managed, franchised, owned or leased 6,892 hotels and resorts, including timeshare properties, totaling 1,082,728 rooms in 122 countries and territories.

Basis of Presentation

The accompanying condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited. We have condensed or omitted certain disclosures normally included in annual financial statements presented in accordance with GAAP but that are not required for interim reporting purposes. 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, 2021.

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 particular, the coronavirus ("COVID-19") pandemic (the "pandemic") had an adverse impact on our results for the three months ended March 31, 2022 and 2021, when compared to periods prior to the onset of the pandemic; however, our results experienced significant recovery during the three months ended March 31, 2022 when compared to the prior year period. As such, this interim period, as well as upcoming periods, are unlikely to be comparable to periods prior to the onset of the pandemic or to other periods affected by the pandemic, and are not indicative of future performance. Management has made estimates and judgments in light of these circumstances. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.

Note 2: Revenues from Contracts with Customers

Contract Liabilities

The following table summarizes the activity of our contract liabilities, which are classified as components of current and long-term deferred revenues, during the three months ended March 31, 2022:

(in millions)
Balance as of December 31, 2021
$1,166 
Cash received in advance and not recognized as revenue
88 
Revenue recognized(1)(2)
(128)
Other(3)
(88)
Balance as of March 31, 2022
$1,038 
____________
(1)Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements.
(2)Revenue recognized during the three months ended March 31, 2022 included $10 million for performance obligations that were satisfied in prior periods as a result of a change to the estimated breakage of Hilton Honors points for which point expirations have been temporarily suspended.
(3)Primarily represents changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors, which had no effect on revenues.

6


Hilton Honors Points Pre-Sale

In April 2020, we pre-sold Hilton Honors points to American Express for $1.0 billion in cash (the "Honors Points Pre-Sale") for their use of points in connection with Hilton Honors co-branded credit cards for promotions, rewards and other such incentive programs. Upon receipt of the cash in 2020, we recognized $636 million in deferred revenues and the remainder in liability for guest loyalty program. The deferred revenues remaining as of March 31, 2022 is included in our co-branded credit card arrangement performance obligation described below.

Performance Obligations

As of March 31, 2022, we had deferred revenues for unsatisfied performance obligations consisting of: (i) $335 million related to Hilton Honors that will be recognized as revenue over approximately the next two years; (ii) $61 million related to co-branded credit card arrangements; and (iii) $642 million related to application, initiation and other fees. These performance obligations are recognized as revenue as discussed in Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Note 3: Consolidated Variable Interest Entities

As of March 31, 2022 and December 31, 2021, we consolidated two variable interest entities ("VIEs") that each lease a hotel property. We consolidated these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb losses and the right to receive benefits that could be significant to each of the VIEs individually. The assets of our consolidated VIEs are only available to settle the obligations of the respective entities, and the liabilities of the consolidated VIEs are non-recourse to us.

Our condensed consolidated balance sheets include the assets and liabilities of these entities, which primarily comprised the following:

March 31,December 31,
20222021
(in millions)
Cash and cash equivalents$26 $18 
Property and equipment, net54 60 
Deferred income tax assets59 62 
Other non-current assets59 62 
Accounts payable, accrued expenses and other15 15 
Long-term debt(1)
177 179 
Other long-term liabilities16 16 
____________
(1)Includes finance lease liabilities of $135 million and $153 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, our VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen ("JPY") (equivalent to $37 million as of March 31, 2022), with 500 million JPY (equivalent to $4 million as of March 31, 2022) drawn and included in long-term debt in our condensed consolidated balance sheets, resulting in available borrowing capacities totaling 4.0 billion JPY (equivalent to $33 million as of March 31, 2022). During the three months ended March 31, 2022, our consolidated VIEs borrowed an aggregate of 2.1 billion JPY (equivalent to $17 million as of March 31, 2022), with a weighted average interest rate of 0.9 percent as of March 31, 2022 and maturity dates in February 2029, which was also included in long-term debt in our condensed consolidated balance sheet as of March 31, 2022.

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Note 4: Finite-Lived Intangible Assets

Our finite-lived intangible assets consist of management and franchise contracts and other intangible assets. Management and franchise contracts, net were as follows:

March 31, 2022
Gross Carrying ValueAccumulated AmortizationNet
Carrying Value
(in millions)
Management contracts recorded at Merger(1)
$307 $(277)$30 
Contract acquisition costs
812 (178)634 
Development commissions and other
142 (28)114 
$1,261 $(483)$778 

December 31, 2021
Gross Carrying ValueAccumulated AmortizationNet
Carrying Value
(in millions)
Management contracts recorded at Merger(1)
$310 $(275)$35 
Contract acquisition costs
780 (170)610 
Development commissions and other
140 (27)113 
$1,230 $(472)$758 
____________
(1)Represents intangible assets that were initially recorded at fair value as part of the 2007 transaction whereby we became a wholly owned subsidiary of affiliates of Blackstone Inc. (the "Merger").

Amortization of our finite-lived intangible assets was as follows:

Three Months Ended
March 31,
20222021
(in millions)
Recognized in depreciation and amortization expenses(1)
$32 $38 
Recognized as a reduction of franchise and licensing fees and
base and other management fees
8 7 
____________
(1)Includes amortization expense associated with assets that were initially recorded at fair value at the time of the Merger of $12 million for both the three months ended March 31, 2022 and 2021.

8


Note 5: Debt

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2022, were as follows:

March 31,December 31,
20222021
(in millions)
Senior secured term loan facility with a rate of 2.21%, due 2026
$2,619 $2,619 
Senior notes with a rate of 5.375%, due 2025(1)
500 500 
Senior notes with a rate of 4.875%, due 2027(1)
600 600 
Senior notes with a rate of 5.750%, due 2028(1)
500 500 
Senior notes with a rate of 3.750%, due 2029(1)
800 800 
Senior notes with a rate of 4.875%, due 2030(1)
1,000 1,000 
Senior notes with a rate of 4.000%, due 2031(1)
1,100 1,100 
Senior notes with a rate of 3.625%, due 2032(1)
1,500 1,500 
Finance lease liabilities with a weighted average rate of 5.87%, due 2022 to 2030
188 208 
Other debt of consolidated VIEs with a weighted average rate of 1.63%, due 2022 to 2029(2)
42 26 
8,849 8,853 
Less: unamortized deferred financing costs and discount(84)(87)
Less: current maturities of long-term debt(3)
(45)(54)
$8,720 $8,712 
____________
(1)These notes are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries, other than Hilton Domestic Operating Company Inc., an indirect wholly owned subsidiary of the Parent and the issuer of all of the series of Senior Notes.
(2)Refer to Note 3: "Consolidated Variable Interest Entities" for additional information on the debt of our consolidated VIEs.
(3)Represents current maturities of finance lease liabilities and the outstanding borrowings under the revolving credit facility of a consolidated VIE.

Our senior secured credit facilities consist of a $1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility. 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 restricted subsidiaries. As of March 31, 2022, we had $60 million of letters of credit outstanding under the Revolving Credit Facility, resulting in an available borrowing capacity of $1,690 million.

Note 6: Fair Value Measurements

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

March 31, 2022
Hierarchy Level
Carrying ValueLevel 1Level 2Level 3
(in millions)
Assets:
Cash equivalents$601 $— $601 $— 
Interest rate swap(1)
4141
Liabilities:
Long-term debt(2)
8,535 5,784 — 2,590 

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December 31, 2021
Hierarchy Level
Carrying ValueLevel 1Level 2Level 3
(in millions)
Assets:
Cash equivalents$622 $— $622 $— 
Liabilities:
Long-term debt(2)
8,532 6,180 — 2,599 
Interest rate swaps(1)
41 — 41 — 
____________
(1)Interest rate swaps are included in other non-current assets or other long-term liabilities in our condensed consolidated balance sheets depending on their value to us as of the balance sheet date. During the three months ended March 31, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured. The remaining interest rate swap as of March 31, 2022 will mature in March 2026.
(2)The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude finance lease liabilities and other debt of consolidated VIEs.

We measure our interest rate swaps at fair value, which was determined 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.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of March 31, 2022 and December 31, 2021.

Note 7: Income Taxes

Our effective income tax rate for the three months ended March 31, 2022 was based on our estimated effective income tax rate expected to be applied for the full year. The effective income tax rate is determined by the level and composition of income (loss) before income taxes, which is subject to federal, state, local and foreign income taxes.

Note 8: Share-Based Compensation

We recognized share-based compensation expense of $37 million and $39 million during the three months ended March 31, 2022 and 2021, respectively, which included amounts reimbursed by hotel owners.

Our share-based compensation primarily consists of awards that we grant to eligible employees under the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan") and includes time-vesting restricted stock units ("RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares"). As of March 31, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $232 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.

RSUs

During the three months ended March 31, 2022, we granted 503,000 RSUs with a weighted average grant date fair value per share of $150.67, which vest in equal annual installments over two or three years from the date of grant.

Options

During the three months ended March 31, 2022, we granted 318,000 options with an exercise price per share of $150.67, which vest in equal annual installments over three years from the date of grant and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances.

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The grant date fair value per share of the options granted during the three months ended March 31, 2022 was $51.15, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility(1)
33.28 %
Dividend yield(2)
0.41 %
Risk-free rate(3)
1.93 %
Expected term (in years)(4)
6.0
____________
(1)Estimated using a blended approach of historical and implied volatility. Historical volatility is based on the historical movement of Hilton's stock price for a period that corresponds to the expected life of the option.
(2)Estimated based on the expectation, at the date of grant, of the resumption of a quarterly $0.15 per share dividend beginning in the second quarter of 2022, as well as our three-month average stock price.
(3)Based on the yields of U.S. Department of Treasury instruments with similar expected lives.
(4)Estimated using the midpoint of the vesting period and the contractual term of the options.

Performance Shares

During the three months ended March 31, 2022, we granted 216,000 performance shares with a grant date fair value per share of $150.67. We recognize compensation expense based on the total number of performance shares that are expected to vest as determined by the projected achievement of each of the performance measures, which are estimated each reporting period and range from zero percent to 200 percent, with 100 percent being the target. As of March 31, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2020 and 2021 and at target for the performance shares granted in 2022.

Note 9: Earnings (Loss) Per Share

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

Three Months Ended
March 31,
20222021
(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$212 $(108)
Denominator:
Weighted average shares outstanding279 278 
Basic EPS$0.76 $(0.39)
Diluted EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$212 $(108)
Denominator:
Weighted average shares outstanding(1)
282 278 
Diluted EPS$0.75 $(0.39)
____________
(1)Certain shares related to share-based compensation were excluded from the calculations of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million and 3 million shares for the three months ended March 31, 2022 and 2021, respectively.

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Note 10: Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

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

Three Months Ended March 31, 2022
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of December 31, 2021279 $3 $(4,443)$10,720 $(6,322)$(779)$2 $(819)
Net income (loss)— — — — 212 — (1)211 
Other comprehensive income
— — — — — 59 — 59 
Repurchases of common stock(1)
(1)— (130)— — — — (130)
Share-based compensation
1 —  (18)— — — (18)
Balance as of March 31, 2022279 $3 $(4,573)$10,702 $(6,110)$(720)$1 $(697)
____________
(1)Beginning in March 2022, we resumed share repurchases under our previously authorized stock repurchase program.

Three Months Ended March 31, 2021
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of December 31, 2020278 $3 $(4,453)$10,552 $(6,732)$(860)$4 $(1,486)
Net loss— — — — (108)— (1)(109)
Other comprehensive loss
— — — — — (20)— (20)
Share-based compensation
1 —  (5)— — — (5)
Balance as of March 31, 2021279 $3 $(4,453)$10,547 $(6,840)$(880)$3 $(1,620)

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, 2021$(540)$(210)$(29)$(779)
Other comprehensive income (loss) before reclassifications
(3)(1)55 51 
Amounts reclassified from accumulated other comprehensive loss
1 2 5 8 
Net current period other comprehensive income (loss)
(2)1 60 59 
Balance as of March 31, 2022$(542)$(209)$31 $(720)

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Currency Translation Adjustment(1)
Pension Liability Adjustment(2)
Cash Flow Hedge Adjustment(3)
Total
(in millions)
Balance as of December 31, 2020$(511)$(289)$(60)$(860)
Other comprehensive income (loss) before reclassifications
(29)(1)2 (28)
Amounts reclassified from accumulated other comprehensive loss
 3 5 8 
Net current period other comprehensive income (loss)
(29)2 7 (20)
Balance as of March 31, 2021$(540)$(287)$(53)$(880)
____________
(1)Includes net investment hedge gains and intra-entity foreign currency transactions that are of a long-term investment nature. Amount reclassified during the three months ended March 31, 2022 related to the liquidation of an investment in a foreign entity and was recognized in loss on foreign currency transactions in our condensed consolidated statement of operations.
(2)Amounts reclassified related to the amortization of prior service cost and amortization of net loss and were recognized in other non-operating income, net in our condensed consolidated statements of operations.
(3)Amounts reclassified were the result of hedging instruments, including: (a) interest rate swaps, inclusive of interest rate swaps that were dedesignated and subsequently settled, with related amounts recognized in interest expense in our condensed consolidated statements of operations and (b) forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in various revenue line items, as applicable, in our condensed consolidated statements of operations.

Note 11: Business Segments

We are a hospitality company with operations organized in two distinct operating segments: (i) management and franchise and (ii) ownership, each of which is reported as a segment based on (a) delivering a similar set of products and services and
(b) being managed separately given its distinct economic characteristics.

The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that license our IP and where we provide other contracted services to third-party owners, but the day-to-day services of the hotels are operated or managed by someone other than us. This segment generates its revenue from: (i) management and franchise fees charged to third-party owners; (ii) licensing fees for the right to use our IP from Hilton Grand Vacations Inc. ("HGV") and strategic partnerships, including co-branded credit card arrangements; and (iii) fees for managing hotels in our ownership segment. As of March 31, 2022, this segment included 740 managed hotels and 6,038 franchised hotels consisting of 1,055,088 total rooms.

As of March 31, 2022, our ownership segment included 54 properties totaling 18,151 rooms. The segment comprised 46 hotels that we leased, one hotel owned by a consolidated non-wholly owned entity, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates. As a result of the pandemic, the operations of approximately 15 hotels in our ownership segment were suspended for some period of time during the three months ended March 31, 2021, compared with no hotels in our ownership segment having suspended operations as a result of the pandemic during the three months ended March 31, 2022.

The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues, other revenues and other expenses from managed and franchised properties, other expenses, depreciation and amortization expenses or general and administrative expenses.
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The following table presents revenues for our reportable segments, reconciled to consolidated amounts:

Three Months Ended
March 31,
20222021
(in millions)
Franchise and licensing fees$417 $245 
Base and other management fees(1)
61 30 
Incentive management fees34 13 
Management and franchise512 288 
Ownership150 56 
Segment revenues662 344 
Amortization of contract acquisition costs(8)(7)
Other revenues18 17 
Direct reimbursements from managed and franchised properties(2)
511 223 
Indirect reimbursements from managed and franchised properties(2)
540 298 
Intersegment fees elimination(1)
(2)(1)
Total revenues$1,721 $874 
____________
(1)Includes management, royalty and IP fees charged to consolidated hotels in our ownership segment by our management and franchise segment, which were eliminated in our condensed consolidated statements of operations.
(2)Included in other revenues from managed and franchised properties in our condensed consolidated statements of operations.

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

Three Months Ended
March 31,
20222021
(in millions)
Management and franchise(1)
$512 $288 
Ownership(1)
(37)(55)
Segment operating income475 233 
Amortization of contract acquisition costs(8)(7)
Other revenues, less other expenses7 7 
Net other revenues (expenses) from managed and franchised properties
30 (64)
Depreciation and amortization expenses(44)(51)
General and administrative expenses(91)(97)
Operating income369 21 
Interest expense(90)(103)
Gain (loss) on foreign currency transactions(4)2 
Loss on debt extinguishment (69)
Other non-operating income, net16 5 
Income (loss) before income taxes$291 $(144)
____________
(1)Includes management, royalty and IP fees charged to consolidated hotels in our ownership segment by our management and franchise segment, which were eliminated in our condensed consolidated statements of operations.

Note 12: Commitments and Contingencies

We provide performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees do not require us to fund shortfalls, but allow for termination of the contract, if specified operating performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls, creating variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary. As of March 31, 2022, we had performance guarantees with expirations ranging from 2025 to 2043 and potential cash outlays totaling $9 million. Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee for that particular hotel.

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As of March 31, 2022, we had extended debt guarantees and letters of credit to owners of certain hotels that we will or currently manage or franchise with expirations ranging from 2023 to 2031 and potential cash outlays totaling $61 million.

We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brand programs on behalf of hotel owners. If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs. As of March 31, 2022 and December 31, 2021, amounts expended and recognized on behalf of these programs exceeded the amounts collected.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of March 31, 2022 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

15


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 and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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 impact of and recovery from the pandemic, the performance of our business, our financial results, our liquidity and capital resources 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, such as challenges due to labor shortages and supply chain disruptions, risks related to the impact of the pandemic, including as a result of new strains and variants of the virus and uncertainty of acceptance of the COVID-19 vaccines and their effectiveness, competition for hotel guests and management and franchise 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., risks associated with the Russian invasion of Ukraine 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, 2021 and "Part II—Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. 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 hospitality companies in the world, with 6,892 properties comprising 1,082,728 rooms in 122 countries and territories as of March 31, 2022. Our premier brand portfolio includes: our luxury hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts and Conrad Hotels & Resorts; our emerging lifestyle hotel brands, Canopy by Hilton, Tempo by Hilton and Motto by Hilton; our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton and Tapestry Collection by Hilton; our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton and Tru by Hilton; our all-suites hotel brands, Embassy Suites by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. As of March 31, 2022, we had 133 million members in our award-winning guest loyalty program, Hilton Honors, a 15 percent increase from March 31, 2021.

Segments and Regions

We analyze our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments 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 IP. This segment generates its revenue from: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees for the right to use our IP from HGV and strategic partnerships, including co-branded credit card arrangements; and (iii) fees for managing hotels in our ownership segment. As a manager of hotels, we typically are responsible for supervising or operating the hotel 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, while a third party manages or operates such franchised hotels. The ownership segment primarily derives revenues from providing nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

Geographically, we conduct 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
16


America, including all Caribbean nations. Although the U.S., which represented 70 percent of our system-wide hotel rooms as of March 31, 2022, is included in the Americas region, it is often analyzed separately and apart from the Americas region 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 Iceland 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 Development Pipeline

Our strategic objectives include the continued expansion of our global hotel network and fee-based business. As we enter into new management and franchise 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 management services or license our IP. Prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on its geographic location, the credit quality of the third-party owner and other factors. By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs; see further discussion on our cash management policy in "—Liquidity and Capital Resources." While these objectives have not changed as a result of the pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development.

We are focused on the growth of our business by expanding our share of the global hotel network through our development pipeline, which represents hotels that we expect to add to our system in the future. The following table summarizes our development activity:
As of and for the
Three Months Ended
March 31, 2022
Hotels
Rooms(1)
Hotel system
Openings
76 13,200 
Net additions(2)
55 7,800 
Development pipeline(3)
Additions
176 22,200 
Count as of period end(4)
2,730 410,400 
____________
(1)Rounded to the nearest hundred.
(2)Represents room additions, net of rooms removed from our system, during the period. Contributed to net unit growth from March 31, 2021 of 5.0 percent.
(3)Hotels in our system are under development throughout 113 countries and territories, including 27 countries and territories where we do not currently have any existing hotels.
(4)In our development pipeline, as of March 31, 2022, 199,900 of the rooms were under construction and 245,500 of the rooms were located outside of the U.S. Nearly all of the rooms in our development pipeline are within our management and franchise segment. We do not consider any individual development project to be material to us.

Recent Developments

COVID-19 Pandemic

The pandemic significantly impacted the global economy and strained the hospitality industry beginning in 2020. Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives has varied by country and state; however, consistent with other countries, as of March 31, 2022, most of the states in the U.S., where the majority of our hotels are located, had completely lifted or eased restrictions. While the pandemic negatively affected our results of operations for the three months ended March 31, 2022 and 2021, we have experienced strong signs of economic recovery since early 2021, particularly in our management and franchise segment. Although all periods were impacted by the pandemic, none of these periods are considered comparable, and no periods affected by the pandemic are expected to be comparable to future periods. The continued spreading of COVID-19 and its related variants could result in travel and other restrictions being reinstated or demand for our hotel properties being reduced in the affected areas, yielding further negative effects on our operations.
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Russian Invasion of Ukraine

In February 2022, Russia commenced a military invasion of Ukraine. While this has affected our operations in Ukraine and Russia, our financial results for the three months ended March 31, 2022 were not materially affected by this conflict, as hotels in these countries represented less than 1 percent of our total managed and franchised hotels and, for the year ended December 31, 2021, contributed less than 1 percent of total management and franchise fee revenues. We are prioritizing the safety and security of our employees and the guests of these hotels and have taken the following actions in response to the current crisis:

donating up to 1 million room nights across EMEA to support Ukrainian refugees and humanitarian relief efforts, in partnership with American Express, #HospitalityHelps and our community of owners;

closed our corporate office in Moscow while ensuring continued work and pay for impacted employees;

suspended all new development activity in Russia;

pledged to donate any Hilton profits from business operations in Russia to the humanitarian relief efforts for Ukraine; and

contributing funds through our Hilton Global Foundation to World Central Kitchen and Project Hope to further assist with humanitarian aid.

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; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available. Of the 6,832 hotels in our system as of March 31, 2022, 6,069 hotels were classified as comparable hotels. Our 763 non-comparable hotels included 99 hotels, or approximately one percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they have sustained substantial property damage, business interruption, undergone large-scale capital projects or comparable results were otherwise not available.

When considering business interruption in the context of our definition of comparable hotels, no hotel that had completely or partially suspended operations on a temporary basis at any time as a result of the pandemic was excluded from the definition of comparable hotels on that basis alone. Despite these temporary suspensions of hotel operations, we believe that including these hotels within our hotel operating statistics of occupancy, average daily rate ("ADR") and revenue per available room ("RevPAR"), if they would have otherwise been included, reflects the underlying results of our business for the three months ended March 31, 2022 and 2021.

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 ADR pricing levels as demand for hotel rooms increases or decreases.

ADR

ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures the 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 charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above.

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RevPAR

RevPAR is calculated by dividing hotel room revenue by the 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, as previously described: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of March 31, 2022, and references to ADR and RevPAR are presented on a currency neutral basis, unless otherwise noted. As such, comparisons of these hotel operating statistics for the three months ended March 31, 2022 and 2021 or 2019, use the foreign currency exchange rates used to translate the results of the Company's foreign operations within its unaudited condensed consolidated financial statements for the three months ended March 31, 2022.

EBITDA and Adjusted EBITDA

EBITDA reflects net income (loss), excluding interest expense, a provision for income tax benefit (expense) and depreciation and amortization expenses. 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) share-based compensation; (vi) reorganization, severance, relocation and other expenses; (vii) non-cash impairment; (viii) amortization of contract acquisition costs; (ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties; and (x) other items.

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 income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies. Depreciation and amortization expenses, 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) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where payments for such capitalized assets are depreciated over their useful lives; (ii) share-based compensation, 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 cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts; and (iv) other items, such as amounts related to debt restructurings and debt retirements and reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss) or other measures of financial performance or liquidity, including cash flows, derived in accordance with GAAP. Further, EBITDA and Adjusted EBITDA have limitations as analytical tools, including:

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 income tax expenses 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;
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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 EndedChange
March 31, 20222022 vs. 2021
U.S.
Occupancy61.8 %14.1 %pts.
ADR$144.32 36.4 %
RevPAR$89.12 76.8 %
Americas (excluding U.S.)
Occupancy50.7 %21.7 %pts.
ADR$126.05 35.7 %
RevPAR$63.92 137.0 %
Europe
Occupancy47.9 %29.2 %pts.
ADR$120.70 74.8 %
RevPAR$57.77 348.8 %
MEA
Occupancy66.2 %26.0 %pts.
ADR$159.07 34.6 %
RevPAR$105.28 121.4 %
Asia Pacific
Occupancy42.5 %(0.4)%pts.
ADR$104.13 12.0 %
RevPAR$44.28 11.0 %
System-wide
Occupancy58.1 %14.6 %pts.
ADR$139.17 35.2 %
RevPAR$80.84 80.5 %

Although the pandemic continued to negatively impact our business and hotel operating statistics during the three months ended March 31, 2022, we experienced significant improvement in our results compared to the same period in 2021 with the continued recovery of the travel and hospitality industry and the rebound of cross-border international travel. All regions showed improvement in RevPAR during the three months ended March 31, 2022 as compared to the same period in 2021, and, compared to the same period in 2019, our system-wide RevPAR, occupancy and ADR were only down 17.0 percent, 11.4 percentage points and 0.7 percent, respectively, on a comparable and currency neutral basis. The Asia Pacific region experienced a more muted increase in RevPAR during the period than the other regions primarily due to certain restrictions in China, which included tightening of controls related to the Beijing Winter Olympics, as well as lockdowns in certain areas due to COVID-19 surges.

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The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Three Months Ended
March 31,
20222021
(in millions)
Net income (loss)$211 $(109)
Interest expense90 103 
Income tax expense (benefit)80 (35)
Depreciation and amortization expenses44 51 
EBITDA425 10 
Loss (gain) on foreign currency transactions(2)
Loss on debt extinguishment— 69 
FF&E replacement reserves12