NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 global hospitality companies and is engaged in managing, franchising, owning and leasing hotels and resorts, and licensing its intellectual property ("IP"), including brand names, trademarks and service marks.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements present the consolidated financial position of Hilton as of December 31, 2024 and 2023 and the results of operations for the years ended December 31, 2024, 2023 and 2022.
Principles of Consolidation
Our consolidated financial statements include the accounts of our wholly owned subsidiaries and other non-wholly owned entities in which we have a controlling financial interest, including variable interest entities ("VIEs") for which we are the primary beneficiary. Non-wholly owned entities in which we have a controlling financial interest primarily comprise majority owned entities that own or lease real estate.
The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by third-party ownership interests. If the entity is considered to be a VIE, we evaluate whether we are the primary beneficiary and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interest in the entity, and, if we do, we consolidate the entity.
We hold interests in VIEs, for which we are not the primary beneficiary, that may provide us with the option to acquire an additional interest in such an entity at a predetermined amount, if certain contingent events occur. In a circumstance that we exercise or have the ability to exercise our option to acquire an additional interest in a VIE, we would 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 on the date that we became the primary beneficiary. If such consolidation is required, the amounts may be material.
All material intercompany transactions and balances have been eliminated in consolidation. References in these financial statements to net income (loss) attributable to Hilton stockholders and Hilton stockholders' equity (deficit) do not include redeemable and nonredeemable noncontrolling interests, which represent the third-party ownership interests of our consolidated, non-wholly owned entities and are reported separately.
Use of Estimates
The preparation of financial statements in conformity with United States ("U.S.") generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.
Summary of Significant Accounting Policies
Revenue Recognition
Revenues are primarily derived from: (i) fees earned from management and franchise contracts with third-party hotel owners; (ii) fees earned from license agreements with strategic partners, including co-branded credit card providers, third-party hotels we do not manage or franchise but that use our booking channels and related programs ("strategic partner hotels"), and Hilton Grand Vacations Inc. ("HGV"); and (iii) our owned and leased hotels. The majority of our performance obligations are promises to provide a series of distinct goods or services, for which we receive variable consideration through our management and franchise and licensing fees or fixed consideration through our owned and leased hotels. We allocate the variable fees to the
distinct services to which they relate applying the prescribed variable consideration allocation guidance, and we allocate fixed consideration to the related performance obligations based on their estimated standalone selling prices.
We do not adjust the promised amount of consideration for the effects of a significant financing component when it is our expectation, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that good or service will be twelve months or less, which it is in substantially all cases. Additionally, we do not typically include extended payment terms in our contracts with customers.
Management and franchise revenues
We identified the following performance obligations in connection with our management and franchise contracts:
•IP licenses grant the licensee the right to access our IP, including brand IP, reservations systems and property management systems.
•Hotel management services include providing day-to-day management services in the operation of the hotels for the hotel owners.
•Development services include providing consultative services (e.g., design assistance and contractor selection) to the third-party hotel owner to assist with the construction of the hotel prior to the hotel opening.
•Pre-opening services include providing services (e.g., advertising, budgeting, e-commerce strategies and food and beverage testing) to the third-party hotel owner to assist in preparing for the hotel opening.
•Rewards from Hilton Honors, our guest loyalty program, provide substantive rights for free or discounted goods or services to Hilton Honors members.
Each of the identified performance obligations is considered to be a series of distinct services transferred over time, except for the performance obligation related to rewards from Hilton Honors, which is satisfied at the point in time when a Hilton Honors point is redeemed by a Hilton Honors member. For the performance obligations other than rewards from Hilton Honors, while the underlying activities may vary from day to day, the nature of the commitments are the same each day, and the property owner can independently benefit from each day's services. Management and franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed upfront fees, which usually represent an insignificant portion of the transaction price.
Franchise and licensing fees represent fees earned in connection with the licensing of one of our brands, usually under a long-term contract with a hotel owner, as well as fees from license agreements for the use of our IP and/or booking channels and related programs, and include the following:
•Royalty fees are generally based on a percentage of the hotel's monthly gross room revenue and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, as applicable. These fees are typically billed and collected monthly, and revenue is generally recognized as services are provided.
•Application, initiation and other fees are charged when: (i) new hotels enter our system; (ii) there is a change of ownership of a hotel; or (iii) contracts with hotels already in our system are extended. These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract. We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the hotel owner failing to adequately complete some or all of its obligations under the contract, including establishing and maintaining the hotel in accordance with our standards.
•Licensing fees for the use of our IP and/or booking channels and related programs are earned from: (i) strategic partnerships, including from co-branded credit card arrangements, which are recognized as revenue when points for Hilton Honors are issued, generally as spend with the strategic partner or co-branded credit card provider occurs (see "—Hilton Honors" below for further discussion); (ii) strategic partner hotels, which are recognized as revenue in the period when the room stay occurs; and (iii) a license agreement with HGV for its timeshare business, which are typically billed monthly and recognized as revenue at the same time the fees are billed.
Management fees represent fees earned from hotels that we manage, usually under a long-term contract with a hotel owner, and include the following:
•Base management fees are generally based on a percentage of the hotel's monthly gross operating revenue. Base management fees are typically billed and collected monthly, and revenue is generally recognized as services are provided.
•Incentive management fees are generally based on a percentage of the hotel's operating profits, normally over a one-calendar year period (the "incentive period"), and, in some cases, may be subject to a stated return threshold to the hotel owner. Incentive management fee revenue is recognized on a monthly basis, but only to the extent the cumulative fee earned does not exceed the probable fee for the incentive period. Incentive management fee payment terms vary, but they are generally billed and collected monthly or annually upon completion of the incentive period.
Consideration paid or anticipated to be paid to incentivize hotel owners to enter into management and franchise contracts with us is amortized over the life of the applicable contract, generally including any extension periods that are at our sole option, as a reduction to base and other management fees and franchise and licensing fees, respectively.
We do not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our:
(i) royalty fees, since they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our IP over the terms of the franchise contracts and (ii) other licensing fees, base management fees and incentive management fees since they are allocated entirely to the wholly unsatisfied promise to transfer IP or provide management services, respectively, which form part of a single performance obligation in a series, over the term of the individual contract.
Other revenues from managed and franchised properties represent amounts that are contractually reimbursed to us by property owners, either directly as costs are incurred or indirectly through monthly program fees related to certain costs and expenses supporting the operations of the related properties, and include the following:
•Direct reimbursements primarily include reimbursements received by us for payroll and related costs of managed hotels, if the managed hotel employees are legally employed by us. Direct reimbursements are contractually reimbursed to us by the property owners as expenses are incurred. We have no legal responsibility for the employee liabilities related to certain of our managed properties, predominately those located outside of the U.S., where we are not the legal employer, as well as the employees or the liabilities associated with operating franchised properties or strategic partner hotels. Revenue is recognized based on the amount of expenses incurred by Hilton, which are presented as other expenses from managed and franchised properties in our consolidated statement of operations, and results in no net effect on operating income (loss) or net income (loss). These amounts are reimbursed to us by the property owner at least on a monthly basis.
•Indirect reimbursements include reimbursements received by us for marketing and sales expenses and other expenses associated with our brand programs and shared services, which are reimbursed by program fees billed and collected from our managed and franchised properties and strategic partner hotels. Indirect reimbursements also include reimbursements for expenses incurred to operate the Hilton Honors program (see the "—Hilton Honors" below for additional information). Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (e.g., gross room revenue or number of reservations processed), and revenue is generally recognized as services are provided. System implementation fees charged to property owners are deferred and recognized as revenue over the term of the management or franchise contract. The expenses incurred by Hilton to operate the marketing, sales and brand programs and shared services as well as the Hilton Honors program are recognized as incurred and are presented as other expenses from managed and franchised properties in our consolidated statement of operations. If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs. Additionally, if we expend in excess of amounts collected, we have a contractual right to adjust future collections to recover prior period expenditures.
The management and franchise fees and reimbursements from third-party property owners are allocated to the performance obligations and the distinct services to which they relate using their estimated standalone selling prices. The terms of the fees earned under the contract relate to a specific outcome of providing the services (e.g., hotel room sales) or to Hilton's efforts (e.g., costs) to satisfy the performance obligations. Using time as the measure of progress, excluding revenue recognized for point redemptions, we recognize fee revenue and indirect reimbursements in the period earned per the terms of the contract and revenue related to direct reimbursements in the period in which the cost is incurred. For discussion on revenue recognition for point redemptions, refer to the "—Hilton Honors" below.
Owned and leased hotels revenues
We identified the following performance obligations in connection with our owned and leased hotels revenues, with such revenues recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:
•Cancellable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.
•Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time and satisfied as each distinct good or service is provided, which is reflected by the duration of the reservation.
•Substantive rights for free or discounted goods or services are satisfied when the underlying free or discounted good or service is provided to the hotel guest.
•Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.
•Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.
Owned and leased hotels revenues primarily consist of hotel room sales, revenues from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and sales of other ancillary goods and services (e.g., parking) related to consolidated owned and leased hotels. Revenue is recognized when a room stay occurs or goods and services have been provided. Payment terms typically align with when the goods and services are provided. A portion of owned and leased hotels revenues are deferred upon issuance of Hilton Honors points for Hilton Honors members' paid stay transactions, and revenue is recognized when Hilton Honors points are redeemed for a free or discounted stay at an owned or leased hotel (see "—Hilton Honors" below for additional information).
Although the transaction prices of hotel room sales, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component. On occasion, the hotel may also provide the customer with a substantive right to a free or discounted good or service in conjunction with a room reservation or banquet contract (e.g., free breakfast or free room night for every four room nights reserved). This substantive right is considered a separate performance obligation to which a portion of the transaction price is allocated based on the estimated standalone selling price of the good or service, adjusted for the likelihood the hotel guest will exercise such right. Revenue is recognized when the substantive right to a free or discounted good or service is redeemed.
Other revenues
Other revenues primarily includes revenues generated by our purchasing operations for our owned, leased, managed and franchised hotels, as well as from properties outside of our system that participate in our purchasing programs. Purchasing revenues include any amounts we expect to retain for vendor rebate arrangements related to purchases made directly by managed and franchised properties, as well as properties outside of our system, through our purchasing programs.
Taxes and fees collected on behalf of governmental agencies
We are required to collect certain taxes and fees from customers on behalf of governmental agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees, and, therefore, they are not included in our measurement of transaction prices. We have elected to present revenue net of sales taxes and other similar taxes. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with maturities of three months or less at the date of purchase.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash balances established as collateral for certain guarantees and insurance, including self-insurance and furniture, fixtures and equipment replacement ("FF&E") reserves required under certain lease agreements.
Accounts Receivable
Our accounts receivable primarily consist of amounts due from the property owners with whom we have management and franchise contracts, including the reimbursements due to us for amounts that we have incurred on behalf of our managed and franchised properties.
Allowance for Credit Losses
An allowance for credit losses is provided on our financial instruments, primarily accounts receivable and notes receivable, which are included in other current assets and other assets in our consolidated balance sheet. Expected credit losses on off-balance-sheet commitments, such as guarantees, letters of credit and financing commitments are typically included in other long-term liabilities in our consolidated balance sheet. Our expected credit losses are based on historical collection activity, the nature of the financial instrument, geographic considerations, current and forecasted business conditions and, in the case of off-balance-sheet commitments, the probability that funding will be required.
Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. In connection with the 2007 transaction whereby we became a wholly owned subsidiary of affiliates of Blackstone Inc. (the "Merger"), we recorded goodwill representing the excess purchase price over the fair value of the identified assets and liabilities.
We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis or at other times during the year if indicators of impairment exist. Our reporting units are the same as our operating segments as described in Note 19: "Business Segments." When we evaluate goodwill for potential impairment, generally, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we determine qualitatively that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, including goodwill. The estimated fair value is based on forward-looking estimates of performance and cash flows of our reporting units, which are based on historical operating results, adjusted for current and expected future market conditions, as well as various internal projections and external sources. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss would be recognized in our consolidated statement of operations in an amount equal to the excess of the carrying value over the estimated fair value, limited to the total amount of goodwill allocated to that reporting unit.
As of December 31, 2024 and 2023, our goodwill balance was only attributable to our management and franchise reporting unit, which had no accumulated impairment losses as of either date. The changes in our goodwill balances during the years ended December 31, 2024 and 2023 were due to foreign currency translation.
Brands
Brands intangible assets were initially recorded at their fair value at the time of the Merger for the portfolio of brands that existed at the time of the Merger, using the relief-from-royalty valuation approach for owned and leased hotels and the multi-period excess earnings method for managed and franchised hotels. During the year ended December 31, 2024, we recorded brands intangible assets related to the acquisition of the Graduate brand and NoMad brand (refer to Note 3: "Acquisitions" for additional information). The fair value of the Graduate brand intangible asset was determined on a relative fair value basis and
the fair value of the NoMad brand intangible asset was determined using the multi-period excess earnings method. There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these brands, and, accordingly, the useful lives of these brands are considered to be indefinite. A portion of our brands intangible assets are denominated in foreign currencies and, as such, a period over period change in these assets is attributable to fluctuations in foreign currency exchange rates.
We evaluate our indefinite-lived brands intangible assets for impairment on an annual basis or at other times during the year if indicators of impairment exist. When we evaluate our brands intangible assets for potential impairment, generally, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the asset is less than its carrying value. If we determine qualitatively that the fair value of the asset is more likely than not less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis. The estimated fair value of the brands intangible assets are based on forward-looking estimates of performance and cash flows of each respective brand, which are based on historical operating results, adjusted for current and expected future market conditions as well as various internal projections and external sources. If the carrying value of a brand intangible asset exceeds its estimated fair value, an impairment loss would be recognized in our consolidated statement of operations in an amount equal to the excess of the carrying value over the estimated fair value.
Intangible Assets with Finite Useful Lives
We capitalize consideration paid to incentivize hotel owners to enter into management and franchise contracts with us as contract acquisition costs and the incremental costs to obtain the contracts as development commissions and other, both of which are generally fixed. We also capitalize costs incurred to develop internal-use computer software and costs to acquire software licenses, as well as internal and external costs incurred in connection with the development of upgrades or enhancements that result in additional information technology functionality. During the year ended December 31, 2024, we recorded franchise contract intangible assets and management contract intangible assets related to the acquisitions of the Graduate brand and NoMad brand, respectively (refer to Note 3: "Acquisitions" for additional information). Additionally, certain finite-lived intangible assets were initially recorded at their fair value at the time of the Merger. As of January 1, 2022, the only remaining finite-lived intangible assets resulting from the Merger related to leases, international management contracts and our Hilton Honors guest loyalty program. The assets related to the international management contracts and Hilton Honors, which both had useful lives of 16 years, were fully amortized during the year ended December 31, 2023.
Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which for contract acquisition costs and development commissions and other is the contract term, generally including any extension periods that are at our sole option. The estimated useful lives of our finite-lived intangible assets are generally as follows: (i) management contract acquisition costs and development commissions and other (20 to 30 years); (ii) franchise contract acquisition costs and development commissions and other (10 to 20 years); (iii) leases (17 to 35 years); (iv) Graduate brand franchise contract intangible assets and NoMad brand management contract intangible assets acquired in 2024 (9 to 15 years); and (v) capitalized software costs (3 years). In our consolidated statement of operations, the amortization of these intangible assets, excluding contract acquisition costs, is included in depreciation and amortization expenses and the amortization of contract acquisition costs is recognized as a reduction to franchise and licensing fees or base and other management fees, depending on the contract type. Costs incurred prior to the acquisition of a contract, such as external legal costs, are expensed as incurred and included in general and administrative expenses in our consolidated statement of operations. Cash flows for contract acquisition costs and development commissions and other are included as operating activities in our consolidated statement of cash flows, and cash flows for capitalized software costs and management and franchise contract intangible assets acquired are included as investing activities.
We evaluate the carrying value of all finite-lived intangible assets for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group by comparing the expected undiscounted future cash flows to the net carrying value of the asset group. If the carrying value of the asset group is not recoverable and it exceeds the estimated fair value of the asset group, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value. We allocate the impairment loss related to the asset group among the various assets within the asset group pro rata based on the relative carrying values of the respective assets.
Property and Equipment
Property and equipment are recorded at cost. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and
maintenance are expensed as incurred. Right-of-use ("ROU") assets of finance leases are included in property and equipment, net in our consolidated balance sheet; see "—Leases" below for additional information.
Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally: (i) 8 to 40 years for buildings and improvements; (ii) 3 to 8 years for furniture and equipment; and (iii) 3 to 5 years for computer equipment. Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the remaining lease term.
We evaluate the carrying value of our property and equipment for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group by comparing the estimated undiscounted future cash flows to the net carrying value of the asset group. If the carrying value of the asset group is not recoverable and it exceeds the estimated fair value of the asset group, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value. We allocate the impairment loss related to the asset group among the various assets within the asset group pro rata based on the relative carrying values of the respective assets.
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 lease upon modification of the contract. For contracts in which we are the lessee that contain fixed payments for both lease and non-lease components, we have elected to account for these components as a single lease component.
At the commencement date of a lease, we recognize a lease liability for future fixed lease payments and a 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 lessor options to renew the lease within the lessor's control and 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. Current and long-term portions of operating lease liabilities are classified as accounts payable, accrued expenses and other and operating lease liabilities, respectively, and current 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 sheet.
The ROU asset is measured as 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, deferred rent and lease incentives. In our consolidated balance sheet, ROU assets of operating leases are included in operating lease right-of-use assets and ROU assets of finance leases are included in property and equipment, net. We evaluate the carrying value of our ROU assets for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group by comparing the estimated undiscounted future cash flows to the net carrying value of the asset group. If the carrying value of the asset group is not recoverable and it exceeds the estimated fair value of the asset group, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value. We allocate the impairment loss related to an asset group among the various assets within the asset group pro rata based on the relative carrying values of the respective assets.
Depending on the individual agreement, our operating leases may require: (i) fixed lease payments as contractually stated in the lease agreement; (ii) variable lease payments, which, for our hotels, are generally based on a percentage of the hotel's revenues or profits or result from changes in inflationary indices; or (iii) lease payments equal to the greater of the fixed or variable lease payments. In addition, during the term of our hotel leases, we may be required to pay some, or all, of the capital costs for FF&E and leasehold improvements in the hotel property. For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term, and lease expense related to variable payments is expensed as incurred, with amounts recognized in owned and leased hotels expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statement of operations. For operating leases for which the ROU asset has been impaired, the periodic lease expense is determined as the sum of (i) the amortization of any remaining ROU asset on a straight-line basis over the remaining term of the lease and (ii) the accretion of the lease liability based on the discount rate applied to the lease liability. For finance leases, the amortization of the ROU asset is recognized over the shorter of the lease term or useful life of the underlying asset within depreciation and amortization expenses and other expenses from managed and franchised properties in our consolidated statement of operations. The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statement of operations.
Contract Liabilities
Contract liabilities primarily relate to: (i) amounts received when points are issued for the Hilton Honors program, but for which revenue is not yet recognized, since the related points are not yet redeemed; and (ii) advance consideration received from hotel owners for services considered to be part of the contract's performance obligations, such as application, initiation and other fees and system implementation fees. Contract liabilities related to amounts received for points issued for the Hilton Honors program are recognized as revenue when the points are redeemed for a free or discounted good or service by the Hilton Honors member. Contract liabilities related to advance consideration received from hotel owners are recognized ratably as revenue over the term of the related contract. Contract liabilities are included in current and long-term deferred revenues in our consolidated balance sheet, with the current portion based on our estimates of the amounts that will be recognized in the next twelve months.
Redeemable Noncontrolling Interests
Noncontrolling interests with redemption features that are not solely within our control are considered redeemable noncontrolling interests. The redeemable noncontrolling interests are a component of temporary equity and are reported between liabilities and equity (deficit) in our consolidated balance sheet. At each reporting period, the redeemable noncontrolling interests are recognized at the higher of (i) the initial carrying amount, adjusted for accumulated earnings (losses), contributions and distributions, or (ii) the redemption value as of the balance sheet date. We include both the earnings (losses) for the period attributable to redeemable noncontrolling interests and any adjustment to the carrying value of redeemable noncontrolling interests as a result of a change in the redemption value in net income attributable to redeemable and nonredeemable noncontrolling interests in our consolidated statement of operations.
Hilton Honors
Hilton Honors is our guest loyalty program, and substantially all of our properties participate in the program. Hilton Honors members earn points based on their spend at our participating properties and through participation in affiliated strategic partner programs, including co-branded credit card arrangements. When points are earned by Hilton Honors members, they are provided with a substantive right to free or discounted goods or services in the future upon accumulation of the required number of points. Points may be redeemed for a stay at participating properties, as well as for other goods and services from third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining.
As points are issued to a Hilton Honors member, the property or strategic partner pays Hilton based on the member's spend at the property or with the strategic partner. The amounts charged are equal to the estimated cost of operating the program, which includes marketing, promotion, communication and administrative expenses, as well as the estimated cost of reward redemptions. When we receive payments related to the issuance of points, we record amounts equal to the estimated cost per point of the future redemption obligation within liability for guest loyalty program and any amounts received in excess of the estimated cost per point within deferred revenues in our consolidated balance sheet. For the Hilton Honors fees that are charged to the participating properties, we allocate such fees to the substantive right created by the points that are issued using the variable consideration allocation guidance, since the fees are directly related to the issuance of points to the Hilton Honors member and Hilton's efforts to satisfy the future redemption of those points. We engage third-party actuaries annually to assist in determining the estimated cost per point of the future reward redemption obligation using a discount rate and statistical formulas that project future point redemptions based on our historical experience and future expectations. Factors used in the estimate include: (i) an estimate of points that will eventually be redeemed, which includes an estimate of breakage (i.e., points that will never be redeemed), (ii) an estimate of when such points will be redeemed and (iii) an estimate of the cost of reimbursing managed and franchised properties and other third parties for redemptions. When a Hilton Honors member stays and earns points at an owned or leased hotel, we recognize a portion of the revenues associated with that stay in owned and leased hotels revenues, with the remaining portion recorded in liability for guest loyalty program and deferred revenues until the points are redeemed. We estimate the current portions of our liability for guest loyalty program and Hilton Honors deferred revenues based on the total point redemptions and, for the liability for guest loyalty program, also breakage that is expected to occur within the next 12 months; these amounts are presented as current portion of liability for guest loyalty program and current portion of deferred revenues in our consolidated balance sheet.
The transaction prices for the Hilton Honors points issued are reduced by the expected payments to the managed and franchised properties and other third parties that will provide the free or discounted good or service using the actuarial projection of the cost per point. The remaining transaction price is then further allocated to the points that are expected to be redeemed, which is determined by adjusting the points that are issued for estimated breakage, and recognized when those points are redeemed. While the points are outstanding, both the estimate of the expected payments to third parties (i.e., cost per point
redeemed) and the estimated breakage are reevaluated. The combined estimate yields the amount of revenue that will be recognized when our point obligation is satisfied and is adjusted so that the final amount allocated to the substantive right of the Hilton Honors member to redeem their points for free or discounted goods and services is reflective of the amount retained by Hilton after the cost of providing the free or discounted goods and services.
We also earn licensing fees from strategic partnerships, including co-branded credit card arrangements (see "—Management and franchise revenues" within "—Revenue Recognition" above). The consideration received is allocated based on the estimated standalone selling prices between two performance obligations: (i) an IP license using the relief-from-royalty valuation method; and (ii) substantive rights for free or discounted goods or services to the Hilton Honors members using a discounted cash flow analysis adjusted for an appropriate margin.
We satisfy our performance obligation related to the IP license over time as the strategic partner simultaneously receives and consumes the benefits of the goods or services provided, and we satisfy our performance obligation related to points issued under the Hilton Honors program when points are redeemed for a free or discounted good or service by the Hilton Honors members. Hilton reimburses managed and franchised properties and other third parties when points are redeemed by Hilton Honors members for stays at the participating properties or for other goods or services from the third-party providers, respectively, at which time the redemption obligation is reduced and the related deferred revenue is recognized in other revenues from managed and franchised properties in our consolidated statement of operations. Additionally, when Hilton Honors members redeem points for a free or discounted stay at our owned and leased hotels, we recognize room revenue, included in owned and leased hotels revenues in our consolidated statement of operations.
Fair Value Measurements – Valuation Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (i.e., an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the data market participants would use in pricing the asset or liability developed based on the best information available to us in the specific circumstances. The three-tier hierarchy of inputs is summarized below:
•Level 1 – Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
•Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
Estimates of the fair values of our financial instruments and nonfinancial assets are determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values and the classification within the valuation hierarchy. We have not elected the fair value measurement option for any of our financial assets or liabilities.
Derivative Instruments
We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. We regularly monitor the financial stability and credit standing of the counterparties to our derivatives. We do not enter into derivatives for speculative purposes.
We record all derivatives at fair value. On the date the derivative contract is entered into, we may designate the derivative as a hedging instrument, and, if so, we formally document all relationships between hedging activities, including the risk
management objective and strategy for undertaking various hedge transactions. We generally enter into cash flow hedges (i.e., a hedge of a specific forecasted transaction or the variability of cash flows to be paid), and, in the past, we also entered into net investment hedges (i.e., a hedge of an investment in a foreign operation). Changes in the fair value of a derivative that is qualified and designated as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in our consolidated statement of comprehensive income (loss) until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. If we do not specifically designate a derivative as a cash flow hedge or another type of hedging instrument, changes in the fair value of the undesignated derivative are reported in current period earnings. Cash flows from designated derivatives are classified within the same category as the item being hedged in the consolidated statement of cash flows, while cash flows from undesignated derivatives are included as an investing activity.
We perform an initial prospective assessment of hedge effectiveness on a quantitative basis between the inception date and the earlier of the first quarterly hedge effectiveness date or the issuance of the financial statements that include the hedged transaction. On a quarterly basis, we assess the effectiveness of our designated derivatives in offsetting the variability in the cash flows using a statistical method. This method compares the cumulative change in fair value of each designated derivative to the cumulative change in fair value of a hypothetical derivative, which has terms that identically match the critical terms of the respective hedged transactions, and therefore is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the designated derivative exceeds the cumulative change in the fair value of the hypothetical derivative. We would discontinue hedge accounting prospectively when the derivative is no longer highly effective as a hedge, the underlying hedged transaction is no longer probable, the hedging instrument expires, is sold, terminated or exercised or if we voluntarily choose to do so.
Currency Translation
The U.S. dollar ("USD") is our reporting currency and is the functional currency of our entities operating in the U.S. The functional currency for our entities operating outside of the U.S. is the currency of the primary economic environment in which the respective entity operates, unless it is considered a highly inflationary economy in which case the functional currency of that entity is the reporting currency of its immediate parent. Assets and liabilities measured in foreign currencies are translated into USD at the prevailing foreign currency exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income (loss) in our consolidated balance sheet. Income and expense accounts are translated at the average foreign currency exchange rate for the period. Gains and losses from foreign currency exchange rate changes related to transactions denominated in a currency other than an entity's functional currency or intercompany receivables and payables denominated in a currency other than an entity’s functional currency that are not of a long-term investment nature are recognized within gain (loss) on foreign currency transactions in our consolidated statement of operations. Where certain specific evidence indicates intercompany receivables and payables will not be settled in the foreseeable future and are of a long-term nature, gains and losses from foreign currency exchange rate changes are recognized as currency translation adjustment within other comprehensive income (loss) in our consolidated statement of comprehensive income (loss).
Insurance
We are self-insured for losses up to our third-party insurance deductibles for domestic general liability, auto liability, workers' compensation, employment practices liability and crime insurance at our owned, leased and managed hotels that participate in our insurance programs, in addition to other corporate related coverages. We are also self-insured for health coverages for some of our U.S. and Puerto Rico employees, which include those working at our corporate operations and managed hotels, with purchased insurance protection for costs over specified thresholds. In addition, through our captive insurance subsidiary, we participate in reinsurance arrangements that provide coverage and/or act as a financial intermediary for claim payments on our self-insurance program. These obligations and reinsurance arrangements can cause timing differences in the recognition of assets, liabilities, gains and losses between reporting periods, although we expect these amounts to ultimately offset when the related claims are settled. Our insurance reserves are accrued based on the estimated ultimate cost to us of claims that occurred during the covered period, which includes claims incurred but not reported, for which we will be responsible. These estimates are prepared with the assistance of third-party actuaries and consultants. The ultimate cost of claims for a covered period are reviewed at least annually, or more frequently as circumstances dictate, and are adjusted based on the latest information available to us, which may differ from our original estimates.
Share-Based Compensation
Our share-based compensation primarily consists of awards that we grant to eligible employees under the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan") and includes time-vesting restricted stock units ("RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares") to our eligible employees:
•RSUs vest in equal annual installments over two or three years from the date of grant. Vested RSUs generally will be settled for the Company's common stock, with the exception of certain awards that will be settled in cash. The grant date fair value per share is equal to the closing stock price on the date of grant.
•Options vest in equal annual installments over three years from the date of grant and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances. The grant date fair value per share is estimated using the Black-Scholes-Merton option-pricing model. The exercise price is equal to the closing stock price on the date of grant. Upon the exercise of stock options, new shares of our common stock are issued.
•Performance shares vest three years from the date of grant based on a set of specified performance measures over a defined performance period. Vested performance shares generally will be settled for the Company's common stock, with the exception of certain awards that will be settled in cash. The grant date fair value is equal to the closing stock price on the date of grant. The total number of performance shares that vest related to each performance measure is based on an achievement factor that ranges from zero percent to 200 percent, with 100 percent being the target.
We recognize these share-based payment transactions when services from the employees are rendered and recognize either a corresponding increase in additional paid-in capital or accounts payable, accrued expenses and other in our consolidated balance sheet, depending on whether the instruments granted satisfy the equity or liability classification criteria, respectively. The measurement objective for these equity awards is the estimated fair value at the date of grant of the equity instruments that we are obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. The compensation expense for an award classified as an equity instrument is recognized ratably over the requisite service period, which is the period during which an employee is required to provide service in exchange for an award. Liability awards are measured based on the award’s estimated fair value, and the fair value is remeasured at each reporting date until the date of settlement. For such liability awards, compensation expense for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered as of the reporting date) in the fair value of the instrument for each reporting period. Compensation expense for awards with a performance condition is dependent on the expected achievement percentage of such awards, which is reassessed each reporting period from the date of grant through the vesting date of such performance awards, and is recognized over the requisite service period if it is probable that the performance condition will be satisfied. If such performance conditions are not or are no longer considered probable to be satisfied, no compensation expense for these awards is recognized, and any previously recognized expense related to awards that are determined to be improbable of achievement is reversed. Additionally, we have a retirement provision whereby the vesting date for eligible participants is accelerated based on certain criteria, and we recognize total compensation expense for these awards through the accelerated vesting date. We recognize forfeitures of share-based compensation awards as they occur. Share-based compensation expense is recognized in owned and leased hotels expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statement of operations.
Income Taxes
We account for income taxes using the asset and liability method. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts and tax attribute carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the respective temporary differences or tax attribute carryforwards are expected to be recovered or settled. The realization of deferred tax assets is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.
We are taxed on global intangible low-tax income ("GILTI") earned by certain foreign subsidiaries. We recognize the current tax on GILTI as an expense in the period the tax is incurred.
We use a prescribed more-likely-than-not recognition threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the consolidated financial statements. For all income tax positions, we first determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of each evaluated tax position and the amounts we would ultimately accept in a negotiated settlement with tax authorities. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
Loss Contingencies
We are involved in various claims and lawsuits arising in the ordinary course of business, the outcomes of which are subject to significant uncertainty. An estimated loss from a loss contingency will be accrued as a charge to income if it is probable a loss has been incurred and the amount of the loss can be reasonably estimated.
Acquisitions
We make certain judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments include the assessment of the inputs, processes and outputs associated with an acquired set of activities and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets. We account for a transaction as a business combination when the assets acquired include inputs and one or more substantive processes that, together, significantly contribute to the ability to create outputs and substantially all of the total fair value of the assets acquired is not concentrated to a single identifiable asset or group of similar assets. Otherwise, we account for the transaction as an asset acquisition.
We account for acquisitions that meet the definition of a business combination using the acquisition method of accounting whereby the identifiable assets acquired and liabilities assumed, as well as any noncontrolling interests in the acquired business, are recorded at their estimated fair values at the acquisition date, with any excess purchase price over the fair value of the net assets acquired recorded as goodwill. In business combinations, the purchase price allocations may be based on preliminary estimates and assumptions and, accordingly, during the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized during the period in which the amount of the adjustment is determined generally with a corresponding offset to goodwill or gain on bargain purchase. We recognize any adjustments subsequent to the measurement period in our consolidated statement of operations. We expense transaction costs related to business combinations as incurred. We record the net assets and results of operations of an acquired entity in our consolidated financial statements from the acquisition date.
In determining the fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values, where available. Further, we make assumptions within certain valuation methods including discount rates and timing of future cash flows. Valuations are performed by external valuation professionals with skills and qualifications under management's supervision. We believe the estimated fair values assigned to the assets acquired and liabilities assumed are based on assumptions that market participants would use. However, such assumptions are inherently uncertain and actual results may differ from those estimates.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed based on their relative fair values. We do not recognize any goodwill in an asset acquisition.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires, among other things, the following: (i) enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included in a segment's reported measure of profit or loss; (ii) disclosure of the amount and description of the composition of other segment items, as defined in ASU 2023-07, by reportable segment; (iii) disclosure about how the CODM uses segment profitability measures to make resource allocation decisions; and (iv) reporting the disclosures about each reportable segment's profit or loss and assets on an annual and interim basis. We
adopted the provisions of ASU 2023-07 as of January 1, 2024, which resulted in additional disclosures in the notes to our consolidated financial statements that we applied retrospectively to all prior periods presented.
Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires, among other things, the following for public business entities: (i) enhanced disclosures of specific categories of reconciling items included in the rate reconciliation, as well as additional information for any of these items meeting certain qualitative and quantitative thresholds; (ii) disclosure of the nature, effect and underlying causes of each individual reconciling item disclosed in the rate reconciliation and the judgment used in categorizing them if not otherwise evident; and (iii) enhanced disclosures for income taxes paid, which includes federal, state, and foreign taxes, as well as for individual jurisdictions over a certain quantitative threshold. The amendments in ASU 2023-09 eliminate the requirement to disclose the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits for the 12 months after the balance sheet date. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024; early adoption is permitted. We expect ASU 2023-09 to require additional disclosures in the notes to our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03 ("ASU 2024-03"), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires, among other things, the following for public business entities: (i) tabular disclosure of amounts for the following categories that are included in each expense caption within continuing operations on the statement of operations, with each expense caption that includes one of these expense categories deemed a relevant expense caption: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization and (e) depreciation, depletion, and amortization recognized as part of oil-and gas-producing activities; (ii) disclosure of certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements; (iii) qualitative description of the amount remaining in relevant expense captions that are not separately disaggregated quantitatively; and (iv) disclosure of the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. The provisions of ASU 2024-03 are effective for annual periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027; early adoption is permitted. Entities must apply the updates in ASU 2024-03 prospectively and are permitted to apply the updates retrospectively. We expect ASU 2024-03 to require additional disclosures in the notes to our consolidated financial statements.
Note 3: Acquisitions
Graduate by Hilton
In May 2024, we completed the acquisition of the Graduate brand for a total purchase price of $210 million, $200 million of which we paid in cash upon closing. The remaining amount was included in accounts payable, accrued expenses and other in our consolidated balance sheet as of December 31, 2024 and will be paid upon the satisfaction of certain conditions by the seller, which are expected to occur within the next 12 months. We accounted for the transaction as an asset acquisition. On the date of the acquisition, we added 32 existing properties located in the U.S. and United Kingdom ("U.K.") to our franchise portfolio.
We allocated the cost of the acquisition, including transaction costs, to the assets acquired on a relative fair value basis. As a result, we recorded an indefinite-lived brand intangible asset of approximately $122 million and franchise contract intangible assets of approximately $91 million. The franchise contract intangible assets will be amortized over an estimated useful life of 15 years to depreciation and amortization expenses in our consolidated statements of operations.
The results of operations related to the Graduate brand, which did not have a material impact on our operating results for the year ended December 31, 2024, were included in the consolidated financial statements for the period from the date of acquisition to December 31, 2024.
NoMad
In April 2024, we acquired a controlling financial interest in both Sydell Hotels & Resorts, LLC and Sydell Holding Company UK Ltd (collectively, the "Sydell Group"), which owns the NoMad brand. We accounted for the transaction as a business combination and recognized the fair value, which included measurement period adjustments made subsequent to the acquisition date, of an indefinite-lived brand intangible asset of approximately $48 million and management contract intangible
assets, with an aggregate fair value of approximately $8 million. The management contract intangible assets will be amortized over a weighted average estimated useful life of approximately 14 years to depreciation and amortization expenses in our consolidated statements of operations.
We measured the net assets acquired at fair value as of the date of acquisition. The fair values of the respective net assets acquired were determined by management with assistance from external valuation specialists. We developed our estimate of the fair value of the brand intangible asset and contract intangible assets by applying the multi-period excess earnings method. The multi-period excess earnings method uses unobservable inputs for projected cash flows, including projected financial results and a discount rate, which are considered Level 3 inputs within the fair value measurement valuation hierarchy.
Our redeemable noncontrolling interests relate to our interest in the Sydell Group. The Sydell Group's governing documents contain put options that give the noncontrolling interest holders the right to sell their equity interests to us beginning in the second quarter of 2030, as well as call options that give us the right to purchase the remaining equity interests beginning in the second quarter of 2032. The exercise price of the put and call options is based on a multiple of the Sydell Group's earnings as of the date that such option would be exercised. The redeemable noncontrolling interests were recorded at a fair value of $22 million as of the acquisition date.
The results of operations of the Sydell Group were included in the consolidated financial statements for the period from the date of acquisition to December 31, 2024. The acquisition of a controlling financial interest in the Sydell Group did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 2024, and, as such, historical and pro forma results are not disclosed.
Note 4: Revenues from Contracts with Customers
Contract Liabilities
The following table summarizes the activity of our contract liabilities during the year ended December 31, 2024:
| | | | | |
| (in millions) |
Balance as of December 31, 2023 | $ | 1,521 | |
Cash received in advance and not recognized as revenue | 767 | |
Revenue recognized(1) | (418) | |
Other(2) | (41) | |
Balance as of December 31, 2024 | $ | 1,829 | |
____________
(1)Primarily related to Hilton Honors, including co-branded credit card arrangements.
(2)Primarily represents the changes in estimated transaction prices for our performance obligations related to the issuance of Hilton Honors points, which had no effect on revenues.
Performance Obligations
As of December 31, 2024, deferred revenues for unsatisfied performance obligations consisted of: (i) $1,032 million related to Hilton Honors that will be recognized as revenue over approximately the next two years; (ii) $780 million related to advance consideration received from hotel owners for application, initiation and other fees and system implementation fees; and (iii) $17 million related to other obligations.
Note 5: Consolidated Variable Interest Entities
As of December 31, 2024 and 2023, we consolidated two VIEs that each lease one hotel property, both of which are located in Japan, and for which the assets are only available to settle the obligations of the respective entities and the liabilities of the respective entities are non-recourse to us. 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.
Our consolidated balance sheets include the assets and liabilities of these entities, including the effect of foreign currency translation, which primarily comprised the following:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
| Cash and cash equivalents | $ | 53 | | | $ | 46 | |
Accounts receivable, net | 16 | | | 17 | |
| Property and equipment, net | 40 | | | 37 | |
| Deferred income tax assets | 21 | | | 32 | |
| Other non-current assets | 39 | | | 43 | |
| Accounts payable, accrued expenses and other | 36 | | | 29 | |
Long-term debt(1)(2) | 65 | | | 95 | |
____________
(1)Represents and includes finance lease liabilities of $65 million and $86 million, respectively, as of December 31, 2024 and 2023, respectively.
(2)Includes current maturities of $13 million and $19 million as of December 31, 2024 and 2023, respectively.
Note 6: Loss on Investments in Unconsolidated Affiliate
We provide equity and debt financing to certain unconsolidated affiliates with an objective of supporting the growth of our network. The assets relating to these investments are classified as other current assets or other non-current assets in our consolidated balance sheet based on the expected maturity date of the respective investment, if applicable.
In March 2023, as a result of the rise in market-based interest rates, one of our third-party unconsolidated affiliates (the "Fund"), which has underlying investments in certain hotels that we manage or franchise, failed to comply with certain requirements of its debt agreements. As a result, we determined that: (i) our investment in the Fund was fully impaired and (ii) short-term subordinated financing receivables due to us from the Fund were uncollectible. As such, we recognized an other-than-temporary impairment loss on our investment of $44 million and credit losses of $48 million to fully reserve the financing receivables, such that their net carrying values were zero. These losses were recognized in loss on investments in unconsolidated affiliate in our consolidated statement of operations for the year ended December 31, 2023. See Note 12: "Fair Value Measurements" for additional information.
Note 7: Intangible Assets
Finite-lived intangible assets were as follows:
| | | | | | | | | | | | | | | | | |
| December 31, 2024 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
| Management and franchise contracts: | | | | | |
Contract acquisition costs | $ | 1,289 | | | $ | (289) | | | $ | 1,000 | |
Other(1) | 281 | | | (46) | | | 235 | |
| $ | 1,570 | | | $ | (335) | | | $ | 1,235 | |
| Other intangible assets: | | | | | |
| Capitalized software costs | $ | 754 | | | $ | (590) | | | $ | 164 | |
Leases(2) | 88 | | | (58) | | | 30 | |
| $ | 842 | | | $ | (648) | | | $ | 194 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (in millions) |
| Management and franchise contracts: | | | | | |
Contract acquisition costs | $ | 1,183 | | | $ | (244) | | | $ | 939 | |
Other(1) | 162 | | | (37) | | | 125 | |
| $ | 1,345 | | | $ | (281) | | | $ | 1,064 | |
| Other intangible assets: | | | | | |
| Capitalized software costs | $ | 712 | | | $ | (576) | | | $ | 136 | |
Leases(2)(3) | 126 | | | (89) | | | 37 | |
| $ | 838 | | | $ | (665) | | | $ | 173 | |
____________
(1)Includes development commissions and other intangible assets. Amount for the year ended December 31, 2024 also includes management and franchise contract intangible assets acquired from third parties.
(2)Represents intangible assets that were initially recorded at fair value at the time of the Merger.
(3)During the year ended December 31, 2023, we recognized $4 million of impairment losses related to our leases intangible assets in our consolidated statement of operations; see Note 12: "Fair Value Measurements" for additional information.
Amortization of our finite-lived intangible assets was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
Recognized in depreciation and amortization expenses(1) | $ | 91 | | | $ | 104 | | | $ | 116 | |
Recognized as a reduction of franchise and licensing fees and base and other management fees | 50 | | | 43 | | | 38 | |
____________
(1)Includes amortization expense of $5 million, $37 million and $45 million for the years ended December 31, 2024, 2023 and 2022, respectively, associated with assets that were initially recorded at fair value at the time of the Merger, some of which fully amortized during the year ended December 31, 2023.
As of December 31, 2024, we estimate future amortization expense of our finite-lived intangible assets that will be recognized in depreciation and amortization expenses to be as follows:
| | | | | |
| Year | (in millions) |
| 2025 | $ | 96 | |
| 2026 | 74 | |
| 2027 | 43 | |
| 2028 | 21 | |
| 2029 | 17 | |
| Thereafter | 178 | |
| $ | 429 | |
Note 8: Property and Equipment
Property and equipment were as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
| Land | $ | 8 | | | $ | 8 | |
Buildings and leasehold improvements | 368 | | | 364 | |
| Furniture and equipment | 375 | | | 407 | |
| Construction-in-progress | 65 | | | 37 | |
| Finance lease ROU assets | 94 | | | 86 | |
| 910 | | | 902 | |
Accumulated depreciation and amortization(1) | (499) | | | (520) | |
| $ | 411 | | | $ | 382 | |
____________
(1)During the years ended December 31, 2024, 2023 and 2022, depreciation and amortization expenses on property and equipment was $55 million, $43 million and $46 million, respectively.
Property and equipment, net attributed to U.S. operations was $208 million and $183 million as of December 31, 2024 and 2023, respectively, and to operations outside the U.S. was $203 million and $199 million, respectively, most significantly in the U.K. and Japan.
During the year ended December 31, 2023, we recognized $1 million of impairment losses in our consolidated statement of operations related to property and equipment, net; see Note 12: "Fair Value Measurements" for additional information.
Note 9: Accounts Payable, Accrued Expenses and Other
Accounts payable, accrued expenses and other were as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
| Accrued employee compensation and benefits | $ | 637 | | | $ | 592 | |
| Accounts payable | 409 | | | 457 | |
| Operating lease liabilities, current | 117 | | | 116 | |
| Insurance reserves, current | 114 | | | 99 | |
Other current liabilities and accrued expenses(1) | 847 | | | 715 | |
| $ | 2,124 | | | $ | 1,979 | |
____________
(1)Includes deposit liabilities related to hotel operations and application fees, promotional liabilities, contract acquisition costs payable and income taxes payable, as well as accrued expenses related to taxes, interest, advertising, rent and other.
Note 10: Debt
Long-term Debt
Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of December 31, 2024, were as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
Senior secured term loan facility due 2028 | $ | — | | | $ | 1,000 | |
Senior secured term loan facility with a rate of 6.09%, due 2030 | 3,119 | | | 2,119 | |
Senior notes with a rate of 5.375%, due 2025(1) | 500 | | | 500 | |
Senior notes with a rate of 4.875%, due 2027(1) | 600 | | | 600 | |
Senior notes with a rate of 5.750%, due 2028(1) | 500 | | | 500 | |
Senior notes with a rate of 5.875%, due 2029(1) | 550 | | | — | |
Senior notes with a rate of 3.750%, due 2029(1) | 800 | | | 800 | |
Senior notes with a rate of 4.875%, due 2030(1) | 1,000 | | | 1,000 | |
Senior notes with a rate of 4.000%, due 2031(1) | 1,100 | | | 1,100 | |
Senior notes with a rate of 3.625%, due 2032(1) | 1,500 | | | 1,500 | |
Senior notes with a rate of 6.125%, due 2032(1) | 450 | | | — | |
Senior notes with a rate of 5.875%, due 2033(1) | 1,000 | | | — | |
Finance lease liabilities with a weighted average rate of 6.03%, due 2025 to 2030(2) | 117 | | | 139 | |
Other debt of consolidated VIEs(2) | — | | | 9 | |
| 11,236 | | | 9,267 | |
Less: unamortized deferred financing costs and discounts | (85) | | | (71) | |
Less: current maturities of long-term debt(3) | (535) | | | (39) | |
| $ | 10,616 | | | $ | 9,157 | |
____________
(1)These notes are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries, other than Hilton Domestic Operating Company Inc. ("HOC"), an indirect wholly owned subsidiary of the Parent and the issuer of all of the series of Senior Notes.
(2)Long-term debt of our consolidated VIEs is included in finance lease liabilities and other debt of consolidated VIEs as applicable. Refer to Note 5: "Consolidated Variable Interest Entities" for additional information.
(3)Represents current maturities of finance lease liabilities and the 5.375% Senior Notes due 2025 as of December 31, 2024 and current maturities of finance lease liabilities and borrowings of consolidated VIEs as of December 31, 2023. We believe that we have sufficient sources of liquidity and access to debt financing to address the current maturities of long-term debt at or prior to the respective maturity dates.
Senior Secured Credit Facilities
Our senior secured credit facilities consist of a senior secured revolving credit facility (the "Revolving Credit Facility") and senior secured term loan facilities (the "Term Loans"). The obligations under our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries, other than HOC, the named borrower of the senior secured credit facilities.
In June 2024, we amended the credit agreement governing our Term Loans pursuant to which $1.0 billion of outstanding Term Loans due June 2028 were replaced with $1.0 billion of incremental Term Loans due November 2030, aligning their maturity with the outstanding $2.1 billion tranche of Term Loans due November 2030. Additionally, the entire balance of the Term Loans was repriced with an interest rate of the Secured Overnight Financing Rate ("SOFR") plus 1.75% (collectively, the "June 2024 Amendment"). In connection with the June 2024 Amendment, we incurred $3 million of debt issuance costs, which were recognized in other non-operating loss, net in our consolidated statement of operations for the year ended December 31, 2024.
In March 2024, we borrowed and subsequently repaid $200 million under the Revolving Credit Facility.
In November 2023, we amended the credit agreement governing our Term Loans pursuant to which $1.0 billion of outstanding Term Loans were converted into a new tranche of Term Loans due June 2028 with an interest rate of SOFR plus 1.85% and $1.6 billion of outstanding Term Loans were converted into a new tranche, which was also increased by $500 million of aggregate principal amount, due November 2030 with an interest rate of SOFR plus 2.10%. In connection with
the amendment of the Term Loans, we incurred $21 million of original issue discounts and fees, of which $11 million was recognized as a reduction to the outstanding debt balance in our consolidated balance sheet to be amortized to interest expense through the respective maturity dates of the Term Loans. The remaining $10 million was recognized in other non-operating income, net in our consolidated statement of operations for the year ended December 31, 2023.
In January 2023, we amended the credit agreement governing our Revolving Credit Facility to increase the borrowing capacity from $1.75 billion to $2.0 billion, $250 million of which is available in the form of letters of credit, and extended the maturity date to January 2028. In connection with this amendment, we incurred approximately $9 million of debt issuance costs, which were recognized in other non-current assets in our consolidated balance sheet and will be amortized to interest expense through the maturity date of the Revolving Credit Facility.
No borrowings were outstanding under the Revolving Credit Facility as of December 31, 2024, which had an available borrowing capacity of $1,910 million after considering $90 million of outstanding letters of credit.
Senior Notes
In September 2024, we issued $1.0 billion aggregate principal amount of 5.875% Senior Notes due 2033 (the "2033 Senior Notes") and incurred an aggregate $15 million of debt issuance costs which were recognized as a reduction to the outstanding debt balance in our consolidated balance sheet and will be amortized to interest expense through the maturity date of the 2033 Senior Notes. Interest on the 2033 Senior Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2025.
In March 2024, we issued $550 million aggregate principal amount of 5.875% Senior Notes due 2029 (the "5.875% 2029 Senior Notes") and $450 million aggregate principal amount of 6.125% Senior Notes due 2032 (the "6.125% 2032 Senior Notes") (collectively, the "March Senior Notes issuance") and incurred an aggregate $15 million of debt issuance costs which were recognized as a reduction to the outstanding debt balance in our consolidated balance sheet and will be amortized to interest expense through the respective maturity dates of the 5.875% 2029 Senior Notes and the 6.125% 2032 Senior Notes. Interest on the 5.875% 2029 Senior Notes and the 6.125% 2032 Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2024. We used a portion of the net proceeds from the March Senior Notes issuance to repay $200 million borrowed under our Revolving Credit Facility earlier in March 2024.
Debt Maturities
The contractual maturities of our long-term debt as of December 31, 2024 were as follows:
| | | | | |
| Year | (in millions) |
| 2025 | $ | 535 | |
| 2026 | 31 | |
| 2027 | 616 | |
| 2028 | 512 | |
| 2029 | 1,362 | |
| Thereafter | 8,180 | |
| $ | 11,236 | |
Note 11: Other Liabilities
Other long-term liabilities were as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
| Other long-term tax liabilities | $ | 618 | | | $ | 645 | |
Insurance reserves | 158 | | | 154 | |
| Deferred employee compensation and benefits | 89 | | | 86 | |
| Pension obligations | 17 | | | 34 | |
| Other | 59 | | | 79 | |
| $ | 941 | | | $ | 998 | |
Note 12: Fair Value Measurements
The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 |
| | | Hierarchy Level |
| Carrying Value(1) | | Level 1 | | Level 2 | | Level 3 |
| (in millions) |
| Assets: | | | | | | | |
Interest rate swap | $ | 45 | | | $ | — | | | $ | 45 | | | $ | — | |
| Liabilities: | | | | | | | |
Long-term debt(2) | 11,119 | | | 7,560 | | | — | | | 3,140 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| | | Hierarchy Level |
| Carrying Value(1) | | Level 1 | | Level 2 | | Level 3 |
| (in millions) |
| Assets: | | | | | | | |
Interest rate swaps | $ | 75 | | | $ | — | | | $ | 75 | | | $ | — | |
| Liabilities: | | | | | | | |
Long-term debt(2) | 9,119 | | | 5,631 | | | — | | | 3,129 | |
____________
(1)The fair values of cash equivalents and restricted cash equivalents approximate their carrying values due to their short-term maturities. The fair values of all other financial instruments not included in these tables are estimated to be equal to their carrying values.
(2)The carrying values and fair values exclude the deduction for unamortized deferred financing costs and any applicable discounts, as well as all finance lease liabilities and other debt of consolidated VIEs; refer to Note 10: "Debt" for additional information.
We measured 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.
During the year ended December 31, 2024, we measured the net assets acquired in the acquisition of the Sydell Group at fair value on a non-recurring basis; see Note 3: "Acquisitions" for additional information.
During the year ended December 31, 2023, we measured a financial asset at fair value on a non-recurring basis and recognized an other-than-temporary impairment loss of $44 million in loss on investments in unconsolidated affiliate in our consolidated statement of operations. In March 2023, the financial asset, an equity method investment in the Fund, which derives its market value from the underlying hotel assets it owns, failed to comply with its debt agreements, as discussed in Note 6: "Loss on Investments in Unconsolidated Affiliate." Given the lack of an active market or observable inputs for the fair value of the Fund, we determined that at March 31, 2023 our investment had a fair value of zero using Level 3 valuation inputs.
During the year ended December 31, 2023, the forecasted operating results of certain leased hotels caused us to evaluate the carrying value of the affected properties for impairment. We estimated the fair value of the related assets using discounted cash flow analyses and Level 3 valuation inputs including growth rates and discount rates that reflected the risk profile of the underlying cash flows and the individual markets where the assets are located. Estimations of the stabilized growth rates approximated 1.8 percent and the discount rates ranged from 8.0 percent to 11.3 percent, with the weighted average, based on relative impairment losses, being at the lower end of the range. As a result of these non-recurring fair value measurements, we recognized impairment losses on these assets, all of which are in our ownership segment, of $38 million during the year ended December 31, 2023. The fair values of these assets as of December 31, 2023, the date of measurement, were as follows:
| | | | | | | |
| | | |
| | | |
| | | (in millions) |
| Other intangible assets, net | | | $ | 3 | |
| Operating lease right-of-use assets | | | 69 | |
| Property and equipment, net | | | 1 | |
Note 13: Leases
We lease hotel properties, land, corporate office space and equipment used at hotels and corporate offices, with our most significant lease liabilities relating to hotel properties. As of December 31, 2024, we leased 40 hotels under operating leases and five hotels under finance leases, two of which were the liabilities of consolidated VIEs, which are non-recourse to us. Our hotel leases expire at various dates, with varying renewal and termination options.
During the year ended December 31, 2023, we recognized $33 million of impairment losses in our consolidated statement of operations related to certain operating lease ROU assets; see Note 12: "Fair Value Measurements" for additional information.
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (dollars in millions) |
| Operating leases: | | | |
Operating lease right-of-use assets(1) | $ | 567 | | | $ | 618 | |
| Accounts payable, accrued expenses and other | 117 | | | 116 | |
| Operating lease liabilities | 735 | | | 808 | |
| | | |
| Finance leases: | | | |
| Property and equipment, net | $ | 37 | | | $ | 36 | |
| Current maturities of long-term debt | 35 | | | 34 | |
| Long-term debt | 82 | | | 105 | |
| | | |
| Weighted average remaining lease term: | | | |
| Operating leases | 10.0 years | | 10.6 years |
| Finance leases | 4.3 years | | 5.1 years |
| | | |
| Weighted average discount rate: | | | |
| Operating leases | 4.49 | % | | 4.33 | % |
| Finance leases | 6.03 | % | | 6.01 | % |
____________
(1)Includes $77 million and $73 million attributable to U.S. operations as of December 31, 2024 and 2023, respectively, and $490 million and $545 million to operations outside the U.S., respectively, most significantly in the U.K. and Germany for both years.
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| Operating lease expense for fixed payments | $ | 109 | | | $ | 118 | | | $ | 113 | |
| Finance lease expense: | | | | | |
| Amortization of ROU assets | 22 | | | 21 | | | 21 | |
| Fixed interest on lease liabilities | 8 | | | 9 | | | 10 | |
Variable lease expense(1) | 189 | | | 179 | | | 139 | |
____________
(1)Includes amounts related to both operating leases and finance leases.
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 138 | | | $ | 137 | | | $ | 157 | |
| Financing cash flows from finance leases | 38 | | | 40 | | | 42 | |
| ROU assets obtained in exchange for lease liabilities in non-cash transactions: | | | | | |
| Operating leases | 44 | | | 39 | | | 135 | |
| Finance leases | 24 | | | 24 | | | 21 | |
Our future minimum lease payments as of December 31, 2024 were as follows:
| | | | | | | | | | | |
| Operating
Leases | | Finance
Leases |
| Year | (in millions) |
| 2025 | $ | 152 | | | $ | 42 | |
| 2026 | 128 | | | 33 | |
| 2027 | 117 | | | 19 | |
| 2028 | 115 | | | 15 | |
| 2029 | 109 | | | 15 | |
| Thereafter | 455 | | | 10 | |
| Total minimum lease payments | 1,076 | | | 134 | |
| Less: imputed interest | (224) | | | (17) | |
| Total lease liabilities | $ | 852 | | | $ | 117 | |
Note 14: Income Taxes
Income Tax Provision
The domestic and foreign components of income before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
U.S. income before income taxes | $ | 1,237 | | | $ | 1,301 | | | $ | 1,320 | |
Foreign income before income taxes | 546 | | | 391 | | | 414 | |
Income before income taxes | $ | 1,783 | | | $ | 1,692 | | | $ | 1,734 | |
The components of our provision for income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| Current: | | | | | |
| Federal | $ | 357 | | | $ | 586 | | | $ | 306 | |
| State | 82 | | | 136 | | | 81 | |
| Foreign | 52 | | | 83 | | | 56 | |
| Total current | 491 | | | 805 | | | 443 | |
| Deferred: | | | | | |
| Federal | (51) | | | (250) | | | 16 | |
| State | (15) | | | (83) | | | 6 | |
Foreign(1) | (181) | | | 69 | | | 12 | |
| Total deferred | (247) | | | (264) | | | 34 | |
Total provision for income taxes | $ | 244 | | | $ | 541 | | | $ | 477 | |
____________
(1)Includes a $29 million tax benefit from the release of valuation allowances as the Company concluded it is more likely than not to realize the benefit of certain foreign deferred tax assets.
Reconciliations of the provision for income taxes at the U.S. statutory rate to the provision for income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
Statutory U.S. federal income tax provision | $ | 375 | | | $ | 355 | | | $ | 364 | |
| State income taxes, net of U.S. federal income tax benefit | 55 | | | 45 | | | 65 | |
| Impact of foreign operations | 90 | | | 33 | | | 35 | |
| Changes in deferred tax asset valuation allowances | (24) | | | 40 | | | (5) | |
Income tax rate changes | — | | | (9) | | | — | |
| Provision for uncertain tax positions | 26 | | | 69 | | | 14 | |
Claim for increased foreign tax basis(1) | (270) | | | — | | | — | |
| Excess tax benefits related to share-based compensation | (22) | | | (6) | | | (8) | |
| Other, net | 14 | | | 14 | | | 12 | |
Provision for income taxes | $ | 244 | | | $ | 541 | | | $ | 477 | |
____________
(1)Includes tax benefit for claim for increased foreign tax basis, net of $547 million tax expense for related valuation allowance increase as of December 31, 2024.
During the year ended December 31, 2024, we filed an affirmative claim with a foreign taxing authority to increase the tax basis of certain brand assets that were part of a prior-year intercompany transfer that is subject to ongoing tax audits in relevant jurisdictions. We have evaluated this claim in accordance with the more-likely-than-not recognition threshold for the financial statement recognition and measurement of this tax position and have recognized a deferred tax asset representing the greatest amount of benefit that is more than 50 percent likely to be realized upon settlement. We also increased our valuation allowances related to the portion of this deferred tax asset that we believe will ultimately not be realized.
Deferred Income Taxes
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The tax effects of the temporary differences and carryforwards that give rise to our net deferred taxes were as follows:
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| (in millions) |
| Deferred tax assets: | | | |
| Net tax loss carryforwards and carrybacks | $ | 525 | | | $ | 604 | |
Foreign brands | 763 | | | — | |
| Compensation | 118 | | | 124 | |
| Reserves | 57 | | | 81 | |
| Operating and finance lease liabilities | 282 | | | 290 | |
| Deferred income | 659 | | | 558 | |
| Foreign tax credit carryforwards | 70 | | | 63 | |
| Other | 127 | | | 114 | |
| Total gross deferred tax assets | 2,601 | | | 1,834 | |
| Less: valuation allowance | (1,200) | | | (698) | |
| Deferred tax assets | 1,401 | | | 1,136 | |
| Deferred tax liabilities: | | | |
U.S. brands | (1,124) | | | (1,123) | |
Foreign brands | — | | | (20) | |
| Operating and finance lease ROU assets | (200) | | | (195) | |
| Other | (81) | | | (59) | |
| Deferred tax liabilities | (1,405) | | | (1,397) | |
| Net deferred taxes | $ | (4) | | | $ | (261) | |
As of December 31, 2024, we had gross U.S. separate return limitation year loss carryforwards and foreign operating loss carryforwards of $2.2 billion, resulting in deferred tax assets of $525 million. Approximately $27 million of our deferred tax assets as of December 31, 2024 related to loss carryforwards that will expire between 2025 and 2044 with less than $1 million of that amount expiring in 2025. Approximately $498 million of our deferred tax assets as of December 31, 2024 related to loss carryforwards that are not subject to expiration. We believe that it is more likely than not that the benefit from certain U.S. and foreign loss carryforwards will not be realized. In recognition of this assessment, we provided valuation allowances totaling $462 million as of December 31, 2024 on the deferred tax assets relating to these loss carryforwards. As of December 31, 2024, we also had deferred tax assets for U.S. tax credit carryforwards of $70 million that will expire between 2029 and 2034, for which we have provided full valuation allowances.
Tax Uncertainties
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 Internal Revenue Service ("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. As of December 31, 2024, the Company's federal income tax returns remain subject to examination by the IRS for tax years from 2011 through 2024. Various income tax returns filed with state, local and foreign jurisdictions remain subject to examination by the applicable taxing authorities.
Reconciliations of the beginning and ending amounts of unrecognized tax benefits were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| Balance at beginning of year | $ | 555 | | | $ | 337 | | | $ | 375 | |
| Additions for tax positions related to prior years | 288 | | | 268 | | | 1 | |
| Additions for tax positions related to the current year | 19 | | | 4 | | | 3 | |
| Reductions for tax positions related to prior years | (4) | | | (2) | | | (32) | |
| Settlements | (1) | | | (48) | | | — | |
| Lapse of statute of limitations | (4) | | | (4) | | | (5) | |
| Currency translation adjustment | (4) | | | — | | | (5) | |
| Balance at end of year | $ | 849 | | | $ | 555 | | | $ | 337 | |
We recognize interest and penalties accrued related to uncertain tax positions in income tax benefit (expense) in our consolidated statement of operations. During the years ended December 31, 2024, 2023 and 2022, we recognized income tax expense related to interest and penalties of $35 million, $72 million and $17 million, respectively. As of December 31, 2024 and 2023, we had accrued approximately $182 million and $150 million, respectively, for interest and penalties related to our unrecognized tax benefits in our consolidated balance sheets. Included in the balances of unrecognized tax benefits as of December 31, 2024 and 2023 were $597 million and $314 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate. We believe resolutions of examinations with tax authorities are reasonably possible within the next 12 months. We are unable to estimate the amount of unrecognized tax benefits that will increase or decrease during the next 12 months, as this estimate could change depending on the nature and timing of settlements.
Note 15: Employee Benefit Plans
We sponsor multiple domestic and international employee benefit plans (the "pension plans"), and the benefits are based upon years of service and compensation.
The employee benefit plan in the U.S. (the "Domestic Plan") covers certain employees not earning union benefits. This plan was frozen for participant benefit accruals in 1996; therefore, the projected benefit obligation is equal to the accumulated benefit obligation. The plan assets will be used to pay benefits due to employees for service through December 31, 1996. Since employees have not accrued additional benefits from that time, we do not utilize salary or pension inflation assumptions in calculating our benefit obligation for the Domestic Plan.
The employee benefit plans covering certain of our international employees include: (i) a plan that covers employees in the U.K. (the "U.K. Plan"), which was frozen to further service accruals in 2013 and (ii) a number of smaller plans that cover employees in various countries around the world (the "International Plans"). We do not consider the International Plans to be material to our consolidated financial statements.
The annual measurement date for all of our plans is December 31. We are required to recognize the funded status of our pension plans, which is the difference between the fair value of plan assets and the projected benefit obligations, in our consolidated balance sheet and make corresponding adjustments for changes in the difference between the fair value of plan assets and the projected benefit obligations through accumulated other comprehensive income (loss), net of taxes.
The following table presents the projected benefit obligation, fair value of plan assets, funded status and accumulated benefit obligation for the Domestic Plan and the U.K. Plan:
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) |
| Change in projected benefit obligation | | | | | | | |
| Benefit obligation at beginning of year | $ | 281 | | | $ | 284 | | | $ | 309 | | | $ | 286 | |
| Service cost | — | | | — | | | 2 | | | 2 | |
| Interest cost | 14 | | | 15 | | | 14 | | | 14 | |
Actuarial loss (gain), net of expenses | (8) | | | 5 | | | (32) | | | 4 | |
Settlements(1) | (41) | | | — | | | — | | | — | |
| Effect of foreign currency exchange rates | — | | | — | | | (2) | | | 16 | |
| Benefits paid | (23) | | | (23) | | | (16) | | | (13) | |
| Benefit obligation at end of year | $ | 223 | | | $ | 281 | | | $ | 275 | | | $ | 309 | |
| | | | | | | |
| Change in plan assets | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 278 | | | $ | 271 | | | $ | 298 | | | $ | 277 | |
| Actual return on plan assets, net of expenses | 13 | | | 25 | | | (14) | | | 10 | |
| Employer contributions | 4 | | | 5 | | | 9 | | | 9 | |
Settlements(1) | (41) | | | — | | | — | | | — | |
| Effect of foreign currency exchange rates | — | | | — | | | (2) | | | 15 | |
| Benefits paid | (23) | | | (23) | | | (16) | | | (13) | |
| Fair value of plan assets at end of year | 231 | | | 278 | | | 275 | | | 298 | |
Funded status at end of year (underfunded)(2) | 8 | | | (3) | | | — | | | (11) | |
| Accumulated benefit obligation | $ | 223 | | | $ | 281 | | | $ | 275 | | | $ | 309 | |
____________
(1)During the year ended December 31, 2024, the Company purchased a group annuity contract (the "annuity purchase") and transferred $41 million of its pension plan assets and related benefit obligations related to its Domestic Plan to a third-party insurer.
(2)Funded amounts are recognized in other long-term assets and underfunded amounts are recognized in other long-term liabilities in our consolidated balance sheets, as applicable.
Changes in amounts recorded in accumulated other comprehensive loss consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| 2024 | | 2023 | | 2022 | | 2024 | | 2023 | | 2022 |
| (in millions) |
Net actuarial loss (gain)(1) | $ | (3) | | | $ | (3) | | | $ | 25 | | | $ | 3 | | | $ | 27 | | | $ | 39 | |
| Amortization of prior service cost | (4) | | | (4) | | | (4) | | | — | | | — | | | — | |
| Amortization of net loss | (1) | | | — | | | (3) | | | (8) | | | (6) | | | (3) | |
Settlement losses(2) | (10) | | | — | | | — | | | — | | | — | | | — | |
| Net amount recognized | $ | (18) | | | $ | (7) | | | $ | 18 | | | $ | (5) | | | $ | 21 | | | $ | 36 | |
____________
(1)Amounts for the U.K. Plan include the impact of foreign currency exchange.
(2)Amount for the year ended December 31, 2024 includes a loss for a settlement related to the Company's Domestic Plan as a result of the annuity purchase, which was recognized in other non-operating loss, net in our consolidated statement of operations.
The net periodic pension cost (credit) was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| 2024 | | 2023 | | 2022 | | 2024 | | 2023 | | 2022 |
| (in millions) |
Service cost(1) | $ | — | | | $ | 3 | | | $ | 3 | | | $ | 2 | | | $ | 2 | | | $ | 2 | |
Interest cost(2) | 14 | | | 15 | | | 8 | | | 14 | | | 14 | | | 8 | |
Expected return on plan assets(2) | (18) | | | (20) | | | (20) | | | (23) | | | (22) | | | (23) | |
Amortization of prior service cost(2) | 4 | | | 4 | | | 4 | | | — | | | — | | | — | |
Amortization of net loss(2) | 1 | | | — | | | 3 | | | 8 | | | 6 | | | 3 | |
| | | | | | | | | | | |
Settlement losses(3) | 10 | | | — | | | — | | | — | | | — | | | — | |
Net periodic pension cost (credit) | $ | 11 | | | $ | 2 | | | $ | (2) | | | $ | 1 | | | $ | — | | | $ | (10) | |
____________
(1)Recognized in owned and leased hotels expenses and general and administrative expenses, as applicable, in our consolidated statements of operations.
(2)Recognized in other non-operating income (loss), net in our consolidated statements of operations.
(3)During the year ended December 31, 2024, as a result of the annuity purchase, we recognized a non-cash pension settlement loss in other non-operating loss, net in our consolidated statement of operations.
The weighted average assumptions used to determine benefit obligations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| 2024 | | 2023 | | 2024 | | 2023 |
| Discount rate | 5.6 | % | | 5.2 | % | | 5.5 | % | | 4.5 | % |
| Salary inflation | N/A | | N/A | | 2.5 | | | 2.4 | |
| Pension inflation | N/A | | N/A | | 2.9 | | | 2.8 | |
The weighted average assumptions used to determine net periodic pension cost (credit) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| 2024 | | 2023 | | 2022 | | 2024 | | 2023 | | 2022 |
| Discount rate | 5.2 | % | | 5.6 | % | | 2.9 | % | | 4.5 | % | | 4.8 | % | | 1.9 | % |
| Expected return on plan assets | 7.0 | | | 6.8 | | | 6.3 | | | 7.5 | | | 7.3 | | | 5.0 | |
| Salary inflation | N/A | | N/A | | N/A | | 2.4 | | | 2.6 | | | 2.6 | |
| Pension inflation | N/A | | N/A | | N/A | | 2.8 | | | 3.1 | | | 3.1 | |
The investment objectives for the various plans are preservation of capital, current income and long-term growth of capital. All plan assets are managed by third-party investment managers and do not include investments in Hilton stock. Asset allocations are reviewed periodically by the investment managers.
Expected long-term returns on plan assets are determined using historical performance for return-seeking assets and liability-driven investments held by our plans, actual performance of plan assets and current and expected market conditions. Expected returns are formulated based on the target asset allocation. As of December 31, 2024 the target asset allocations for the Domestic Plan and U.K. Plan were 70 percent and 65 percent, respectively, in return-seeking assets, and 30 percent and 35 percent, respectively, in liability-driven investments and cash.
The following tables present the fair value hierarchy of total plan assets measured at fair value by asset category:
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| December 31, | | December 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) |
| Level 1 | | | | | | | |
Cash | $ | — | | | $ | — | | | $ | 2 | | | $ | 1 | |
Bond funds | 7 | | | 12 | | | — | | | — | |
| Level 2 | | | | | | | |
Bond funds | — | | | — | | | 36 | | | 37 | |
Net asset value(1) | | | | | | | |
Cash equivalents | — | | | — | | | 6 | | | 7 | |
Bond funds | — | | | — | | | 72 | | | 82 | |
Common collective trusts | 224 | | | 266 | | | — | | | — | |
Alternative investments | — | | | — | | | 110 | | | 121 | |
Other | — | | | — | | | 49 | | | 50 | |
| $ | 231 | | | $ | 278 | | | $ | 275 | | | $ | 298 | |
____________
(1)Certain investments are measured at net asset value per share as a practical expedient and, therefore, have not been classified in the fair value hierarchy.
As of December 31, 2024, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter were as follows:
| | | | | | | | | | | |
| Domestic Plan | | U.K. Plan |
| Year | (in millions) |
| 2025 | $ | 22 | | | $ | 16 | |
| 2026 | 21 | | | 17 | |
| 2027 | 21 | | | 17 | |
| 2028 | 20 | | | 17 | |
| 2029 | 20 | | | 18 | |
| 2030-2034 | 89 | | | 94 | |
| $ | 193 | | | $ | 179 | |
In 2007, the Domestic Plan and plans maintained for certain domestic hotels currently or formerly managed by us were merged into a multiple employer plan. As of December 31, 2024 and 2023, the multiple employer plan had combined plan assets of $240 million and $303 million, respectively, and a projected benefit obligation of $230 million and $301 million, respectively.
Note 16: Share-Based Compensation
We recognized share-based compensation expense of $176 million, $169 million and $162 million during the years ended December 31, 2024, 2023 and 2022, respectively, which included amounts reimbursed by hotel owners, and the related tax benefit recognized was $72 million, $48 million and $48 million, respectively. In December 2020, we modified our then-outstanding performance shares in response to the COVID-19 pandemic to reward for results achieved prior to the pandemic and incentivize our recovery efforts, with a portion of the awards modified to vest based on continued service and the remaining portion of the awards to vest based on new performance measures. As a result of this modification, our share-based compensation expense for the year ended December 31, 2022 includes incremental share-based compensation expense of $25 million.
As of December 31, 2024, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $132 million, which are expected to be recognized over a weighted average period of 1.7 years on a straight-line basis. As of December 31, 2024, there were 9.7 million remaining shares authorized for awards under the 2017 Plan, including any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan that will become available for issuance under the 2017 Plan if such outstanding awards expire or are terminated or are canceled or forfeited.
RSUs
The following table provides information about our RSU grants:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| Number of shares granted (in thousands) | 473 | | | 604 | | | 507 | |
| Weighted average grant date fair value per share | $ | 203.98 | | | $ | 146.19 | | | $ | 150.58 | |
Aggregate fair value of shares vested (in millions) | $ | 107 | | | $ | 84 | | | $ | 97 | |
The following table summarizes the activity of our RSUs during the year ended December 31, 2024:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share |
| (in thousands) | | |
Outstanding as of December 31, 2023 | 1,012 | | | $ | 144.49 | |
| Granted | 473 | | | 203.98 | |
| Vested | (521) | | | 142.12 | |
| Forfeited | (42) | | | 165.89 | |
Outstanding as of December 31, 2024 | 922 | | | 175.37 | |
Options
The following table provides information about our option grants:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| Number of options granted (in thousands) | 264 | | | 341 | | | 318 | |
| Weighted average exercise price per share | $ | 203.95 | | | $ | 146.18 | | | $ | 150.67 | |
| Weighted average grant date fair value per share | $ | 71.25 | | | $ | 52.27 | | | $ | 51.15 | |
Aggregate intrinsic value of options exercised (in millions) | $ | 90 | | | $ | 18 | | | $ | 9 | |
The weighted average grant date fair value per share of the option grants for each year was determined using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
Expected volatility(1) | 27.94 | % | | 30.16 | % | | 33.28 | % |
Dividend yield(2) | 0.33 | % | | 0.43 | % | | 0.41 | % |
Risk-free rate(3) | 4.17 | % | | 4.00 | % | | 1.93 | % |
Expected term (in years)(4) | 6.0 | | 6.0 | | 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 terms of the options.
(2)Estimated based on the expected quarterly dividend and the three-month average stock price at the date of each grant.
(3)Based on the yields of U.S. Department of Treasury instruments with similar expected terms of the options at the date of each grant.
(4)Estimated using the midpoint of the vesting periods and the contractual terms of the options as we do not have sufficient historical share option exercise data to estimate the terms of our option grants.
The following table summarizes the activity of our options during the year ended December 31, 2024:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price per Share |
| (in thousands) | | |
Outstanding as of December 31, 2023 | 3,102 | | | $ | 94.50 | |
| Granted | 264 | | | 203.95 | |
| Exercised | (648) | | | 73.99 | |
Forfeited | (7) | | | 144.93 | |
Outstanding as of December 31, 2024(1) | 2,711 | | | 109.94 | |
Exercisable as of December 31, 2024(2) | 2,122 | | | 92.49 | |
____________
(1)The aggregate intrinsic value was $372 million and the weighted average remaining contractual term was 5.3 years.
(2)The aggregate intrinsic value was $328 million and the weighted average remaining contractual term was 4.4 years.
Performance Shares
As of December 31, 2024, we determined that all of the performance measures for the outstanding performance shares granted in 2022, 2023, and 2024 were probable of achievement, with the average of the applicable achievement factors estimated to be between the target and maximum achievement percentages for performance shares granted in each year.
The following table provides information about our performance share grants for the last three years:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| Number of shares granted (in thousands) | 187 | | | 244 | | | 216 | |
| Weighted average grant date fair value per share | $ | 204.31 | | | $ | 146.18 | | | $ | 150.67 | |
Aggregate fair value of shares vested (in millions) | $ | 47 | | | $ | 42 | | | $ | 42 | |
The following table summarizes the activity of our performance shares in aggregate for all of our performance measures during the year ended December 31, 2024, with the performance shares reflected at the target achievement percentage until completion of the performance period:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share |
| (in thousands) | | |
Outstanding as of December 31, 2023 | 679 | | | $ | 139.74 | |
| Granted | 187 | | | 204.31 | |
Performance achievement share adjustments(1) | 231 | | | 123.13 | |
| Vested | (462) | | | 123.13 | |
| Forfeited | (14) | | | 148.56 | |
Outstanding as of December 31, 2024 | 621 | | | 165.12 | |
____________
(1)Reflects the number of shares achieved above target, based on actual performance as determined at the completion of the respective three-year performance period.
Note 17: Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share ("EPS"):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions, except per share amounts) |
| Basic EPS: | | | | | |
| Numerator: | | | | | |
Net income attributable to Hilton stockholders | $ | 1,535 | | | $ | 1,141 | | | $ | 1,255 | |
| Denominator: | | | | | |
| Weighted average shares outstanding | 248 | | | 262 | | | 275 | |
| Basic EPS | $ | 6.20 | | | $ | 4.36 | | | $ | 4.56 | |
| | | | | |
| Diluted EPS: | | | | | |
| Numerator: | | | | | |
Net income attributable to Hilton stockholders | $ | 1,535 | | | $ | 1,141 | | | $ | 1,255 | |
| Denominator: | | | | | |
Weighted average shares outstanding(1) | 250 | | | 264 | | | 277 | |
Diluted EPS(1) | $ | 6.14 | | | $ | 4.33 | | | $ | 4.53 | |
____________
(1)Amounts for all periods include less than 1 million shares related to share-based compensation that were excluded from the calculations of diluted EPS because their effect would have been anti-dilutive under the treasury stock method.
Note 18: Accumulated Other Comprehensive Loss
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 | (9) | | | (57) | | | 114 | | | 48 | |
Amounts reclassified from accumulated other comprehensive loss | 1 | | | 8 | | | 16 | | | 25 | |
Net other comprehensive income (loss) for the period | (8) | | | (49) | | | 130 | | | 73 | |
| Balance as of December 31, 2022 | (548) | | | (259) | | | 101 | | | (706) | |
Other comprehensive income (loss) before reclassifications | 9 | | | (11) | | | 9 | | | 7 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 8 | | | (40) | | | (32) | |
Net other comprehensive income (loss) for the period | 9 | | | (3) | | | (31) | | | (25) | |
| Balance as of December 31, 2023 | (539) | | | (262) | | | 70 | | | (731) | |
Other comprehensive income (loss) before reclassifications | (54) | | | 4 | | | 30 | | | (20) | |
Amounts reclassified from accumulated other comprehensive loss | 2 | | | 18 | | | (51) | | | (31) | |
Net other comprehensive income (loss) for the period | (52) | | | 22 | | | (21) | | | (51) | |
| Balance as of December 31, 2024 | $ | (591) | | | $ | (240) | | | $ | 49 | | | $ | (782) | |
____________
(1)Includes net investment hedge gains and intra-entity foreign currency transactions that are of a long-term investment nature. Amounts reclassified relate to the liquidation of investments in foreign entities which were recognized in gain (loss) on foreign currency transactions in our consolidated statements of operations during the years ended December 31, 2024 and 2022.
(2)Amount reclassified for the year ended December 31, 2024 includes losses for the full or partial settlement of certain pension plans and were recognized in other non-operating loss, net in our consolidated statement of operations. Amounts reclassified for all periods relate to the amortization of prior service cost and amortization of net loss and were recognized in other non-operating income (loss), net in our consolidated statements of operations.
(3)Amounts reclassified were the result of hedging instruments, primarily comprising interest rate swaps, inclusive of interest rate swaps that were dedesignated in prior periods, with related amounts recognized in interest expense in our consolidated statements of operations. Amounts reclassified also related to foreign currency forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in various revenue line items, as applicable, in our consolidated statements of operations.
Note 19: 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 properties that license our IP, and/or use our booking channels and related programs, and where we provide other contracted services, but the day-to-day services of the hotels are operated or managed by someone other than us. Revenues from this segment include: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees from our strategic partners, including co-branded credit card providers, strategic partner hotels and HGV; and (iii) fees for managing hotels in our ownership segment. The ownership segment primarily derives revenues from nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.
Our President and Chief Executive Officer is our CODM. Our CODM uses Adjusted EBITDA to evaluate the performance of our operating segments. Adjusted EBITDA is calculated as EBITDA, which reflects net income (loss), excluding interest expense, a provision for income tax benefit (expense) and depreciation and amortization expenses, 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) 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) other revenues from managed and franchised properties and other expenses from managed and franchised properties; and (x) other items. Our CODM uses Adjusted EBITDA to evaluate the trends of our segments over time and monitor the segments in light of the performance of our industry and competitors to determine how to allocate capital resources, including contract acquisition costs and capital expenditures. Our CODM does not use assets by operating segment when assessing performance or making operating segment resource allocations. We previously were required to report segment profitability based on segment operating income (loss) as such measure was also regularly provided to our CODM. Beginning in the fourth quarter of 2024, segment operating income (loss) was no longer included in regular reporting provided to the CODM, and, as a result, our reported measure of segment profit changed to Adjusted EBITDA. The change in our reported measure of segment profit did not change the identification of our reportable segments from prior periods. Prior period amounts presented are measured on the same basis as amounts for the year ended December 31, 2024.
The following table presents revenues for our reportable segments, reconciled to consolidated amounts:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| Franchise and licensing fees | $ | 2,622 | | | $ | 2,388 | | | $ | 2,085 | |
Base and other management fees(1) | 427 | | | 393 | | | 338 | |
| Incentive management fees | 290 | | | 274 | | | 196 | |
| Management and franchise | 3,339 | | | 3,055 | | | 2,619 | |
| Ownership | 1,255 | | | 1,244 | | | 1,076 | |
| Segment revenues | 4,594 | | | 4,299 | | | 3,695 | |
| Amortization of contract acquisition costs | (50) | | | (43) | | | (38) | |
| Other revenues | 232 | | | 178 | | | 102 | |
Other revenues from managed and franchised properties | 6,428 | | | 5,827 | | | 5,037 | |
Intersegment fees elimination(1) | (30) | | | (26) | | | (23) | |
| Total revenues | $ | 11,174 | | | $ | 10,235 | | | $ | 8,773 | |
____________
(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 consolidated statements of operations.
The following table presents Adjusted EBITDA for each of our reportable segments, reconciled to consolidated income before income taxes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
Management and franchise(1)(2) | $ | 3,339 | | | $ | 3,055 | | | $ | 2,619 | |
Ownership(1)(2) | 172 | | | 150 | | | 110 | |
Segment Adjusted EBITDA | 3,511 | | | 3,205 | | | 2,729 | |
Corporate and other(3) | (82) | | | (116) | | | (130) | |
Interest expense | (569) | | | (464) | | | (415) | |
| | | | | |
| Depreciation and amortization expenses | (146) | | | (147) | | | (162) | |
| Gain on sales of assets, net | 5 | | | — | | | — | |
Gain (loss) on foreign currency transactions | (12) | | | (16) | | | 5 | |
Loss on investments in unconsolidated affiliate | — | | | (92) | | | — | |
Loss on debt guarantees(4) | (50) | | | — | | | — | |
FF&E replacement reserves | (57) | | | (63) | | | (54) | |
Share-based compensation expense | (176) | | | (169) | | | (162) | |
Impairment losses | — | | | (38) | | | — | |
Amortization of contract acquisition costs | (50) | | | (43) | | | (38) | |
Other revenues from managed and franchised properties(5) | 6,428 | | | 5,827 | | | 5,037 | |
Other expenses from managed and franchised properties(5) | (6,985) | | | (6,164) | | | (5,076) | |
Other adjustment items(6) | (34) | | | (28) | | | — | |
Income before income taxes | $ | 1,783 | | | $ | 1,692 | | | $ | 1,734 | |
____________
(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 consolidated statements of operations.
(2)No expenses are allocated to the management and franchise segment. For the ownership segment, rent expense is a significant expense regularly provided to the CODM; rent expense for the years ended December 31, 2024, 2023 and 2022 was $224 million, $233 million and $213 million, respectively, and total other expenses were $868 million, $870 million and $753 million for the years ended December 31, 2024, 2023 and 2022, respectively, comprising (i) room expenses; (ii) food and beverage costs; (iii) property expenses; and (iv) other support costs. Ownership segment Adjusted EBITDA also includes income (losses) from hotels owned or leased by entities in which we own a noncontrolling financial interest.
(3)Amounts primarily include activity related to general and administrative expenses, excluding share-based compensation expense, and our purchasing operations.
(4)Amount includes losses on debt guarantees for certain hotels that we manage; refer to Note 20: Commitments and Contingencies for additional information.
(5)Amounts include results from the operation of programs conducted for the benefit of property owners and exclude cash receipts recorded as deferred revenues on our consolidated balance sheets related to these programs. Under the terms of the related contracts, we do not operate these programs to generate a profit and have the contractual rights to adjust future collections to recover prior period expenditures.
(6)Amount for the year ended December 31, 2022 was less than $1 million. Amount for the year ended December 31, 2024 relates to losses for the full or partial settlement of certain pension plans, restructuring costs related to one of our leased properties as well as transaction costs incurred for acquisitions. Amounts for the years ended December 31, 2024 and 2023 include transaction costs resulting from the amendments of our Term Loans in June 2024 and November 2023, respectively. Amounts for all periods include net losses (gains) related to certain of our investments in unconsolidated affiliates, other than the loss included separately in "loss on investments in unconsolidated affiliate," severance and other items.
Total revenues by country were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (in millions) |
| U.S. | $ | 8,779 | | | $ | 7,986 | | | $ | 6,947 | |
All other(1) | 2,395 | | | 2,249 | | | 1,826 | |
| $ | 11,174 | | | $ | 10,235 | | | $ | 8,773 | |
____________
(1)There are no countries included in these amounts that individually represented more than 10 percent of total revenues for the years ended December 31, 2024, 2023 and 2022.
Note 20: Commitments and Contingencies
Although we include performance clauses in certain of our management contracts, most of these clauses do not require us to fund shortfalls but instead allow the owner to terminate the contract if specified operating performance levels are not
achieved. In limited cases, we are obligated to fund performance shortfalls and our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee for that particular hotel. As of December 31, 2024, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling $20 million.
We also have extended debt guarantees and provided letters of credit to owners of certain hotels that we currently or in the future will manage or franchise. During the year ended December 31, 2024, we recognized losses of $50 million in other non-operating loss, net in our consolidated statement of operations for debt guarantees extended to certain hotels that we manage that have failed to comply with the requirements of their respective debt agreements. We paid $77 million during the year ended December 31, 2024 related to debt guarantees. Our debt guarantees and letters of credit as of December 31, 2024 had expirations ranging from 2025 to 2033 and remaining possible cash outlays totaling $49 million.
The performance and debt guarantees create variable interests in the ownership entities of the related hotels, of which we are not the primary beneficiary.
We receive Hilton Honors and program fees from managed and franchised properties that we are contractually required to use to operate our Hilton Honors program, marketing, sales and brand programs and other shared services on behalf of property owners. If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs.
We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of December 31, 2024 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 21: Supplemental Disclosures of Cash Flow Information
Cash interest paid included within operating activities in our consolidated statements of cash flows was $562 million, $492 million and $385 million during the years ended December 31, 2024, 2023 and 2022, respectively. These amounts exclude $56 million, $53 million and $2 million for the years ended December 31, 2024, 2023 and 2022, respectively, of cash receipts related to settlements of our interest rate swap with a financing component, which are separately disclosed within financing activities in our consolidated statements of cash flows.
Income tax payments, net of refunds received, were $492 million, $478 million and $389 million for the years ended December 31, 2024, 2023 and 2022, respectively.
