2016 ANNUAL REPORT
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ir.hilton.com
The New
THE BEST-PERFORMING PORTFOLIO OF BRANDS IN THE BUSINESS
A MARKET-LEADING, RESILIENT, FEE-BASED BUSINESS
LOWER
VOLATILITY
90%
ADJUSTED EBITDA
FROM FEES
MAJORITY
FRANCHISE FEES
70%
TOTAL FEES
FRANCHISE DRIVEN
CAPITAL
EFFICIENT GROWTH
6.6%
MANAGED & FRANCHISED
NET UNIT GROWTH
A RECORD PIPELINE GENERATING SUBSTANTIAL RETURNS ON MINIMAL
CAPITAL INVESTMENT
PIPELINE
ROOMS
ROOMS UNDER
CONSTRUCTION
THIRD-PARTY
INVESTMENT
HILTON
INVESTMENT
STABILIZED
ADJUSTED EBITDA
310K
157K
$50B
$144M
$660M
SUPPORTED BY STRONG FUNDAMENTALS
GROWING BASE OF CUSTOMERS
WHO CAN AND WANT TO TRAVEL
GLOBAL
MIDDLE CLASS
2X LAST 20 YEARS, EXPECTED TO
DOUBLE AGAIN NEXT 20 YEARS
GLOBAL
TOURIST ARRIVALS
+1B
INCREMENTAL ANNUAL TRIPS
EXPECTED NEXT 20 YEARS
HOTEL UNDER-PENETRATION
IN HIGH-GROWTH MARKETS
15.8
1.1
1.5
0.2
INDIA
BRAZIL
CHINA
UNITED STATES
HOTEL ROOMS PER CAPITA
GENERATING SIGNIFICANT FREE CASH FLOW
$3.0 - 4.5B OF POTENTIAL CAPITAL RETURN
2017E TO 2019E
Executive Committee
CHRISTOPHER J. NASSETTA*
President & Chief Executive Officer
KATIE B. FALLON
Global Head of Corporate Affairs
JOE BERGER
Executive Vice President
& President, Americas
KRISTIN CAMPBELL*
Executive Vice President
& General Counsel
IAN R. CARTER*
President,
Global Development,
Architecture, Design
& Construction
JAMES E. HOLTHOUSER*
Executive Vice President,
Global Brands
KEVIN J. JACOBS*
Executive Vice President
& Chief Financial Officer
MATT RICHARDSON
Head of Architecture,
Design & Construction
MARTIN RINCK
Executive Vice President
& President, Asia Pacific
Board of Directors
MATTHEW W. SCHUYLER*
Executive Vice President
& Chief Human Resources Officer
CHRIS SILCOCK*
Executive Vice President
& Chief Commercial Officer
SIMON VINCENT
Executive Vice President
& President, Europe, Middle East
& Africa
* Executive officer as defined under the
Securities Exchange Act of 1934.
CHRISTOPHER J. NASSETTA
President & Chief Executive Officer,
Hilton
JUDITH A. McHALE
President & Chief Executive Officer,
Cane Investments
JONATHAN D. GRAY
Chairman of the Board of Directors,
Hilton
Global Head of Real Estate,
Blackstone
JOHN G. SCHREIBER
President of Centaur Capital
Partners, Retired Partner
& Co-Founder, Blackstone Real
Estate Advisors
JON M. HUNTSMAN, JR.
Chairman, Atlantic Council
Former Governor, State of Utah
Former U.S. Ambassador to
China & Singapore
ELIZABETH A. SMITH
Chairman of the Board of Directors
& Chief Executive Officer,
Bloomin’ Brands
DOUGLAS M. STEENLAND
Chairman of the Board of
Directors, American International
Group, Travelport Worldwide
& Performance Food Group
WILLIAM J. STEIN
Senior Managing Director
and Co-Head, Global Asset
Management, Real Estate,
Blackstone
Stockholder Information
STOCK MARKET INFORMATION
Ticker Symbol: HLT
Market Listed and Traded: NYSE
INVESTOR RELATIONS
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CORPORATE OFFICE
Hilton
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+1 703 883 1000
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ir@hilton.com
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PUBLIC ACCOUNTING FIRM
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ey.com
TRANSFER AGENT
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Mendota Heights, MN 55120
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General Inquiries:
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Account Information:
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ANNUAL MEETING
OF STOCKHOLDERS
May 24, 2017
Waldorf Astoria Chicago
Chicago, IL
Front cover properties: Hilton Garden Inn Bali Ngurah Rai Airport and Gran Hotel Montesol Ibiza, Curio Collection by Hilton. Back cover properties: Waldorf Astoria
Hutong Villa; Conrad Makkah; Canopy by Hilton Reykjavik City Centre; Hilton Edinburgh Carlton; Hotel La Jolla, Curio Collection by Hilton; Grand Naniloa Hotel Hilo – a
DoubleTree by Hilton; Embassy Suites by Hilton McAllen Convention Center; Hilton Garden Inn Bali Ngurah Rai Airport; Hampton Inn Houston I-10 East; Homewood
Suites by Hilton Cape Canaveral – Cocoa Beach; Home 2 Suites by Hilton Minneapolis Bloomington and Hilton Vilamoura Vacation Club.
This report is printed on FSC® certified paper. © 2017 Hilton
Designed and produced by Corporate Reports Inc./Atlanta. www.cricommunications.com.
FELLOW SHAREHOLDERS
For nearly 100 years, one
name has been synonymous
with hospitality: Hilton.
It all starts with our award-
winning culture, which guides
our shared purpose to be the
most hospitable company
in the world by positively
impacting our guests, team
members, hotel owners,
communities and, of
course, all of you.
At our core, we are a business of people serving
people, and our team members strive to provide
exceptional experiences at every hotel, for every
guest, every time. We are incredibly proud to have
shared our unparalleled hospitality with 160 million
guests at more than 4,900 properties throughout
104 countries and territories in the last year.
We significantly simplified our company through the
spin-offs of our timeshare business and the majority
of our real estate assets into Hilton Grand Vacations
and Park Hotels & Resorts, respectively. As a result,
the new Hilton is a fee-driven, capital-efficient
company with a more resilient earnings profile.
Our portfolio of 14 exceptional brands is the best
performing in the industry. This, combined with our
award-winning loyalty program, Hilton Honors,
creates a powerful network effect, delivering value
for our customers and hotel owners as we continue
our rapid expansion. Hotel owners continue to invest
in our growth at an unparalleled rate, committing
more than $50 billion to a record pipeline of nearly
310,000 rooms, enabling us to remain the fastest-
growing global hospitality company.
In 2016, we opened nearly a hotel a day. Additionally,
more than one in five hotel rooms under construction
is being developed as a Hilton brand, representing
4.5 times our existing share of rooms globally.
Our growth is balanced, driven by existing brands
in current markets, expansion into new markets
and organically-developed new brands targeted
at incremental market segments. In the last seven
years, we have launched five new brands: Canopy,
Curio, Home2, Tru and Tapestry, which now make
up more than 20 percent of our pipeline. Last year,
we introduced Tru by Hilton to the midscale segment,
and it became the fastest-growing brand in our history,
as well as, we believe, the most successful brand
launch in the industry. We have nearly 400 deals
signed or in progress, and the first Tru by Hilton will
open in the second quarter of 2017.
We are also taking full advantage of our global
scale to roll out industry-leading innovations.
Guests continue to prefer our web-direct channels,
which made up nearly 30 percent of distribution mix
in 2016, our highest level ever. Our Hilton Honors
app is downloaded every eight seconds, and is the
highest-rated travel app, providing unprecedented
choice and control for guests. Through this app,
guests can check-in, download their Digital Key
on their mobile device and head straight to their
self-selected room upon arrival. By the end of this
year, we expect to have Digital Key capability at
2,500 hotels globally, including all of our hotels in
80 major North American markets.
We are leveraging our vast global footprint to
provide local solutions for the communities where
we operate. Our Travel with Purpose corporate
responsibility strategy includes commitments to
youth opportunity, environmental stewardship and
community resiliency. Around the world, our team
members apply their passion for hospitality to make
a lasting, positive difference in people’s lives.
In summary, 2016 was a transformative year for
Hilton, setting us up for even greater future success.
Our simplified business model, together with
tremendous growth potential globally and
continued discipline in capital allocation, should
generate meaningful returns for shareholders.
On behalf of all our team members, thank you
for your continued support as we deliver on our
commitment to be the most hospitable company
in the world.
Sincerely,
Christopher J. Nassetta
President & Chief Executive Officer
2016 ANNUAL REPORT 1
2016 ANNUAL REPORT 1
2016 ANNUAL REPORT 1
HILTON
At - A -Glance
2016 was a transformative year for Hilton as we
positioned our business for a new era of value
creation while maintaining our position as the
fastest-growing global hospitality company on
an organic basis. Throughout the year, our team
members extended their hospitality to millions
of guests, but also supported our efforts to drive
positive social impact through our Travel with
Purpose investments and initiatives.
114
Global
RevPAR
Index
Welcomed
160 MILLION
guests worldwide
Activated over
$2.5 MILLION
towards our Hilton
Disaster Responds
Fund, backing
communities and
team members with
long-term rebuilding
efforts following
a disaster
IMPACTING
ONE MILLION
YOUNG PEOPLE
BY 2019
Loyalty Program grew by
9 MILLION members
10,000 VETERANS,
spouses and dependents hired in
the United States since 2013, with
the goal of 10% of all new hires in
the U.S. moving forward
OVER $750M
in cumulative savings
from sustainability projects
since 2009:
Energy use by 17%
Water use by 17%
Waste output by 29%
Carbon output by 23%
Connected, prepared, or employed
over HALF-A-MILLION
YOUNG PEOPLE through our
Open Doors commitment to date
Created nearly
20,000
new hotel jobs
Digital Key is currently
used at a rate of more
than 1 MILLION
times per month
Ranked one of the
TOP 50
Companies for Diversity
by DiversityInc.
One of the world’s
25 BEST
multinational workplaces
by Great Place to Work
2 HILTON
AMERICAS
EUROPE
MIDDLE EAST
& AFRICA
ASIA PACIFIC
Supply
644,622
Pipeline
165,961
Supply
76,614
Pipeline
29,792
Supply
23,557
Pipeline
33,617
Supply
59,304
Pipeline
79,297
Under
Construction
61,265
Under
Construction
16,787
Under
Construction
24,488
Under
Construction
54,636
Expanded global
footprint to
104
countries and
territories
Opened nearly 1
PROPERTY PER DAY
and expanded our footprint
across five new countries
We have
4 OUT OF 5
of the top hotel brands
in the industry under
construction globally
HIGHLY RESILIENT FEE-DRIVEN MODEL
DIVERSIFIED ACROSS GEOGRAPHIES AND CHAIN SCALE
Current Rooms
A
by Chain Scale
Adjusted EBITDA
B
by Business (a)
Adjusted EBITDA
C
by Geography (a)
34% Upper Upscale
33% Upscale
29% Upper Midscale
3% Luxury
1% Other
90% Management & Franchise
10% Owned & Leased
(a) Based on 2016 pro forma Adj. EBITDA giving effect to the spin-off transactions and
excluding Corporate and Other
71% U.S.
12% Europe
10% Asia Pacific
4% Americas Non-U.S.
3% Middle East & Africa
2016 ANNUAL REPORT 3
We Are HILTON We Are HOSPITALITY
OUR VISION
OUR MISSION
OUR VALUES
To fill the Earth with the light
and warmth of hospitality –
by delivering exceptional
experiences – every hotel,
every guest, every time.
To be the most hospitable
company in the world – by
creating heartfelt experiences for
guests, meaningful opportunities
for team members, high value for
owners and a positive impact in
our communities.
HOSPITALITY
INTEGRITY
LEADERSHIP
TEAMWORK
OWNERSHIP
NOW
Our KeySTRATEGIC PRIORITIES
ALIGN CULTURE &
ORGANIZATION
STRENGTHEN
BRANDS &
COMMERCIAL
SERVICES PLATFORM
EXPAND GLOBAL
FOOTPRINT
MAXIMIZE
PERFORMANCE
OurVALUE
PROPOSITION
LEADING
HOTEL
SUPPLY &
PIPELINE
FINANCIAL
PERFORMANCE
STRONG
BRANDS &
COMMERCIAL
SERVICES
PLATFORM
SATISFIED
CUSTOMERS
SATISFIED
OWNERS
PREMIUM
PERFORMANCE
4 HILTON
Align
CULTURE & ORGANIZATION
2016 HIGHLIGHTS
• Connected, prepared or employed more than
150,000 young people this year
• Continued to attract the best talent with unique
benefits, including parental leave, adoption assistance
and the Go Hilton Team Member Travel Program
• Offered more than 2,500 learning resources via Hilton
University resulting in 3.5 million courses completed
HILTON
HAS BEEN
RECOGNIZED
AS A
#1
IN THREE COUNTRIES:
SAUDI ARABIA, TURKEY
& CHINA
WORLD’S
25
BEST MULTINATIONAL
WORKPLACES
100
BEST WORKPLACES
FOR WOMEN
100
BEST WORKPLACES FOR
MILLENNIALS
“I can make people’s days!
It comes from the heart.
I can delight people. I have
the most extraordinary
job in the world.”
Warren Brown, Head Chef,
Hilton Kuala Lumpur
FORTUNE
MOST ADMIRED
COMPANIES
NEWSWEEK
TOP GREEN
COMPANIES
IN THE U.S.
FORBES
THE JUST 100:
AMERICA’S BEST
CORPORATE
CITIZENS
“My job is to inspire all my team members to live
the Hilton Values. I have always had a passion for
teaching people. And if I can inspire them,
then they will go on to inspire our guests.”
Caroline Bowes, Human Resources,
Conrad Dubai
2016 ANNUAL REPORT 5
2016 HIGHLIGHTS
Strengthen
BRANDS & COMMERCIAL
SERVICES PLATFORM
The highest-rated travel app
• Downloaded every 8 seconds
• Enables more than 1 million digital check-ins per month
• Allows guests to select a room and use their phone as
a Digital Key at 1,000 hotels today
Helped to grow
Hilton Honors
loyalty program
by 9 million members
to approximately
60 million members
Strategically adding
new brands: the fastest-
growing new brand in
our company’s history,
Tru by Hilton
DIGITAL CHECK-IN
ROOM SELECTION
DIGITAL KEY
6 HILTON
Expand
GLOBAL FOOTPRINT
2016 HIGHLIGHTS
INDUSTRY-LEADING
ORGANIC GROWTH
ROOMS, grew pipeline to a record nearly
Signed over 106,000
310,000 ROOMS,
opened 354 PROPERTIES
adding five new countries to
our footprint.
DoubleTree Resort by Hilton Fiji – Sonaisali Island
CHINA
pipeline in Greater China, totaling nearly
328 HOTELS open or in the
96,000 ROOMS
LUXURY & LIFESTYLE
Nearly 120 HOTELS
open or in the pipeline
Waldorf Astoria Dubai Palm Jumeirah
2016 ANNUAL REPORT 7
Maximize
PERFORMANCE
We are a resilient, fee-driven business with a disciplined strategy that is focused on
growing market share, organic unit growth and free cash flow per share, preserving
our strong balance sheet and accelerating return of capital.
YEAR-OVER-YEAR GROWTH
2015-2016
MANAGED AND FRANCHISED
NET UNIT GROWTH (ROOMS)
ROOMS IN PIPELINE
6.6%
16%
ROOMS UNDER
CONSTRUCTION
17%
TOP LINE 2016 – REVPAR
ADJUSTED EBITDA
1.8%
+3% OR $2,975M
SIGNIFICANT POTENTIAL CAPITAL RETURN THROUGH 2019
FREE CASH FLOW
NET DEBT ISSUANCE
$2.6 - $2.8B
$0.4 - $1.7B
$3.0 - $4.5B
QUARTERLY DIVIDENDS
15% - 20%
PROGRAMMATIC & OPPORTUNISTIC
SHARE BUYBACKS
80% - 85%
8 HILTON
2016
FORM 10-K
United States
Securities and Exchange Commission
Washington, DC 20549
(Mark One)
Form 10-K
S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
£ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from
to
.
Commission File Number 001-36243
Hilton Worldwide Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
27-4384691
(IRS Employer Identification No.)
7930 Jones Branch Drive, Suite 1100, McLean, VA
(Address of Principal Executive Offices)
22102
(Zip Code)
Registrant’s telephone number, including area code: (703) 883-1000
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class)
Common Stock, $0.01 par value per share
(Name of each exchange on which registered)
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes S No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes S No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. S
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
As of June 30, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $11,751 million (based upon the closing sale price of the common stock on that date on the New York Stock
Exchange).
The number of shares of common stock outstanding on February 8, 2017 was 329,731,387.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant’s definitive proxy statement relating to
its 2017 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of
the registrant’s fiscal year.
DOCUMENTS INCORPORATED BY REFERENCE
2
Hilton
2016 Annual Report
3
Table of Contents
PART I
Forward-Looking Statements
Terms Used in this Annual Report on Form 10-K
Item 1
Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Financial Statements and Supplementary Data
Page
4
4
4
14
33
34
37
37
37
39
40
61
62
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 109
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits and Financial Statement Schedules
Item 16 Form 10-K Summary
Signatures
110
110
111
111
111
111
111
112
115
116
2
Hilton
2016 Annual Report
3
PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward- looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”)
and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). These statements
include, but are not limited to, statements related to our
expectations regarding the performance of our business,
our financial results, our liquidity and capital resources,
the spin-off transactions and other non-historical
statements. In some cases, you can identify these
forward-looking statements by the use of words such as
“outlook,” “believes,” “expects,” “potential,” “continues,”
“may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,”
“intends,” “plans,” “estimates,” “anticipates” or the negative
version of these words or other comparable words.
Such forward-looking statements are subject to various
risks and uncertainties, including, among others, risks
inherent to the hospitality industry, macroeconomic
factors beyond our control, competition for hotel guests,
management and franchise agreements, risks related to
doing business with third-party hotel owners, performance
of our information technology systems, growth of reser-
vation channels outside of our system, risks of doing
business outside of the United States of America (“U.S.”),
risks related to our spin-offs and our indebtedness.
Accordingly, there are or will be important factors that
could cause actual outcomes or results to differ materially
from those indicated in these statements. We believe
these factors include but are not limited to those
described under “Part I—Item 1A. Risk Factors.” These
factors should not be construed as exhaustive and
should be read in conjunction with the other cautionary
statements that are included in this Annual Report on
Form 10-K. We undertake no obligation to publicly update
or review any forward-looking statement, whether as a
result of new information, future developments or
otherwise, except as required by law.
Terms Used in this Annual Report on Form 10-K
Except where the context requires otherwise, references
in this Annual Report on Form 10-K to “Hilton,” “the
Company,” “we,” “us” and “our” refer to Hilton Worldwide
Holdings Inc., together with its consolidated subsidiaries.
Except where the context requires otherwise, references
to our “properties,” “hotels” and “rooms” refer to the hotels,
resorts and timeshare properties managed, franchised,
owned or leased by us. Of these hotels, resorts and rooms,
a portion are directly owned or leased by us or joint ven-
tures in which we have an interest, and the remaining
hotels, resorts and rooms are owned by third-party owners.
Investment funds associated with or designated by
The Blackstone Group L.P. and their affiliates, our former
majority owners, are referred to herein as “Blackstone.”
Reference to “Average Daily Rate” or “ADR” means hotel
room revenue divided by total number of room nights sold
in a given period and “Revenue per Available Room” or
“RevPAR” represents hotel room revenue divided by room
nights available to guests for a given period.
Reference to “Adjusted EBITDA” means earnings before
interest expense, taxes and depreciation and amortization,
or “EBITDA,” further adjusted to exclude certain items.
Refer to “Part II—Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—
Key Business and Financial Metrics Used by Management”
for further discussion of these financial metrics.
ITEM 1. BUSINESS
Overview
Hilton is one of the largest and fastest growing hospitality
companies in the world, with 4,922 hotels, resorts and
timeshare properties comprising 804,097 rooms in 104
countries and territories as of December 31, 2016. In the
nearly 100 years since our founding, we have defined the
hospitality industry and established a portfolio of distinct,
market-leading brands. Our premier brand portfolio
includes: our luxury and lifestyle hotel brands, Waldorf
Astoria Hotels & Resorts, Conrad Hotels & Resorts and
Canopy by Hilton; our full service hotel brands, Hilton Hotels
& Resorts, Curio—A Collection by Hilton, DoubleTree by
Hilton and Embassy Suites by Hilton; our focused service
hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by
Hilton, Homewood Suites by Hilton and Home2 Suites by
Hilton; our timeshare brand, Hilton Grand Vacations; and
our new full service brand, Tapestry Collection by Hilton,
launched in January 2017. As of December 31, 2016, more
than 169,000 employees served in our managed, owned,
leased and timeshare properties and corporate offices
around the world, and we had approximately 60 million
members in our award-winning customer loyalty program,
Hilton Honors.
During the year ended December 31, 2016, we operated
our business through three segments: (i) ownership;
(ii) management and franchise; and (iii) timeshare. Our
ownership segment consisted of 141 hotels with 57,716
rooms as of December 31, 2016 in which we had an
ownership interest or lease. Through our management
and franchise segment, which consisted of 4,734 hotels
with 738,724 rooms as of December 31, 2016, we managed
hotels, resorts and timeshare properties owned by third
parties and we license our brands to franchisees. Through
our timeshare segment, which consisted of 47 properties
comprising 7,657 units as of December 31, 2016, we mar-
keted and sold timeshare intervals; operated timeshare
resorts and a timeshare membership club; and provided
consumer financing.
4
Hilton
2016 Annual Report
5
In addition to our current hotel portfolio, we are focused
on the growth of our business through expanding our
share of the global lodging industry through our develop-
ment pipeline, which as of December 31, 2016 included
approximately 310,000 rooms scheduled to be opened
in the future, over 99 percent of which are within our
management and franchise segment. As of December 31,
2016, over 157,000 rooms, representing half of our
development pipeline, were under construction. The
expansion of our business is supported by strong lodging
industry fundamentals, including limited supply growth, in
the current economic environment and long-term growth
prospects based on increasing global travel and tourism.
Overall, we believe that our experience in the hotel
industry and strong, well-defined brands that operate
throughout the lodging industry chain scales and com-
mercial service offerings will continue to drive customer
loyalty, including participation in our Hilton Honors loyalty
program. Satisfied customers will continue to provide
strong overall hotel performance for our hotel owners and
us, and encourage further development of additional
hotels under our brands and with existing and new hotel
owners, which further supports our growth and future
financial performance. We believe that our existing
portfolio and development pipeline, which will require
minimal capital investment from us, put us in a strong
position to further improve our business and serve our
customers in the future.
On January 3, 2017, we completed the previously
announced spin-offs of a portfolio of hotels and resorts,
as well as our timeshare business, into two additional
and independent, publicly traded companies: Park Hotels
& Resorts Inc. (“Park”) and Hilton Grand Vacations Inc.
(“HGV”), respectively, (the “spin-offs”). The spin-offs were
completed via a distribution to each of Hilton’s stockhold-
ers of record, as of the close of business on December 15,
2016, of 100 percent of the outstanding common stock of
Park and HGV. Each Hilton stockholder received one
share of Park common stock for every five shares of
Hilton common stock and one share of HGV common
stock for every 10 shares of Hilton common stock. Both
Park and HGV have their common stock listed on the
New York Stock Exchange (“NYSE”) under the symbols “PK”
and “HGV,” respectively. See Item 1A. Risk Factors and
Note 29: “Subsequent Events” in our audited consolidated
financial statements included elsewhere in this Annual
Report on Form 10-K for additional discussion. Unless
otherwise stated herein, this Annual Report on Form 10-K
presents our business and results of operations as of and
for the historical periods presented, without giving effect
to the spin-offs and based on the three segments we
operated our business through prior to closing the spin-offs.
Refer to pro forma financial information included in our
Current Report on Form 8-K filed with the Securities and
Exchange Commission (“SEC”) on January 4, 2017 for the
historical results of operations and performance of Hilton
giving effect to the spin-offs, and refer to the Registration
Statements on Form 10 of Park and HGV and their
subsequent periodic reports filed with the SEC for their
respective historical financial results. Additionally, refer to
our press release on our fourth quarter and full year 2016
results for pro forma financial information for the year
ended December 31, 2016, included in our Current Report
on Form 8-K filed with the SEC on February 15, 2017.
Neither the Registration Statements on Form 10 of Park
and HGV, their subsequent periodic and other reports
filed with the SEC, nor the pro forma financial information
included in our Current Reports on Form 8-K filed on
January 4, 2017 and February 15, 2017 are incorporated by
reference herein.
On January 3, 2017, we completed a 1-for-3 reverse
stock split of Hilton’s outstanding common stock (the
“Reverse Stock Split”). The authorized number of shares
of common stock was reduced from 30,000,000,000 to
10,000,000,000, and the authorized number of shares of
preferred stock remains 3,000,000,000. All share and
share-related information presented in this Annual
Report on Form 10-K have been retroactively adjusted to
reflect the decreased number of shares resulting from
the Reverse Stock Split.
4
Hilton
2016 Annual Report
5
Our Brand Portfolio
The goal of each of our brands is to deliver exceptional customer experiences and superior operating performance.
Brand(1)
Chain
Scale
Luxury
Luxury
Lifestyle
Upper Upscale
Upper Upscale
Upscale
Upscale
Upper Upscale
December 31, 2016
Countries/
Territories
Properties
Rooms
Percentage of
Total Rooms
Selected Competitors(2)
12
22
1
85
7
41
—
6
26
29
1
10,203
1.3%
Four Seasons, Mandarin Oriental, Peninsula,
Ritz Carlton, St. Regis
9,554
1.2%
Fairmont, Intercontinental, JW Marriott,
Park Hyatt, Sofitel
112
—%
Hyatt Centric, Joie De Vivre, Kimpton,
Le Meridien
570
208,762
26.0%
Hyatt Regency, Marriott, Radisson Blu,
Renaissance, Sheraton, Sofitel, Westin
31
7,242
0.9%
Autograph Collection, Luxury Collection,
Tribute Portfolio
494
117,699
14.6%
Crowne Plaza, Delta, Holiday Inn, Hyatt,
Radisson, Renaissance, Sheraton
—
—
N/A
Ascend Collection, Best Western Premier,
Tribute Portfolio
232
54,589
6.8%
Hyatt, Renaissance,
Residence Inn, Sheraton
Upscale
33
717
102,786
12.8%
Aloft, Courtyard, Four Points, Holiday Inn,
Hyatt Place, Novotel
Upper Midscale
19
2,221
223,114
27.7%
AmericInn, Comfort Inn, Fairfield Inn,
Holiday Inn Express, Wingate
Midscale
—
—
—
N/A
Best Western, Comfort Inn, Fairfield Inn,
La Quinta, Ramada
Upscale
Upper Midscale
Timeshare
3
2
3
418
47,104
5.9%
Element, Hyatt House, Residence Inn,
SpringHill Suites, Staybridge Suites
129
13,349
1.7%
Candlewood Suites, Hawthorn Suites,
TownePlace Suites
47
7,657
1.0%
Hyatt Residence, Marriott Vacation Club,
Vistana Signature Experiences,
Wyndham Vacations Resorts
(1) The table above excludes seven unbranded properties with 1,926 rooms, representing approximately 0.1 percent of total rooms. HGV has exclusive right to
use our Hilton Grand Vacations brand, subject to the terms of a license agreement with us.
(2) The table excludes lesser known regional competitors.
6
Hilton
2016 Annual Report
7
Waldorf Astoria Hotels & Resorts: What began as an
iconic hotel in New York City is today a portfolio of 26 luxury
hotels and resorts. In landmark destinations around the
world, Waldorf Astoria Hotels & Resorts reflect their
locations, each providing the inspirational environments
and personalized attention that are the source of unfor-
gettable moments. Properties typically include elegant
spa and wellness facilities, high-end restaurants, golf
courses (at resort properties), 24-hour room service, fitness
and business centers, meeting, wedding and banquet
facilities and special event and concierge services.
Conrad Hotels & Resorts: Conrad is a global luxury brand
of 29 properties offering guests personalized experiences
with sophisticated, locally inspired surroundings and
an intuitive service model based on customization and
control, as demonstrated by the Conrad Concierge mobile
application that enables guest control of on-property
amenities and services. Properties typically include con-
venient and relaxing spa and wellness facilities, enticing
restaurants, comprehensive room service, fitness and
business centers, multi-purpose meeting facilities and
special event and concierge services.
Canopy by Hilton: Canopy by Hilton represents an
energizing, new hotel in the neighborhood offering simple,
guest-directed service, thoughtful local choices and com-
fortable spaces. Each property is designed as a natural
extension of its neighborhood, with local design, food and
drink and culture. In July 2016, the first Canopy opened
in Reykjavik, Iceland. As of January 31, 2017, Canopy had
35 properties in the pipeline or in various states of approval.
Hilton Hotels & Resorts: Hilton is our global flagship
brand and ranks number one for global brand awareness
in the hospitality industry, with 570 hotels and resorts in
85 countries and territories across six continents. The
brand primarily serves business and leisure upper upscale
travelers and meeting groups. Hilton hotels are full service
hotels that typically include meeting, wedding and ban-
quet facilities and special event services, restaurants and
lounges, food and beverage services, swimming pools, gift
shops, retail facilities and other services.
Curio–A Collection by Hilton: Curio—A Collection by
Hilton is created for travelers who seek local discovery
and one-of-a-kind experiences. Curio is made up of a col-
lection of hand-picked hotels that retain their unique
identity but are able to leverage the many benefits of the
Hilton global platform, including our common reservation
and customer care service and Hilton Honors guest loyalty
program. As of January 31, 2017, Curio had 110 properties
in the pipeline or in various states of approval.
DoubleTree by Hilton: DoubleTree by Hilton is an upscale,
full service hotel designed to provide true comfort to
today’s business and leisure travelers. DoubleTree’s
494 open hotels and resorts are united by the brand’s
CARE (“Creating a Rewarding Experience”) culture and its
iconic warm chocolate chip cookie served at check-in.
DoubleTree’s diverse portfolio includes historic icons,
small contemporary hotels, resorts and large urban hotels.
Tapestry Collection by Hilton: Tapestry Collection by
Hilton, our newest brand, is a curated portfolio of original
hotels in the upscale hotel segment that have recogniz-
able features distinct to each hotel. Tapestry guests are
looking for new experiences and choose to stay where
they can expect to never see the same thing twice.
Travelers can book an independent and reliable stay with
confidence knowing these hotels are backed by the Hilton
name and the award winning Hilton Honors program.
As of January 31, 2017, Tapestry Collection by Hilton had
commitments for seven properties. The first property is
expected to open by the third quarter of 2017.
Embassy Suites by Hilton: Embassy Suites by Hilton
comprises 232 upper upscale, all-suite hotels that feature
two-room guest suites with a separate living room and
dining/work area, a complimentary cooked-to-order
breakfast and complimentary evening receptions every
night. Embassy Suites’ bundled pricing ensures that
guests receive all of the amenities our properties have to
offer at a single price.
Hilton Garden Inn: Hilton Garden Inn is our award-winning,
upscale brand with 717 hotels that strives to ensure
today’s busy travelers have what they need to be produc-
tive on the road. From the Serta Perfect Sleeper bed, to
complimentary internet access, to a comfortable lobby
pavilion, Hilton Garden Inn is the brand guests can count
on to support them on their journeys.
Hampton by Hilton: Hampton by Hilton is our moderately
priced, upper midscale hotel with limited food and bever-
age facilities. The Hampton by Hilton brand also includes
Hampton Inn & Suites hotels, which offer both traditional
hotel rooms and suite accommodations within one
property. Across our over 2,200 Hampton locations
around the world, guests receive free hot breakfast and
free high-speed internet access, all for a great price and
all supported by the 100% Hampton Guarantee.
6
Hilton
2016 Annual Report
7
Our Customer Loyalty Program
Hilton Honors is our award-winning guest loyalty program
that supports our portfolio of brands and our entire
system of hotels and timeshare properties. The program
generates significant repeat business by rewarding
guests with points for each stay at any of our more than
4,900 hotels worldwide, which are then redeemable for
free hotel nights and other goods and services. Members
can also use points earned to transact with nearly 130 part-
ners, including airlines, rail and car rental companies,
credit card providers and others. The program provides
targeted marketing, promotions and customized guest
experiences to approximately 60 million members. Our
Hilton Honors members represented approximately
56 percent of our system-wide occupancy and contributed
hotel-level revenues to us and our hotel owners of over
$17 billion during the year ended December 31, 2016.
Affiliation with our loyalty programs encourages members
to allocate more of their travel spending to our hotels.
The percentage of travel spending we capture from loyalty
members increases as they move up the tiers of our
program. The program is funded by contributions from
eligible revenues generated by Hilton Honors members
and collected by us from hotels in our system. These funds
are applied to reimburse hotels and partners for Hilton
Honors points redemptions and to pay for program
administrative expenses and marketing initiatives that
support the program.
Tru by Hilton: Tru by Hilton is a new brand designed to be
a game changer in the midscale segment. Tru was built
from a belief that being cost conscious and having a great
stay do not have to be mutually exclusive. By focusing on
the brand’s three key tenets of simplified, spirited and
grounded in value, every detail of the property is crafted
for operational efficiency and to drive increased guest
satisfaction—from the activated, open lobby to the effi-
ciently designed bedrooms. As of January 31, 2017, Tru had
383 properties in the pipeline or in various states of
approval. The first property is expected to open in the
second quarter of 2017.
Homewood Suites by Hilton: Homewood Suites by Hilton
is our upscale, extended-stay hotel that features residen-
tial style accommodations including business centers,
swimming pools, convenience stores and limited meeting
facilities. These 418 hotels provide the touches, familiarity
and comforts of home so that extended-stay travelers
can feel at home on the road.
Home2 Suites by Hilton: Home2 Suites by Hilton is our
upper midscale hotel that provides a modern and savvy
option to budget conscious extended-stay travelers.
Offering innovative suites with contemporary design and
cutting-edge technology, we strive to ensure that our
guests are comfortable and productive, whether they are
staying a few days or a few months. Each of the brand’s
129 hotels, 57 of which were opened in 2016, offers compli-
mentary continental breakfast, integrated laundry and
exercise facility, recycling and sustainability initiatives and a
pet-friendly policy. During 2016, 121 properties were added
to our pipeline, and as of January 31, 2017, 476 properties
were in the pipeline or in various states of approval.
Hilton Grand Vacations: Hilton Grand Vacations is our
timeshare brand. Ownership of a deeded real estate inter-
est with club membership points provides members with
a lifetime of vacation advantages and the comfort and
convenience of residential-style resort accommodations
in select, renowned vacation destinations. Each of the
47 Hilton Grand Vacations properties provides a distinctive
setting, while signature elements remain consistent, such
as high-quality guest service, spacious units and extensive
on-property amenities.
8
Hilton
2016 Annual Report
9
Our Business
During the year ended December, 31 2016, we operated our business across three segments: (i) ownership; (ii) management
and franchise; and (iii) timeshare. For more information regarding our segments, see “Part II—Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Note 23: “Business Segments” in our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
As of December 31, 2016, our system included the following properties and rooms, by type, brand and region:
Owned/Leased(1)
Managed
Franchised
Total
Properties
Rooms
Properties
Rooms
Properties
Rooms
Properties
Rooms
Waldorf Astoria Hotels & Resorts
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Conrad Hotels & Resorts
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Canopy by Hilton
Europe
Hilton Hotels & Resorts
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Curio—A Collection by Hilton
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
DoubleTree by Hilton
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Embassy Suites by Hilton
U.S.
Americas (excluding U.S.)
Hilton Garden Inn
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Hampton by Hilton
U.S.
Americas (excluding U.S.)
Europe
Asia Pacific
Homewood Suites by Hilton
U.S.
Americas (excluding U.S.)
Home2 Suites by Hilton
U.S.
Americas (excluding U.S.)
Other
Lodging
Hilton Grand Vacations
Total
4
—
2
—
—
—
—
1
1
—
—
25
3
68
6
7
1
—
—
—
10
—
—
—
—
10
—
2
—
—
—
—
1
—
—
—
—
—
1,174
—
463
—
—
—
—
192
614
—
—
23,089
1,668
17,695
2,279
3,403
224
—
—
—
4,093
—
—
—
—
2,402
—
290
—
—
—
—
130
—
—
—
—
—
9
1
4
3
2
4
—
2
3
14
—
37
22
44
45
77
1
—
—
1
27
5
12
9
45
33
3
4
8
20
6
16
49
11
13
—
25
2
5,403
142
898
703
436
1,316
—
707
1,079
4,320
—
23,895
7,432
14,912
13,968
28,832
1,000
—
—
201
8,140
1,035
3,348
2,114
12,799
8,935
634
430
1,071
3,578
1,334
3,362
5,992
1,420
2,090
—
2,687
219
—
1
—
—
—
—
1
1
—
2
1
179
18
31
1
7
22
4
2
—
289
17
74
4
2
181
5
598
31
32
—
—
—
984
—
—
—
—
294
256
—
776
112
54,032
5,810
8,510
411
2,826
4,921
585
311
—
68,840
3,365
12,512
488
965
41,296
1,322
82,497
4,954
5,270
—
—
13
2
6
3
2
4
1
4
4
16
1
241
43
143
52
91
24
4
2
1
326
22
86
13
47
224
8
604
39
52
6
16
6,577
1,126
1,361
703
436
1,316
294
1,155
1,693
5,096
112
101,016
14,910
41,117
16,658
35,061
6,145
585
311
201
81,073
4,400
15,860
2,602
13,764
52,633
1,956
83,217
6,025
8,848
1,334
3,362
2,017
86
35
9
196,579
10,210
5,108
1,585
2,067
97
48
9
202,701
11,630
7,198
1,585
375
16
42,377
1,821
400
18
45,064
2,040
—
—
—
141
—
141
—
—
—
57,716
—
57,716
—
—
2
559
47
606
—
—
888
165,320
7,657
172,977
126
3
5
4,175
—
4,175
13,032
317
1,038
573,404
—
573,404
126
3
7
4,875
47
4,922
13,032
317
1,926
796,440
7,657
804,097
(1) Includes properties owned or leased by entities in which we own a noncontrolling interest. Also includes 67 owned and leased hotels that were owned
by Park effective January 3, 2017 as a result of the completion of the spin-offs.
8
Hilton
2016 Annual Report
9
Ownership
As of December 31, 2016, we were one of the largest hotel
owners in the world based upon the number of rooms at
our owned, leased and joint venture hotels. Our diverse
global portfolio of owned and leased properties included a
number of leading hotels in major gateway cities such as
New York City, London, San Francisco, Chicago, São Paolo
and Tokyo. The portfolio included iconic hotels with sig-
nificant underlying real estate value, including the Hilton
New York, Hilton Hawaiian Village and the London Hilton
on Park Lane. Real estate investment was a critical
component of the growth of our business in our early
years. Our real estate holdings grew over time through new
construction, purchases or leases of hotels, investments
in joint ventures and the acquisition of other hotel
companies. In recent years, we expanded our hotel system
less through real estate investment and more by increasing
the number of management and franchise agreements
we have with third-party hotel owners. As noted in the
“Overview” section, on January 3, 2017, we completed the
spin-off of a portfolio of 67 of our owned and leased
hotels and resorts to Park in continuation of this strategy.
These hotels will continue to be a part of the Hilton
system as managed and franchised properties pursuant
to management and franchise agreements entered into
in connection with the spin-offs.
As a hotel owner, we focused on maximizing the cost
efficiency and profitability of the portfolio by, among
other things, implementing new labor management prac-
tices and systems and reducing fixed costs. Through our
disciplined approach to asset management, we developed
and executed on strategic plans for each of our hotels to
enhance the market position of each property and, at
many of our hotels, we renovated guest rooms and public
spaces and added or enhanced meeting and retail space
to improve profitability. At certain of our hotels, we
activated options for the adaptive reuse of all or a portion
of the property to residential, retail or timeshare in order
to deploy our real estate to its highest and best use.
Management and Franchise
Through our management and franchise segment, we
manage hotels and timeshare properties and license our
brands to franchisees. This segment generates its reve-
nue primarily from fees charged to hotel owners and to
homeowners’ associations at timeshare properties.
We grow our management and franchise business by
attracting owners to become a part of our system and
participate in our brands and commercial services to
support their hotel properties. These contracts require
little or no capital investment to initiate on our part, and
provide significant return on investment for us as fees
are earned.
Hotel and Timeshare Management
Our core management services consist of operating
hotels under management agreements for the benefit of
third parties, who either own or lease the hotels and the
associated personal property. Terms of our management
agreements vary, but our fees generally consist of a base
management fee based on a percentage of the hotel’s
gross revenue, and we also may earn an incentive fee
based on gross operating profits, cash flow or a combi-
nation thereof. In general, the owner pays all operating
and other expenses and reimburses our out-of-pocket
expenses. In turn, our managerial discretion typically is
subject to approval by the owner in certain major areas,
including the approval of annual operating and capital
expenditure budgets. Additionally, the owners generally
pay a monthly fee based on a percentage of the total
gross room revenue that covers the costs of advertising
and marketing programs; internet, technology and
reservation systems expenses; and quality assurance
program costs. Owners are also responsible for various
other fees and charges, including payments for participation
in our Hilton Honors reward program, training, consultation
and procurement of certain goods and services. As of
December 31, 2016, we managed 559 hotels with 165,320
rooms, excluding our owned and leased hotels and
timeshare properties.
The initial terms of our management agreements for full
service hotels typically are 20 to 30 years. In certain cases,
where we have entered into a franchise agreement, as well
as a management agreement, we classify these hotels as
managed hotels in our portfolio. Extension options for our
management agreements are negotiated and vary, but
typically are more prevalent in full service hotels. Typically,
these agreements contain one or two extension options
that are either for 5 or 10 years and can be exercised at
our or the other party’s option or by mutual agreement.
In the case of our management agreements with Park,
assuming we exercise all renewal periods, the total term
of the management agreements will range from
30 to 70 years.
Some of our management agreements provide early
termination rights to hotel owners upon certain events,
including the failure to meet certain financial or perfor-
mance criteria. Performance test measures typically are
based upon the hotel’s performance individually and/or
in comparison to specified competitive hotels. We often
have a cure right by paying an amount equal to the
performance shortfall over a specified period, although
in some cases our cure rights are limited.
In addition to the third-party owned hotels we manage, as
of December 31, 2016, we provided management services
for 47 timeshare properties owned by homeowners’ asso-
ciations and 141 owned, leased and joint venture hotels
from which we recognized management fee revenues.
Revenues from our owned and leased hotels are eliminated
in our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. Following
the spin-off of HGV, we no longer provide management
services to the timeshare properties.
10
Hilton
2016 Annual Report
11
Franchising
We franchise our brand names, trade and service marks
and operating systems to hotel owners under franchise
agreements. We do not directly participate in the day-to-
day management or operation of franchised hotels and
do not employ the individuals working at these locations.
We conduct periodic inspections to ensure that brand
standards are maintained. We approve the location for
new construction of franchised hotels, as well as certain
aspects of development. In some cases, we provide
franchisees with product improvement plans that must
be completed in accordance with brand standards to
remain in our hotel system. As of December 31, 2016, we
franchised 4,175 hotels with 573,404 rooms.
Each franchisee pays us a franchise application fee.
Franchisees also pay a royalty fee, generally based on a
percentage of the hotel’s total gross room revenue
(and a percentage of food and beverage revenue in some
brands), as well as a monthly program fee based on a per-
centage of the total gross room revenue that covers the
costs of advertising and marketing programs; internet,
technology and reservation systems expenses; and
quality assurance program costs. Franchisees also are
responsible for various other fees and charges, including
payments for participation in our Hilton Honors reward
program, training, consultation and procurement of
certain goods and services.
Our franchise agreements for new construction and our
franchise agreements with Park typically have initial
terms of approximately 20 years and properties that are
converted from other brands have initial terms of approxi-
mately 10 to 20 years. At the expiration of the initial term,
we may have a contractual right or obligation to relicense
the hotel to the franchisee, at our or the hotel owner’s
option or by mutual agreement, for an additional term
ranging from 10 to 15 years. Our franchise agreements
with Park cannot be extended without our consent. We
have the right to terminate a franchise agreement upon
specified events of default, including nonpayment of fees
or noncompliance with brand standards. If a franchise
agreement is terminated by us because of a franchisee’s
default, the franchisee is contractually required to pay us
liquidated damages.
Timeshare
HGV, our previously owned timeshare segment, generates
revenue from three primary sources:
Timeshare Sales—HGV markets and sells timeshare
interests previously owned by Hilton and third parties.
HGV also sources timeshare intervals through sales and
marketing agreements with third-party developers. This
allows HGV to sell timeshare intervals on behalf of third-
party developers using the Hilton Grand Vacations brand
in exchange for sales, marketing and branding fees on
interval sales, and to earn fees from resort operations
and the servicing of consumer loans while deploying
little up-front capital related to the construction of
the property.
Resort Operations—HGV manages the HGV Club,
receiving enrollment fees, annual dues and transaction
fees from member exchanges for other vacation prod-
ucts. HGV generates rental revenue from unit rentals of
unsold inventory and inventory made available due to
ownership exchanges under the HGV Club program.
HGV also earns revenue from retail and spa outlets at
our timeshare properties.
Financing—HGV provides consumer financing, which
includes interest income generated from the origina-
tion of consumer loans to customers to finance their
purchase of timeshare intervals and revenue from
servicing the loans.
HGV’s primary product is the marketing and selling of fee
simple timeshare interests deeded in perpetuity, developed
either by us or by third parties. This ownership interest is
an interest in real estate equivalent to annual usage rights,
generally for one week, at the timeshare resort where the
timeshare interval was purchased. Each purchaser is auto-
matically enrolled in the HGV Club, giving the purchaser
an annual allotment of club points that allow the purchaser
to exchange his or her annual usage rights for a number
of options, including: a priority reservation period to stay
at his or her home resort where his or her timeshare
interval is deeded, stays at any resort in the HGV system,
reservations for experiential travel such as cruises,
conversion to Hilton Honors points for stays at our hotels
and other options, including stays at more than 4,300
resorts included in the RCI timeshare vacation exchange
network. In addition, HGV operates the Hilton Club, which
operates for owners of timeshare intervals at the Hilton
New York, but whose members also enjoy exchange
benefits with the HGV Club. As of December 31, 2016,
HGV managed a global system of 47 resorts and the HGV
Club and the Hilton Club had nearly 270,000 members in
total. As noted in the “Overview” section, on January 3,
2017, we completed the spin-off of our timeshare business,
and these timeshare properties will remain in Hilton’s
system as franchised properties pursuant to a license
agreement with HGV.
10
Hilton
2016 Annual Report
11
Competition
We encounter active and robust competition as a hotel,
residential, resort and timeshare manager, franchisor,
owner and developer. Competition in the hotel and lodging
industry generally is based on the attractiveness of the
facility, location, level of service, quality of accommodations,
amenities, food and beverage options and outlets,
public and meeting spaces and other guest services,
consistency of service, room rate, brand reputation and
the ability to earn and redeem loyalty program points
through a global system. Our properties and brands
compete with other hotels, resorts, motels and inns in
their respective geographic markets or customer
segments, including facilities owned by local interests,
individuals, national and international chains, institutions,
investment and pension funds and real estate investment
trusts (“REITs”). We believe that our position as a multi-
branded manager, franchisor, owner and operator of
hotels with an associated system-wide customer loyalty
platform makes us one of the largest and most
geographically diverse lodging companies in the world.
Our principal competitors include other branded and
independent hotel operating companies, national and
international hotel brands and ownership companies,
including hotel REITs. While local and independent brand
competitors vary, on a global scale our primary com-
petitors are firms such as Accor S.A., Carlson Rezidor
Group, Hongkong and Shanghai Hotels, Hyatt Hotels
Corporation, Intercontinental Hotel Group, Marriott
International, Mövenpick Hotels and Resorts and
Wyndham Worldwide Corporation.
Seasonality
The hospitality industry is seasonal in nature. The periods
during which our lodging properties experience higher
revenues vary from property to property, depending prin-
cipally upon location and the customer-base served.
We generally expect our revenues to be lower in the
first quarter of each year than in each of the three
subsequent quarters.
Cyclicality
The hospitality industry is cyclical and demand generally
follows, on a lagged basis, key macroeconomic indicators.
There is a history of increases and decreases in demand
for hotel rooms, in occupancy levels and in room rates
realized by owners of hotels through economic cycles.
The combination of changes in economic conditions and
in the supply of hotel rooms can result in significant volatil-
ity in results for owners and managers of hotel properties.
The costs of running a hotel tend to be more fixed than
variable. As a result, in a negative economic environment
the rate of decline in earnings can be higher than the rate
of decline in revenues. The vacation ownership business
also is cyclical as the demand for vacation ownership units
is affected by the availability and cost of financing for
purchases of vacation ownership units, as well as general
economic conditions and the relative health of the
housing market.
Intellectual Property
In the highly competitive hospitality industry in which we
operate, trademarks, service marks, trade names, logos
and patents are very important to the success of our
business. We have a significant number of trademarks,
service marks, trade names, logos, patents and pending
registrations and expend significant resources each year
on surveillance, registration and protection of our trade-
marks, service marks, trade names, logos and patents,
which we believe have become synonymous in the
hospitality industry with a reputation for excellence in
service and authentic hospitality.
Government Regulation
Our business is subject to various foreign and U.S. federal
and state laws and regulations, including: laws and regula-
tions that govern the offer and sale of franchises, many
of which impose substantive requirements on franchise
agreements and require that certain materials be registered
before franchises can be offered or sold in a particular
state; and extensive state and federal laws and regulations
relating to our timeshare business, primarily relating to
the sale and marketing of timeshare intervals.
In addition, a number of states regulate the activities of
hospitality properties and restaurants, including safety
and health standards, as well as the sale of liquor at such
properties, by requiring licensing, registration, disclosure
statements and compliance with specific standards of
conduct. Operators of hospitality properties also are sub-
ject to laws governing their relationship with employees,
including minimum wage requirements, overtime, working
conditions and work permit requirements. Our franchisees
are responsible for their own compliance with laws,
including with respect to their employee, minimum wage
requirements, overtime, working conditions and work
permit requirements. Compliance with, or changes in,
these laws could reduce the revenue and profitability of
our properties and could otherwise adversely affect
our operations.
We also manage and own hotels with casino gaming
operations as part of or adjacent to the hotels. However,
with the exception of casinos at certain of our properties
in Puerto Rico and one property in Egypt, third parties
manage and operate the casinos. We hold and maintain
the casino gaming license and manage the casinos
located in Puerto Rico and Egypt and employ third-party
compliance consultants and service providers. As a result,
our business operations at these facilities are subject to
the licensing and regulatory control of the local regulatory
agency responsible for gaming licenses and operations
in those jurisdictions.
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Finally, as an international owner, operator and franchisor
of hospitality properties in 104 countries and territories,
we also are subject to the local laws and regulations in
each country in which we operate, including employment
laws and practices, privacy laws and tax laws, which may
provide for tax rates that exceed those of the U.S. and
which may provide that our foreign earnings are subject
to withholding requirements or other restrictions, unex-
pected changes in regulatory requirements or monetary
policy and other potentially adverse tax consequences.
In addition, our business operations in countries outside
the U.S. are subject to a number of laws and regulations,
including restrictions imposed by the Foreign Corrupt
Practices Act (“FCPA”), as well as trade sanctions adminis-
tered by the Office of Foreign Assets Control (“OFAC”).
The FCPA is intended to prohibit bribery of foreign officials
and requires us to keep books and records that accurately
and fairly reflect our transactions. OFAC administers and
enforces economic and trade sanctions based on U.S.
foreign policy and national security goals against targeted
foreign states, organizations and individuals. In addition,
some of our operations may be subject to additional laws
and regulations of non-U.S. jurisdictions, including the U.K.’s
Bribery Act 2010, which contains significant prohibitions
on bribery and other corrupt business activities, and other
local anti-corruption laws in the countries and territories
in which we conduct operations.
Environmental Matters
We are subject to certain requirements and potential
liabilities under various foreign and U.S. federal, state and
local environmental, health and safety laws and regula-
tions and incur costs in complying with such requirements.
These laws and regulations govern actions including air
emissions, the use, storage and disposal of hazardous and
toxic substances, and wastewater disposal. In addition to
investigation and remediation liabilities that could arise
under such laws, we may also face personal injury, property
damage, fines or other claims by third parties concerning
environmental compliance or contamination. In addition
to our hotel accommodations, we operate a number of
laundry facilities located in certain areas where we have
multiple properties. We use and store hazardous and toxic
substances, such as cleaning materials, pool chemicals,
heating oil and fuel for back-up generators at some of our
facilities, and we generate certain wastes in connection
with our operations. Some of our properties include older
buildings, and some may have, or may historically have
had, dry-cleaning facilities and underground storage
tanks for heating oil and back-up generators. We have
from time to time been responsible for investigating and
remediating contamination at some of our facilities, such
as contamination that has been discovered when we have
removed underground storage tanks, and we could be
held responsible for any contamination resulting from the
disposal of wastes that we generate, including at locations
where such wastes have been sent for disposal. In some
cases, we may be entitled to indemnification from the
party that caused the contamination pursuant to our
management or franchise agreements, but there can be
no assurance that we would be able to recover all or any
costs we incur in addressing such problems. From time to
time, we may also be required to manage, abate, remove
or contain mold, lead, asbestos-containing materials,
radon gas or other hazardous conditions found in or on
our properties. We have implemented an on-going
operations and maintenance plan at each of our owned
and operated properties that seeks to identify and
remediate these conditions as appropriate. Although we
have incurred, and expect that we will continue to incur,
costs relating to the investigation, identification and
remediation of hazardous materials known or discovered
to exist at our properties, those costs have not had, and
are not expected to have, a material adverse effect on our
financial condition, results of operations or cash flow.
Insurance
U.S. hotels that we manage are permitted to participate in
certain of our insurance programs by mutual agreement
with our hotel owners. If not participating in our programs,
hotel owners must purchase insurance programs consis-
tent with our requirements. U.S. franchised hotels are not
permitted to participate in our insurance programs but
rather must purchase insurance programs consistent
with our requirements. Non-U.S. managed and franchised
hotels are required to participate in certain of our insurance
programs. In addition, our management and franchise
agreements typically include provisions requiring the
owner of the hotel property to indemnify us against losses
arising from the design, development and operation of
hotels owned by such third parties.
Most of our insurance policies are written with self-insured
retentions or deductibles that are common in the insur-
ance market for similar risks and we believe such risks are
prudent for us to assume. Our third-party insurance
policies provide coverage for claim amounts that exceed
our self-insurance retentions or deductible obligations.
We maintain insurance coverage for general liability,
property including business interruption, terrorism,
workers’ compensation and other risks with respect to
our business for all of our owned and leased hotels. In
addition, through our captive insurance subsidiary, we
participate in a reinsurance arrangement that provides
coverage for a certain portion of our deductibles. In
general, our insurance provides coverage related to any
claims or losses arising out of the design, development
and operation of our hotels.
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Corporate Responsibility
The success of our business is linked to the success of
communities in which our hotels operate—from the local
owners who partner with us to build hotels, to the local
talent that operate the hotels, to the local economies and
businesses our hotels support through sourcing products
serving guests.
Travel with Purpose, our corporate responsibility strategy,
is a holistic approach that leverages our global footprint
and scale coupled with local insights and partnerships to
address global and local challenges. Creating shared value
for hotel employees, guests, owners, communities and
overall business is a strategic priority we strive to achieve
by focusing on advancing three priority, material
issue areas:
Creating opportunities—Youth Opportunity, Great
Place to Work, Intrapreneurship: we have a passion, and
a responsibility to invest in current and future employees.
We open doors that help individuals build meaningful
job and life skills through the hospitality industry.
Strengthening communities—Skills-based
Volunteering, Human Rights, Disaster Support: we
encourage and enable our employees to deliver hospi-
tality to our communities. We are committed to having
a positive economic and social impact on the millions
of communities and lives we touch.
Preserving environment—Energy, Carbon, Water, Waste,
Responsible Sourcing: as environmental stewards for
the wellbeing of people and ecosystems in our commu-
nities, we protect the environment through efficient
and responsible operations and sourcing.
LightStay, our proprietary corporate responsibility
performance measurement platform, is a global brand
standard that allows us to manage the impact of our
hotels on the environment and global community
through the measurement, analysis and improvement
of our use of natural resources, opportunities created
and community service.
History
Hilton Worldwide Holdings Inc. was incorporated in
Delaware in March 2010. In 1919, our founder Conrad
Hilton purchased his first hotel in Cisco, Texas. Through
our predecessors, we commenced corporate operations
in 1946.
Employees
As of December 31, 2016, more than 169,000 people were
employed at our managed, owned, leased and timeshare
properties and corporate locations.
As of December 31, 2016, approximately 30 percent of
our employees globally (or 30 percent of our employees in
the U.S.) were covered by various collective bargaining
agreements generally addressing pay rates, working
hours, other terms and conditions of employment, certain
employee benefits and orderly settlement of labor disputes.
Where You Can Find More Information
We file annual, quarterly and current reports, proxy
statements and other information with the SEC. Our
SEC filings are available to the public over the internet
at the SEC’s website at http://www.sec.gov. Our SEC
filings are also available on our website at
http://www.hiltonworldwide.com as soon as reasonably
practicable after they are filed with or furnished to the
SEC. You may also read and copy any filed document at
the SEC’s public reference room in Washington, D.C. at
100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information about
public reference rooms.
We maintain an internet site at
http://www.hiltonworldwide.com. Our website and the
information contained on or connected to that site are
not incorporated into this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
In addition to the other information in this Annual
Report on Form 10-K, the following risk factors should be
considered carefully in evaluating our company and
our business.
Risks Related to Our Business and Industry
We are subject to the business, financial and
operating risks inherent to the hospitality industry,
any of which could reduce our revenues and limit
opportunities for growth.
Our business is subject to a number of business,
financial and operating risks inherent to the hospitality
industry, including:
significant competition from multiple hospitality
providers in all parts of the world;
changes in operating costs, including energy, food,
employee compensation and benefits and insurance;
increases in costs due to inflation or other factors
that may not be fully offset by price and fee increases
in our business;
changes in taxes and governmental regulations that
influence or set wages, prices, interest rates or con-
struction and maintenance procedures and costs;
the costs and administrative burdens associated with
complying with applicable laws and regulations;
the costs or desirability of complying with local
practices and customs;
significant increases in cost for health care coverage
for employees and potential government regulation
with respect to health care coverage;
shortages of labor or labor disruptions;
the ability of third-party internet and other travel
intermediaries to attract and retain customers;
the availability and cost of capital necessary for us and
third-party hotel owners to fund investments, capital
expenditures and service debt obligations;
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delays in or cancellations of planned or future
the financial and general business condition of the
development or refurbishment projects;
the quality of services provided by franchisees;
the financial condition of third-party property owners,
developers and joint venture partners;
relationships with third-party property owners,
developers and joint venture partners, including the risk
that owners may terminate our management, franchise
or joint venture agreements;
cyclical over-building in the hotel industry;
changes in desirability of geographic regions of the
hotels in our business, geographic concentration of our
operations and customers and shortages of desirable
locations for development;
changes in the supply and demand for hotel services,
including rooms, food and beverage and other products
and services; and
decreases in the frequency of business travel that
may result from alternatives to in-person meetings,
including virtual meetings hosted online or over private
teleconferencing networks.
Any of these factors could increase our costs or limit or
reduce the prices we are able to charge for hospitality
products and services, or otherwise affect our ability to
maintain existing properties or develop new properties.
As a result, any of these factors can reduce our revenues
and limit opportunities for growth.
Macroeconomic and other factors beyond our control
can adversely affect and reduce demand for our
products and services.
Macroeconomic and other factors beyond our control
can reduce demand for hospitality products and services,
including demand for rooms at our hotels. These factors
include, but are not limited to:
changes in general economic conditions, including
low consumer confidence, unemployment levels and
depressed real estate prices resulting from the
severity and duration of any downturn in the U.S. or
global economy;
governmental action and uncertainty resulting from
U.S. and global political trends, including potential
barriers to travel, trade and immigration;
war, political conditions or civil unrest, terrorist activities
or threats and heightened travel security measures
instituted in response to these events;
decreased corporate or government travel-related
budgets and spending, as well as cancellations,
deferrals or renegotiations of group business such as
industry conventions;
statements, actions, or interventions by governmental
officials related to travel and corporate travel-related
activities and the resulting negative public perception
of such travel and activities;
airline, automotive and other transportation-related
industries and its effect on travel, including decreased
airline capacity and routes;
conditions that negatively shape public perception of
travel, including travel-related accidents and outbreaks
of pandemic or contagious diseases, such as Ebola,
Zika, avian flu, severe acute respiratory syndrome
(SARS) and H1N1 (swine flu);
cyber-attacks;
climate change or availability of natural resources;
natural or man-made disasters, such as earthquakes,
tsunamis, tornadoes, hurricanes, typhoons, floods,
volcanic eruptions, oil spills and nuclear incidents;
changes in the desirability of particular locations or
travel patterns of customers; and
organized labor activities, which could cause a diversion
of business from hotels involved in labor negotiations
and loss of business for our hotels generally as a result
of certain labor tactics.
Any one or more of these factors could limit or reduce
overall demand for our products and services or could
negatively affect our revenue sources, which could
adversely affect our business, financial condition and
results of operations.
Contraction in the global economy or low levels
of economic growth could adversely affect our
revenues and profitability as well as limit or slow
our future growth.
Consumer demand for our services is closely linked to
the performance of the general economy and is sensitive
to business and personal discretionary spending levels.
Decreased global or regional demand for hospitality prod-
ucts and services can be especially pronounced during
periods of economic contraction or low levels of economic
growth, and the recovery period in our industry may lag
overall economic improvement. Declines in demand for
our products and services due to general economic
conditions could negatively affect our business by limiting
the amount of fee revenues we are able to generate from
our managed and franchised properties and decreasing
the revenues and profitability of our owned and leased
properties. In addition, many of the expenses associated
with our business, including personnel costs, interest, rent,
property taxes, insurance and utilities, are relatively fixed.
During a period of overall economic weakness, if we are
unable to meaningfully decrease these costs as demand
for our hotels decreases, our business operations and
financial performance may be adversely affected.
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The hospitality industry is subject to seasonal and
cyclical volatility, which may contribute to fluctuations
in our results of operations and financial condition.
The hospitality industry is seasonal in nature. The periods
during which our lodging properties experience higher
revenues vary from property to property, depending prin-
cipally upon location and the customer base served. We
generally expect our revenues to be lower in the first
quarter of each year than in each of the three subsequent
quarters with the fourth quarter generally being the
highest. In addition, the hospitality industry is cyclical and
demand generally follows the general economy on a
lagged basis. The seasonality and cyclicality of our industry
may contribute to fluctuations in our results of operations
and financial condition.
Because we operate in a highly competitive industry,
our revenues or profits could be harmed if we are
unable to compete effectively.
The segments of the hospitality industry in which we
operate are subject to intense competition. Our principal
competitors are other operators of luxury, full service and
focused service hotels, including other major hospitality
chains with well-established and recognized brands. We
also compete against smaller hotel chains, independent
and local hotel owners and operators, home and apart-
ment sharing services and timeshare operators. If we are
unable to compete successfully, our revenues or profits
may decline.
Competition for hotel guests
We face competition for individual guests, group
reservations and conference business. We compete for
these customers based primarily on brand name recogni-
tion and reputation, as well as location, room rates, property
size and availability of rooms and conference space,
quality of the accommodations, customer satisfaction,
amenities and the ability to earn and redeem loyalty
program points. Our competitors may have greater
commercial, financial and marketing resources and more
efficient technology platforms, which could allow them to
improve their properties and expand and improve their
marketing efforts in ways that could affect our ability to
compete for guests effectively, or they could offer a type
of lodging product that customers find attractive but that
we do not offer.
Competition for management and
franchise agreements
We compete to enter into management and franchise
agreements. Our ability to compete effectively is based
primarily on the value and quality of our management ser-
vices, brand name recognition and reputation, our ability
and willingness to invest capital, availability of suitable
properties in certain geographic areas, and the overall
economic terms of our agreements and the economic
advantages to the property owner of retaining our man-
agement services and using our brands. If the properties
that we manage or franchise perform less successfully
than those of our competitors, if we are unable to offer
terms as favorable as those offered by our competitors,
or if the availability of suitable properties is limited, our
ability to compete effectively for new management or
franchise agreements could be reduced.
Any deterioration in the quality or reputation of our
brands could have an adverse effect on our reputation,
business, financial condition or results of operations.
Our brands and our reputation are among our most
important assets. Our ability to attract and retain guests
depends, in part, on the public recognition of our brands
and their associated reputation. In addition, the success
of our hotel owners’ businesses and their ability to make
payments to us for our services may depend on the
strength and reputation of our brands. If our brands
become obsolete or consumers view them as unfashion-
able or lacking in consistency and quality, we may be
unable to attract guests to our hotels, and may further be
unable to attract or retain our hotel owners.
Changes in ownership or management practices, the
occurrence of accidents or injuries, natural disasters,
crime, individual guest notoriety or similar events at our
hotels and resorts can harm our reputation, create
adverse publicity and cause a loss of consumer confi-
dence in our business. Because of the global nature of our
brands and the broad expanse of our business and hotel
locations, events occurring in one location could
negatively affect the reputation and operations of
otherwise successful individual locations. In addition, the
expansion of social media has compounded the potential
scope of negative publicity. We also could face legal
claims related to negative events, along with resulting
adverse publicity. A perceived decline in the quality of our
brands or damage to our reputation could adversely affect
our business, financial condition or results of operations.
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Our business is subject to risks related to doing
business with third-party property owners that could
adversely affect our reputation, operational results or
prospects for growth.
Unless we maintain good relationships with third-party
hotel owners and renew or enter into new management and
franchise agreements, we may be unable to expand our
presence and our business, financial condition and results
of operations may suffer.
Our business depends on our ability to establish and
maintain long-term, positive relationships with third-party
property owners and our ability to enter into new and
renew management and franchise agreements. Although
our management and franchise contracts are typically
long-term arrangements, hotel owners may be able to
terminate the agreements under certain circumstances,
including the failure to meet specified financial or perfor-
mance criteria. Our ability to meet these financial and
performance criteria is subject to, among other things, risks
common to the overall hotel industry, including factors
outside of our control. In addition, negative management
and franchise pricing trends could adversely affect our
ability to negotiate with hotel owners. If we fail to maintain
and renew existing management and franchise agreements
or enter into new agreements on favorable terms, we may
be unable to expand our presence and our business, and our
financial condition and results of operations may suffer.
Our business is subject to real estate investment risks for
third-party owners that could adversely affect our operational
results and our prospects for growth.
Growth of our business is affected, and may potentially
be limited, by factors influencing real estate development
generally, including site availability, financing, planning,
zoning and other local approvals. In addition, market factors
such as projected room occupancy, changes in growth in
demand compared to projected supply, geographic area
restrictions in management and franchise agreements,
costs of construction and anticipated room rate struc-
ture, if not managed effectively by our third-party owners
could adversely affect the growth of our management
and franchise business.
If our third-party property owners are unable to repay or
refinance loans secured by the mortgaged properties, or to
obtain financing adequate to fund current operations or
growth plans, our revenues, profits and capital resources
could be reduced and our business could be harmed.
Many of our third-party property owners pledged their
properties as collateral for mortgage loans entered into at
the time of development, purchase or refinancing. If our
third-party property owners are unable to repay or refi-
nance maturing indebtedness on favorable terms or at all,
their lenders could declare a default, accelerate the
related debt and repossess the property. A repossession
could result in the termination of our management or
franchise agreement or eliminate revenues and cash flows
from the property. In addition, the owners of managed
and franchised hotels depend on financing to buy, develop
and improve hotels and in some cases, fund operations
during down cycles. Our hotel owners’ inability to obtain
adequate funding could materially adversely affect the
maintenance and improvement plans of existing hotels,
result in the delay or stoppage of the development of our
existing pipeline and limit additional development to
further expand our hotel portfolio.
If our third-party property owners fail to make investments
necessary to maintain or improve their properties, guest
preference for Hilton brands and reputation and performance
results could suffer.
Substantially all of our management and franchise
agreements, as well as our license agreement with HGV,
require third-party property owners to comply with quality
and reputation standards of our brands, which include
requirements related to the physical condition, safety
standards and appearance of the properties as well as the
service levels provided by hotel employees. These stan-
dards may evolve with customer preference, or we may
introduce new requirements over time. If our property
owners fail to make investments necessary to maintain or
improve the properties in accordance with our standards,
guest preference for our brands could diminish. In addition,
if third-party property owners fail to observe standards
or meet their contractual requirements, we may elect to
exercise our termination rights, which would eliminate
revenues from these properties and cause us to incur
expenses related to terminating these contracts. We may
be unable to find suitable or offsetting replacements for
any terminated relationships.
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Contractual and other disagreements with third-party
property owners could make us liable to them or result in
litigation costs or other expenses.
Our management and franchise agreements require us
and our hotel owners to comply with operational and per-
formance conditions that are subject to interpretation
and could result in disagreements. Any dispute with a
property owner could be very expensive for us, even if the
outcome is ultimately in our favor. We cannot predict
the outcome of any arbitration or litigation, the effect of
any negative judgment against us or the amount of any
settlement that we may enter into with any third party.
Furthermore, specific to our industry, some courts have
applied principles of agency law and related fiduciary
standards to managers of third-party hotel properties,
which means that property owners may assert the right
to terminate agreements even where the agreements do
not expressly provide for termination. Our fees from any
terminated property would be eliminated, and accordingly
may negatively affect our results of operations.
Some of our existing development pipeline may not be
developed into new hotels, which could materially
adversely affect our growth prospects.
As of December 31, 2016, we had a total of 1,968 hotels in
our development pipeline, which we define as hotels
under construction or approved for development under
one of our brands. The commitments of owners and
developers with whom we have agreements are subject
to numerous conditions, and the eventual development
and construction of our pipeline not currently under con-
struction is subject to numerous risks, including, in certain
cases, the owner’s or developer’s ability to obtain adequate
financing and obtaining governmental or regulatory
approvals. As a result, not every hotel in our development
pipeline may develop into a new hotel that enters
our system.
New hotel brands or non-hotel branded concepts that
we launch in the future may not be as successful as we
anticipate, which could have a material adverse effect
on our business, financial condition or results
of operations.
We launched a new upscale brand, Tapestry Collection
by Hilton, in January 2017 and a new midscale brand, Tru
by Hilton, in January 2016. We introduced a new brand,
Canopy by Hilton, in October 2014, opened our first
Curio—A Collection by Hilton hotel in August 2014 and
opened our first Home2 Suites by Hilton hotel in 2011. We
may continue to build our portfolio by launching new
hotel and non-hotel brands in the future. In addition, the
Hilton Garden Inn, DoubleTree by Hilton and Hampton by
Hilton brands have been expanding into new jurisdictions
outside the United States in recent years. We may con-
tinue to expand existing brands into new international
markets. New hotel products or concepts or brand
expansions may not be accepted by hotel owners,
franchisees or customers and we cannot guarantee the
level of acceptance any new brand will have in the
development and consumer marketplaces. If new
branded hotel products, non-hotel branded concepts or
brand expansions are not as successful as we anticipate,
we may not recover the costs we incurred in their
development or expansion, which could have a material
adverse effect on our business, financial condition or
results of operations.
The risks resulting from investments in owned and
leased real estate could increase our costs, reduce
our profits and limit our ability to respond to
market conditions.
Although we recently completed the spin-off of Park,
we still own or lease real property, which subjects us to
various risks that may not be applicable to managed or
franchised properties, including:
governmental regulations relating to real estate
ownership or operations, including tax, environmental,
zoning and eminent domain laws;
loss in value of real estate due to changes in market
conditions or the area in which real estate is located;
increased potential civil liability for accidents or other
occurrences on owned or leased properties;
the ongoing need for owner-funded capital
improvements and expenditures to maintain or upgrade
properties and to deliver properties back to landlords
in a particular state of repair and condition at the end of
a lease term;
periodic total or partial closures due to renovations and
facility improvements;
risks associated with any mortgage debt, including the
possibility of default, fluctuating interest rate levels and
uncertainties in the availability of replacement financing;
fluctuations in real estate values or potential
impairments in the value of our assets;
contingent liabilities that exist after we have exited
a property;
costs linked to the employment and management
of staff to run and operate an owned or leased
property; and
the relative illiquidity of real estate compared to some
other assets.
The negative effect on profitability and cash flow from
declines in revenues is more pronounced in owned or
leased properties because we, as the owner or lessee,
bear the risk of their high fixed-cost structure. Further,
during times of economic distress, declining demand and
declining earnings often result in declining asset values,
and we may not be able to sell properties on favorable
terms or at all. Accordingly, we may not be able to adjust
our owned and leased property portfolio promptly in
response to changes in economic or other conditions.
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Our efforts to develop, redevelop or renovate our owned and
leased properties could be delayed or become more expensive.
Certain of our owned and leased properties were
constructed many years ago. The condition of aging
properties could negatively affect our ability to attract
guests or result in higher operating and capital costs,
either of which could reduce revenues or profits from
these properties. There can be no assurance that our
planned replacements and repairs will occur, or even if
completed, will result in improved performance. In addition,
these efforts are subject to a number of risks, including:
construction delays or cost overruns (including labor
and materials);
obtaining zoning, occupancy and other required
permits or authorizations;
changes in economic conditions that may result in
weakened or lack of demand for improvements that we
make or negative project returns;
governmental restrictions on the size or kind
of development;
volatility in the debt and capital markets that may limit
our ability to raise capital for projects or improvements;
lack of availability of rooms or meeting spaces for
revenue-generating activities during construction,
modernization or renovation projects;
force majeure events, including earthquakes, tornadoes,
hurricanes, floods or tsunamis, or acts of terrorism; and
design defects that could increase costs.
If our properties are not updated to meet guest
preferences, if properties under development or reno-
vation are delayed in opening as scheduled, or if
renovation investments adversely affect or fail to improve
performance, our operations and financial results could
be negatively affected.
Our properties may not be permitted to be rebuilt if destroyed.
Certain of our properties may qualify as legally-permissible
nonconforming uses and improvements, including certain
of our iconic and most profitable properties. If a substantial
portion of any such property were to be destroyed by fire
or other casualty, we might not be permitted to rebuild
that property as it now exists, regardless of the availability
of insurance proceeds. Any loss of this nature, whether
insured or not, could materially adversely affect our
results of operations and prospects.
We have investments in joint venture projects, which limits
our ability to manage third-party risks associated with
these projects.
In most cases, we are minority participants and do not
control the decisions of the joint ventures in which we are
involved. Therefore, joint venture investments may involve
risks such as the possibility that a co-venturer in an
investment might become bankrupt, be unable to meet
its capital contribution obligations, have economic or
business interests or goals that are inconsistent with
our business interests or goals or take actions that are
contrary to our instructions or to applicable laws and
regulations. In addition, we may be unable to take action
without the approval of our joint venture partners, or our
joint venture partners could take actions binding on the
joint venture without our consent. Consequently, actions
by a co-venturer or other third party could expose us to
claims for damages, financial penalties and reputational
harm, any of which could adversely affect our business
and operations. In addition, we may agree to guarantee
indebtedness incurred by a joint venture or co-venturer
or provide standard indemnifications to lenders for loss
liability or damage occurring as a result of our actions or
actions of the joint venture or other co-venturers. Such
a guarantee or indemnity may be on a joint and several
basis with a co-venturer, in which case we may be liable in
the event that our co-venturer defaults on its guarantee
obligation. The non-performance of a co-venturer’s obli-
gations may cause losses to us in excess of the capital we
initially may have invested or committed.
Preparing our financial statements requires us to have
access to information regarding the results of operations,
financial position and cash flows of our joint ventures.
Any deficiencies in our joint ventures’ internal controls
over financial reporting may affect our ability to report
our financial results accurately or prevent or detect fraud.
Such deficiencies also could result in restatements of,
or other adjustments to, our previously reported or
announced operating results, which could diminish
investor confidence and reduce the market price for our
shares. Additionally, if our joint ventures are unable to
provide this information for any meaningful period or fail
to meet expected deadlines, we may be unable to satisfy
our financial reporting obligations or timely file our
periodic reports.
Although our joint ventures may generate positive cash
flow, in some cases they may be unable to distribute that
cash to the joint venture partners. Additionally, in some
cases our joint venture partners control distributions and
may choose to leave capital in the joint venture rather
than distribute it. Because our ability to generate liquidity
from our joint ventures depends in part on their ability to
distribute capital to us, our failure to receive distributions
from our joint venture partners could reduce our cash
flow return on these investments.
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Failures in, material damage to, or interruptions in our
information technology systems, software or websites
and difficulties in updating our existing software or
developing or implementing new software could have
a material adverse effect on our business or results
of operations.
We depend heavily upon our information technology
systems in the conduct of our business. We own and
license or otherwise contract for sophisticated technology
and systems for property management, procurement,
reservations and the operation of the Hilton Honors
customer loyalty program. Such systems are subject to,
among other things, damage or interruption from power
outages, computer and telecommunications failures,
computer viruses and natural and man-made disasters.
Although we have a cold disaster recovery site in a sepa-
rate location to back up our core reservation, distribution
and financial systems, substantially all of our data center
operations are currently located in a single facility.
Although we are migrating portions of our operations to
cloud-based providers, any loss or damage to our primary
facility could result in operational disruption and data loss
as we transfer production operations to our disaster
recovery site. Damage or interruption to our information
systems may require a significant investment to update,
remediate or replace with alternate systems, and we
may suffer interruptions in our operations as a result. In
addition, costs and potential problems and interruptions
associated with the implementation of new or upgraded
systems and technology or with maintenance or adequate
support of existing systems could also disrupt or reduce
the efficiency of our operations. Any material interruptions
or failures in our systems, including those that may result
from our failure to adequately develop, implement and
maintain a robust disaster recovery plan and backup
systems could severely affect our ability to conduct
normal business operations and, as a result, have a
material adverse effect on our business operations and
financial performance.
We rely on third parties for the performance of a significant
portion of our information technology functions world-
wide. In particular, our reservation system relies on data
communications networks operated by unaffiliated third
parties. The success of our business depends in part on
maintaining our relationships with these third parties
and their continuing ability to perform these functions
and services in a timely and satisfactory manner. If we
experience a loss or disruption in the provision of any of
these functions or services, or they are not performed in
a satisfactory manner, we may have difficulty in finding
alternate providers on terms favorable to us, in a timely
manner or at all, and our business could be
adversely affected.
We rely on certain software vendors to maintain and
periodically upgrade many of these systems so that they
can continue to support our business. The software
programs supporting many of our systems were licensed
to us by independent software developers. The inability
of these developers or us to continue to maintain and
upgrade these information systems and software programs
would disrupt or reduce the efficiency of our operations
if we were unable to convert to alternate systems in an
efficient and timely manner.
We are vulnerable to various risks and uncertainties
associated with our websites and mobile applications,
including changes in required technology interfaces,
website and mobile application downtime and other tech-
nical failures, costs and issues as we upgrade our website
software and mobile applications. Additional risks include
computer viruses, changes in applicable federal and state
regulation, security breaches, legal claims related to our
website operations and e-commerce fulfillment and other
consumer privacy concerns. Our failure to successfully
respond to these risks and uncertainties could reduce
website and mobile application sales and have a material
adverse effect on our business or results of operations.
Cyber-attacks could have a disruptive effect on
our business.
From time to time we and third parties who serve us
experience cyber-attacks, attempted and actual breaches
of our or their information technology systems and
networks or similar events, which could result in a loss of
sensitive business or customer information, systems
interruption or the disruption of our operations. The
techniques that are used to obtain unauthorized access,
disable or degrade service or sabotage systems change
frequently and are difficult to detect for long periods of
time, and we are accordingly unable to anticipate and
prevent all data security incidents. In November 2015, we
announced that we had identified and taken action to
eradicate unauthorized malware that targeted payment
card information in some point-of-sale systems in our
hotels and had determined that specific payment card
information was targeted by this malware. We expect we
will be subject to additional cyber-attacks in the future
and may experience data breaches.
Even if we are fully compliant with legal standards and
contractual requirements, we still may not be able to
prevent security breaches involving sensitive data. The
sophistication of efforts by hackers to gain unauthorized
access to information systems has continued to increase
in recent years. Breaches, thefts, losses or fraudulent uses
of customer, employee or company data could cause
consumers to lose confidence in the security of our
websites, mobile applications, point of sale systems and
other information technology systems and choose not
to purchase from us. Such security breaches also could
expose us to risks of data loss, business disruption,
litigation and other costs or liabilities, any of which could
adversely affect our business.
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Hilton
2016 Annual Report
21
We may not be able to identify opportunities or complete
transactions on commercially reasonable terms or at all or
we may not actually realize any anticipated benefits from
such acquisitions, investments or alliances. Similarly, we
may not be able to obtain financing for acquisitions or
investments on attractive terms or at all, or the ability to
obtain financing may be restricted by the terms of our
indebtedness. In addition, the success of any acquisition
or investment also will depend, in part, on our ability to
integrate the acquisition or investment with our
existing operations.
We also may divest certain properties or assets, and any
such divestments may yield lower than expected returns
or otherwise fail to achieve the benefits we expect. In
some circumstances, sales of properties or other assets
may result in losses. Upon sales of properties or assets, we
may become subject to contractual indemnity obliga-
tions, incur material tax liabilities or, as a result of required
debt repayment, face a shortage of liquidity. Finally, any
acquisitions, investments or dispositions could demand
significant attention from management that would
otherwise be available for business operations, which
could harm our business.
Failure to keep pace with developments in technology
could adversely affect our operations or
competitive position.
The hospitality industry demands the use of sophisticated
technology and systems for property management, brand
assurance and compliance, procurement, reservation
systems, operation of our customer loyalty programs,
distribution of hotel resources to current and future cus-
tomers and guest amenities. These technologies may
require refinements and upgrades. The development and
maintenance of these technologies may require significant
investment by us. As various systems and technologies
become outdated or new technology is required, we may
not be able to replace or introduce them as quickly as
needed or in a cost-effective and timely manner. We may
not achieve the benefits we may have been anticipating
from any new technology or system.
We are exposed to risks and costs associated with
protecting the integrity and security of our guests’
personal data and other sensitive information.
We are subject to various risks and costs associated with
the collection, handling, storage and transmission of sen-
sitive information, including those related to compliance
with U.S. and foreign data collection and privacy laws and
other contractual obligations, as well as those associated
with the compromise of our systems collecting such
information. We collect internal and customer data,
including credit card numbers and other personally
identifiable information for a variety of important business
purposes, including managing our workforce, providing
requested products and services and maintaining guest
preferences to enhance customer service and for marketing
and promotion purposes. We could be exposed to fines,
penalties, restrictions, litigation, reputational harm or other
expenses, or other adverse effects on our business, due
to failure to protect our guests’ personal data and other
sensitive information or failure to maintain compliance
with the various U.S. and foreign data collection and
privacy laws or with credit card industry standards or
other applicable data security standards.
In addition, states and the federal government have
enacted additional laws and regulations to protect con-
sumers against identity theft. These laws and similar laws
in other jurisdictions have increased the costs of doing
business, and failure on our part to implement appropriate
safeguards or to detect and provide prompt notice of
unauthorized access as required by some of these laws
could subject us to potential claims for damages and
other remedies. If we were required to pay any significant
amounts in satisfaction of claims under these laws, or if
we were forced to cease our business operations for any
length of time as a result of our inability to comply fully
with any such law, our business, operating results and
financial condition could be adversely affected.
We may seek to expand through acquisitions of and
investments in other businesses and properties, or
through alliances, and we may also seek to divest some
of our properties and other assets. These acquisition
and disposition activities may be unsuccessful or divert
management’s attention.
We may consider strategic and complementary acquisitions
of and investments in other hotel or hospitality brands,
businesses, properties or other assets. Furthermore, we
may pursue these opportunities in alliance with existing
or prospective owners of managed or franchised properties.
In many cases, we will be competing for these opportuni-
ties with third parties that may have substantially greater
financial resources than us. Acquisitions or investments
in brands, businesses, properties or assets as well as these
alliances are subject to risks that could affect our
business, including risks related to:
issuing shares of stock that could dilute the interests of
our existing stockholders;
spending cash and incurring debt;
assuming contingent liabilities; or
creating additional expenses.
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Hilton
2016 Annual Report
21
Failure to comply with marketing and advertising laws,
including with regard to direct marketing, could result
in fines or place restrictions on our business.
We rely on a variety of direct marketing techniques,
including telemarketing, email and social media marketing
and postal mailings, and we are subject to various laws and
regulations in the U.S. and internationally that govern
marketing and advertising practices. Any further restrictions
in laws and court or agency interpretation of such laws,
such as the Telephone Consumer Protection Act of 1991,
the Telemarketing Sales Rule, CAN-SPAM Act of 2003,
and various U.S. state laws, new laws, or international data
protection laws, such as the EU General Data Protection
Regulation, that govern these activities could adversely
affect current or planned marketing activities and cause
us to change our marketing strategy. If this occurs, we
may not be able to develop adequate alternative marketing
strategies, which could affect our ability to maintain
relationships with our customers and acquire new
customers. We also obtain access to names of potential
customers from travel service providers or other
companies and we market to some individuals on these
lists directly or through other companies’ marketing
materials. If access to these lists were prohibited or
otherwise restricted, our ability to develop new customers
and introduce them to products could be impaired.
The growth of internet reservation channels could
adversely affect our business and profitability.
A significant percentage of hotel rooms for individual
guests are booked through internet travel intermediaries,
to whom we commit to pay various commissions and
transaction fees for sales of our rooms through their sys-
tems. Search engines and peer-to-peer inventory sources
also provide online travel services that compete with our
business. If these bookings increase, certain hospitality
intermediaries may be able to obtain higher commissions,
reduced room rates or other significant concessions from
us or our franchisees. These hospitality intermediaries also
may reduce these bookings by de-ranking our hotels in
search results on their platforms, and other online providers
may divert business away from our hotels. Although our
agreements with many hospitality intermediaries limit
transaction fees for hotels, there can be no assurance
that we will be able to renegotiate these agreements
upon their expiration with terms as favorable as the
provisions that existed before the expiration, replacement
or renegotiation. Moreover, hospitality intermediaries
generally employ aggressive marketing strategies, including
expending significant resources for online and television
advertising campaigns to drive consumers to their
websites. As a result, consumers may develop brand
loyalties to the intermediaries’ offered brands, websites
and reservations systems rather than to the Hilton brands
and systems. If this happens, our business and profitability
may be significantly affected as shifting customer
loyalties divert bookings away from our websites. Internet
travel intermediaries also have been subject to regulatory
scrutiny, particularly in Europe. The outcome of this
regulatory activity may affect our ability to compete for
direct bookings through our own internet channels.
In addition, although internet travel intermediaries have
traditionally competed to attract individual consumers or
“transient” business rather than group and convention
business, in recent years they have expanded their busi-
ness to include marketing to large group and convention
business. If that growth continues, it could both divert
group and convention business away from our hotels and
also increase our cost of sales for group and convention
business. Consolidation of internet travel intermediaries,
and the entry of major internet companies into the
internet travel bookings business, also could divert
bookings away from our websites and increase our hotels’
cost of sales.
Our reservation system is an important component
of our business operations and a disruption to its
functioning could have an adverse effect on our
performance and results.
We manage a global reservation system that
communicates reservations to our branded hotels when
made by individuals directly, either online, by telephone
to our call centers or through devices via our mobile
application, or through intermediaries like travel agents,
internet travel web sites and other distribution channels.
The cost, speed, efficacy and efficiency of the reservation
system are important aspects of our business and are
important considerations of hotel owners in choosing
to affiliate with our brands. Any failure to maintain or
upgrade, and any other disruption to our reservation
system may adversely affect our business.
The cessation, reduction or taxation of program
benefits of our Hilton Honors loyalty program could
adversely affect the Hilton brands and guest loyalty.
We manage the Hilton Honors guest loyalty and rewards
program for the Hilton brands. Program members accu-
mulate points based on eligible stays and hotel charges
and redeem the points for a range of benefits including
free rooms and other items of value. The program is an
important aspect of our business and of the affiliation
value for hotel owners under management and franchise
agreements. System hotels (including, without limitation,
third-party hotels under management and franchise
arrangements) contribute a percentage of the guest’s
charges to the program for each stay of a program
member. In addition to the accumulation of points for
future hotels stays at our brands, Hilton Honors arranges
with third-party service providers, such as airlines and
rail companies, to exchange monetary value represented
by points for program awards. Currently, the program
benefits are not taxed as income to members. If the
program awards and benefits are materially altered,
curtailed or taxed such that a material number of Hilton
Honors members choose to no longer participate in the
program, this could adversely affect our business.
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23
These factors may adversely affect the revenues from and
the market value of our properties located in international
markets. While these factors and the effect of these fac-
tors are difficult to predict, any one or more of them could
lower our revenues, increase our costs, reduce our profits
or disrupt our business operations.
Failure to comply with laws and regulations applicable
to our international operations may increase costs,
reduce profits, limit growth or subject us to
broader liability.
Our business operations in countries outside the U.S. are
subject to a number of laws and regulations, including
restrictions imposed by the FCPA, as well as trade sanc-
tions administered by the OFAC. The FCPA is intended to
prohibit bribery of foreign officials and requires us to keep
books and records that accurately and fairly reflect our
transactions. OFAC administers and enforces economic
and trade sanctions based on U.S. foreign policy and
national security goals against targeted foreign states,
organizations and individuals. Although we have policies
in place designed to comply with applicable sanctions,
rules and regulations, it is possible that hotels we manage
or own in the countries and territories in which we operate
may provide services to or receive funds from persons
subject to sanctions. Where we have identified potential
violations in the past, we have taken appropriate remedial
action including filing voluntary disclosures to OFAC. In
addition, some of our operations may be subject to the
laws and regulations of non-U.S. jurisdictions, including
the U.K.’s Bribery Act 2010, which contains significant
prohibitions on bribery and other corrupt business
activities, and other local anti-corruption laws in the
countries and territories in which we conduct operations.
If we fail to comply with these laws and regulations,
we could be exposed to claims for damages, financial
penalties, reputational harm and incarceration of
employees or restrictions on our operation or ownership
of hotels and other properties, including the termination
of management, franchising and ownership rights. In
addition, in certain circumstances, the actions of parties
affiliated with us (including our owners, joint venture part-
ners, employees and agents) may expose us to liability
under the FCPA, U.S. sanctions or other laws. These
restrictions could increase costs of operations, reduce
profits or cause us to forgo development opportunities
that would otherwise support growth.
Because we derive a portion of our revenues from
operations outside the United States, the risks of doing
business internationally could lower our revenues,
increase our costs, reduce our profits or disrupt
our business.
We currently manage, franchise, own or lease hotels and
resorts in 104 countries and territories around the world.
Our operations outside the United States represented
approximately 20 percent and 22 percent of our revenues
for the years ended December 31, 2016 and 2015, respec-
tively. We expect that revenues from our international
operations will continue to account for an increasing
portion of our total revenues. As a result, we are subject
to the risks of doing business outside the
United States, including:
rapid changes in governmental, economic and
political policy, political or civil unrest, acts of terrorism
or the threat of international boycotts or U.S.
anti-boycott legislation;
increases in anti-American sentiment and the
identification of the licensed brands as an
American brand;
recessionary trends or economic instability in
international markets;
changes in foreign currency exchange rates or currency
restructurings and hyperinflation or deflation in the
countries in which we operate;
the effect of disruptions caused by severe weather,
natural disasters, outbreak of disease or other events
that make travel to a particular region less attractive or
more difficult;
the presence and acceptance of varying levels of
business corruption in international markets and the
effect of various anti-corruption and other laws;
the imposition of restrictions on currency conversion
or the transfer of funds or limitations on our ability to
repatriate non-U.S. earnings in a tax-efficient manner;
the ability to comply with or effect of complying with
complex and changing laws, regulations and policies of
foreign governments that may affect investments or
operations, including foreign ownership restrictions,
import and export controls, tariffs, embargoes,
increases in taxes paid and other changes in applicable
tax laws;
instability or changes in a country’s or region’s
economic, regulatory or political conditions, including
inflation, recession, interest rate fluctuations and actual
or anticipated military or political conflicts or any other
change resulting from the United Kingdom’s June 2016
vote to leave the European Union (commonly known
as “Brexit”);
uncertainties as to local laws regarding, and
enforcement of, contract and intellectual
property rights;
forced nationalization of our properties by local, state or
national governments; and
the difficulties involved in managing an organization
doing business in many different countries.
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2016 Annual Report
23
In August 2012, Congress enacted the Iran Threat
Reduction and Syria Human Rights Act of 2012
(“ITRSHRA”), which expands the scope of U.S. sanctions
against Iran and Syria. In particular, Section 219 of the
ITRSHRA amended the Exchange Act to require SEC-
reporting companies to disclose in their periodic reports
specified dealings or transactions involving Iran or
other individuals and entities targeted by certain OFAC
sanctions engaged in by the reporting company or any of
its affiliates. These companies are required to separately
file with the SEC a notice that such activities have been
disclosed in the relevant periodic report, and the SEC is
required to post this notice of disclosure on its website
and send the report to the U.S. President and certain U.S.
Congressional committees. The U.S. President thereafter
is required to initiate an investigation and, within 180 days
of initiating such an investigation with respect to certain
disclosed activities, to determine whether sanctions
should be imposed.
Under ITRSHRA, we are required to report if we or any
of our “affiliates” knowingly engaged in certain specified
activities during a period covered by one of our Annual
Reports on Form 10-K or Quarterly Reports on Form 10-Q.
We have engaged in, and may in the future engage in,
activities that would require disclosure pursuant to
Section 219 of ITRSHRA. In addition, because the SEC
defines the term “affiliate” broadly, we may be deemed to
be a controlled affiliate of Blackstone or Blackstone’s
affiliates or, following Blackstone’s proposed sale of our
common stock to HNA Tourism Group Co., Ltd. (“HNA”),
HNA and HNA’s affiliates. Other affiliates of Blackstone
or HNA have in the past or may in the future be required
to make disclosures pursuant to ITRSHRA, including
the activities discussed in the disclosures included on
Exhibit 99.1 to this Annual Report on Form 10-K, which
disclosures are hereby incorporated by reference herein.
Disclosure of such activities and any sanctions imposed
on us or our affiliates as a result of these activities could
harm our reputation and brands and have a negative
effect on our results of operations.
The loss of senior executives or key field personnel,
such as general managers, could significantly harm
our business.
Our ability to maintain our competitive position depends
somewhat on the efforts and abilities of our senior execu-
tives. Finding suitable replacements for senior executives
could be difficult. Losing the services of one or more of
these senior executives could adversely affect strategic
relationships, including relationships with third-party
property owners, significant customers, joint venture
partners and vendors, and limit our ability to execute our
business strategies.
We also rely on the general managers at each of our
managed, owned and leased hotels to manage daily
operations and oversee the efforts of employees. These
general managers are trained professionals in the hospital-
ity industry and have extensive experience in many markets
worldwide. The failure to retain, train or successfully
manage general managers for our managed, owned and
leased hotels could negatively affect our operations.
Collective bargaining activity could disrupt our
operations, increase our labor costs or interfere with
the ability of our management to focus on executing
our business strategies.
A significant number of our employees (approximately
30 percent) and employees of our hotel owners are
covered by collective bargaining agreements and similar
agreements. If relationships with our employees or
employees of our hotel owners or the unions that represent
them become adverse, the properties we manage,
franchise, own or lease could experience labor disruptions
such as strikes, lockouts, boycotts and public demonstra-
tions. A number of our collective bargaining agreements,
representing approximately nine percent of our organized
employees, have expired and are in the process of being
renegotiated, and we may be required to negotiate
additional collective bargaining agreements in the future
if more employees become unionized. Labor disputes,
which may be more likely when collective bargaining
agreements are being negotiated, could harm our
relationship with our employees or employees of our
hotel owners, result in increased regulatory inquiries and
enforcement by governmental authorities and deter
guests. Further, adverse publicity related to a labor
dispute could harm our reputation and reduce customer
demand for our services. Labor regulation and the
negotiation of new or existing collective bargaining
agreements could lead to higher wage and benefit costs,
changes in work rules that raise operating expenses, legal
costs and limitations on our ability or the ability of our
third-party property owners to take cost saving measures
during economic downturns. We do not have the ability
to control the negotiations of collective bargaining
agreements covering unionized labor employed by many
third-party property owners. Increased unionization of our
workforce, new labor legislation or changes in regulations
could disrupt our operations, reduce our profitability or
interfere with the ability of our management to focus on
executing our business strategies.
Labor shortages could restrict our ability to operate
our properties or grow our business or result in
increased labor costs that could adversely affect our
results of operations.
Our success depends in large part on our ability to attract,
retain, train, manage and engage employees. We employ
or manage more than 169,000 individuals at our managed,
owned and leased hotels and corporate offices around
the world. If we are unable to attract, retain, train, manage
and engage skilled individuals, our ability to manage and
staff the managed, owned and leased hotels could be
impaired, which could reduce customer satisfaction. In
addition, the inability of our franchisees to attract, retain,
train, manage and engage skilled employees for the
franchised hotels could adversely affect the reputation of
our brands. Staffing shortages in various parts of the
world also could hinder our ability to grow and expand our
businesses. Because payroll costs are a major component
of the operating expenses at our hotels and our franchised
hotels, a shortage of skilled labor could also require higher
wages that would increase labor costs, which could
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Hilton
2016 Annual Report
25
adversely affect our results of operations. Additionally,
increase in minimum wage rates could increase costs and
reduce profits for us and our franchisees.
Any failure to protect our trademarks and other
intellectual property could reduce the value of the
Hilton brands and harm our business.
The recognition and reputation of our brands are
important to our success. We have over 5,700 trademark
registrations in jurisdictions around the world for use in
connection with our services, plus at any given time, a
number of pending applications for trademarks and other
intellectual property. However, those trademark or other
intellectual property registrations may not be granted or
the steps we take to use, control or protect our trade-
marks or other intellectual property in the U.S. and other
jurisdictions may not always be adequate to prevent third
parties from copying or using the trademarks or other
intellectual property without authorization. We may also
fail to obtain and maintain trademark protection for all of
our brands in all jurisdictions. For example, in certain
jurisdictions, third parties have registered or otherwise
have the right to use certain trademarks that are the
same as or similar to our trademarks, which could prevent
us from registering trademarks and opening hotels in that
jurisdiction. Third parties may also challenge our rights to
certain trademarks or oppose our trademark applications.
Defending against any such proceedings may be costly,
and if unsuccessful, could result in the loss of important
intellectual property rights. Obtaining and maintaining
trademark protection for multiple brands in multiple
jurisdictions is also expensive, and we may therefore elect
not to apply for or to maintain certain trademarks.
Our intellectual property is also vulnerable to
unauthorized copying or use in some jurisdictions outside
the U.S., where local law, or lax enforcement of law, may
not provide adequate protection. If our trademarks or
other intellectual property are improperly used, the value
and reputation of the Hilton brands could be harmed.
There are times where we may need to resort to litigation
to enforce our intellectual property rights. Litigation of
this type could be costly, force us to divert our resources,
lead to counterclaims or other claims against us or
otherwise harm our business or reputation. In addition, we
license certain of our trademarks to third parties. For
example, we have granted HGV the right to use certain of
our marks and intellectual property in its timeshare busi-
ness and we grant our franchisees a right to use certain of
our trademarks in connection with their operation of the
applicable property. If HGV, a franchisee or other licensee
fails to maintain the quality of the goods and services
used in connection with the licensed trademarks, our
rights to, and the value of, our trademarks could potentially
be harmed. Failure to maintain, control and protect our
trademarks and other intellectual property could likely
adversely affect our ability to attract guests or third-party
owners, and could adversely affect our results.
In addition, we license the right to use certain intellectual
property from unaffiliated third parties, including the right
to grant sublicenses to franchisees. If we are unable to use
this intellectual property, our ability to generate revenue
from such properties may be diminished.
Third-party claims that we infringe intellectual
property rights of others could subject us to damages
and other costs and expenses.
Third parties may make claims against us for infringing
their patent, trademark, copyright or other intellectual
property rights or for misappropriating their trade secrets.
We have been and are currently party to a number of such
claims and may receive additional claims in the future.
Any such claims, even those without merit, could:
be expensive and time consuming to defend, and result
in significant damages;
force us to stop using the intellectual property that is
being challenged or to stop providing products or
services that use the challenged intellectual property;
force us to redesign or rebrand our products or services;
require us to enter into royalty, licensing, co-existence
or other agreements to obtain the right to use a third
party’s intellectual property;
limit our ability to develop new intellectual property; and
limit the use or the scope of our intellectual property or
other rights.
In addition, we may be required to indemnify third-party
owners of the hotels that we manage for any losses they
incur as a result of any infringement claims against them.
All necessary royalty, licensing or other agreements may
not be available to us on acceptable terms. Any adverse
results associated with third-party intellectual property
claims could negatively affect our business.
Exchange rate fluctuations and foreign exchange
hedging arrangements could result in significant
foreign currency gains and losses and affect our
business results.
Conducting business in currencies other than the
U.S. dollar subjects us to fluctuations in currency
exchange rates that could have a negative effect on our
financial results. We earn revenues and incur expenses
in foreign currencies as part of our operations outside of
the U.S. As a result, fluctuations in currency exchange
rates may significantly increase the amount of U.S. dollars
required for foreign currency expenses or significantly
decrease the U.S. dollars received from foreign currency
revenues. We also have exposure to currency translation
risk because, generally, the results of our business outside
of the U.S. are reported in local currency and then trans-
lated to U.S. dollars for inclusion in our consolidated
financial statements. As a result, changes between the
foreign exchange rates and the U.S. dollar will affect the
recorded amounts of our foreign assets, liabilities,
revenues and expenses and could have a negative effect
on our financial results. Our exposure to foreign currency
exchange rate fluctuations will grow if the relative
contribution of our operations outside the U.S. increases.
To attempt to mitigate foreign currency exposure, we may
enter into foreign exchange hedging agreements with
financial institutions. However, these hedging agreements
may not eliminate foreign currency risk entirely and
involve costs and risks of their own in the form of trans-
action costs, credit requirements and counterparty risk.
2016 Annual Report
25
24
Hilton
If the insurance that we or our owners carry does not
sufficiently cover damage or other potential losses or
liabilities to third parties involving properties that we
manage, franchise or own, our profits could be reduced.
We operate in certain areas where the risk of natural
disaster or other catastrophic losses vary, and the occa-
sional incidence of such an event could cause substantial
damage to us, our owners or the surrounding area. We
carry, and we require our owners to carry, insurance from
solvent insurance carriers that we believe is adequate for
foreseeable first- and third-party losses and with terms
and conditions that are reasonable and customary.
Nevertheless, market forces beyond our control could
limit the scope of the insurance coverage that we and our
owners can obtain or may otherwise restrict our or our
owners’ ability to buy insurance coverage at reasonable
rates. In the event of a substantial loss, the insurance
coverage that we and/or our owners carry may not be
sufficient to pay the full value of our financial obligations,
our liabilities or the replacement cost of any lost
investment or property. Because certain types of losses
are uncertain, they may be uninsurable or prohibitively
expensive. In addition, there are other risks that may fall
outside the general coverage terms and limits of
our policies.
In some cases, these factors could result in certain losses
being completely uninsured. As a result, we could lose
some or all of the capital we have invested in a property,
as well as the anticipated future revenues, profits,
management fees or franchise fees from the property.
Terrorism insurance may not be available at
commercially reasonable rates or at all.
Following the September 11, 2001 terrorist attacks in
New York City and the Washington, D.C. area, Congress
passed the Terrorism Risk Insurance Act of 2002, which
established the Terrorism Risk Insurance Program (the
“Program”) to provide insurance capacity for terrorist
acts. The Program expired at the end of 2014 but was
reauthorized, with some adjustments to its provisions, in
January 2015 for six years through December 31, 2020.
We carry, and we require our owners and our franchisees
to carry, insurance from solvent insurance carriers to
respond to both first-party and third-party liability losses
related to terrorism. We purchase our first-party property
damage and business interruption insurance from a
stand-alone market in place of and to supplement insur-
ance from government run pools. If the Program is not
extended or renewed upon its expiration in 2020, or if
there are changes to the Program that would negatively
affect insurance carriers, premiums for terrorism insurance
coverage will likely increase and/or the terms of such
insurance may be materially amended to increase stated
exclusions or to otherwise effectively decrease the scope
of coverage available, perhaps to the point where it is
effectively unavailable.
Terrorist attacks and military conflicts may adversely
affect the hospitality industry.
The terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001 underscore the possibil-
ity that large public facilities or economically important
assets could become the target of terrorist attacks in the
future. In particular, properties that are well-known or are
located in concentrated business sectors in major cities
where our hotels are located may be subject to the risk of
terrorist attacks.
The occurrence or the possibility of terrorist attacks or
military conflicts could:
cause damage to one or more of our properties that
may not be fully covered by insurance to the value of
the damages;
cause all or portions of affected properties to be
shut down for prolonged periods, resulting in a loss
of income;
generally reduce travel to affected areas for tourism
and business or adversely affect the willingness of
customers to stay in or avail themselves of the services
of the affected properties;
expose us to a risk of monetary claims arising out of
death, injury or damage to property caused by any such
attacks; and
result in higher costs for security and insurance
premiums or diminish the availability of insurance cov-
erage for losses related to terrorist attacks, particularly
for properties in target areas, all of which could
adversely affect our results.
The occurrence of a terrorist attack with respect to one
of our properties could directly and materially adversely
affect our results of operations. Furthermore, the loss of
any of our well-known buildings could indirectly affect the
value of our brands, which would in turn adversely affect
our business prospects.
Changes in U.S. federal, state and local or foreign
tax law, interpretations of existing tax law, or adverse
determinations by tax authorities, could increase our
tax burden or otherwise adversely affect our financial
condition or results of operations.
We are subject to taxation at the federal, state or provincial
and local levels in the U.S. and various other countries
and jurisdictions. Our future effective tax rate could be
affected by changes in the composition of earnings in
jurisdictions with differing tax rates, changes in statutory
rates and other legislative changes, changes in the valua-
tion of our deferred tax assets and liabilities, or changes
in determinations regarding the jurisdictions in which
we are subject to tax. From time to time, the U.S. federal,
state and local and foreign governments make substantive
changes to tax rules and their application, which could
result in materially higher corporate taxes than would be
incurred under existing tax law and could adversely affect
our financial condition or results of operations.
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Hilton
2016 Annual Report
27
We are subject to ongoing and periodic tax audits and
disputes in U.S. federal and various state, local and foreign
jurisdictions. In particular, our consolidated U.S. federal
income tax returns for the fiscal years ended December
31, 2006 through December 31, 2010 are under audit by
the Internal Revenue Service (“IRS”), and the IRS has pro-
posed adjustments to increase our taxable income based
on several assertions involving intercompany loans, our
Hilton Honors guest loyalty and reward program and our
foreign-currency denominated loans issued by one of our
subsidiaries. In total, the proposed adjustments sought
by the IRS would result in U.S. federal tax owed of
approximately $874 million, excluding interest and
penalties and potential state income taxes. We disagree
with the IRS’s position on each of the assertions and
intend to vigorously contest them. Additionally, the IRS
has notified us of its intention to examine the fiscal years
ended December 31, 2011 through December 31, 2013.
See Note 18: “Income Taxes” in our audited consolidated
financial statements included elsewhere in this Annual
Report on Form 10-K for additional information. An
unfavorable outcome from any tax audit could result in
higher tax costs, penalties and interest, thereby adversely
affecting our financial condition or results of operations.
Changes to accounting rules or regulations may
adversely affect our financial condition and results
of operations.
New accounting rules or regulations and varying
interpretations of existing accounting rules or regulations
have occurred and may occur in the future. A change in
accounting rules or regulations may require retrospective
application and affect our reporting of transactions com-
pleted before the change is effective, and future changes
to accounting rules or regulations may adversely affect
our financial condition and results of operations. See
Note 2: “Basis of Presentation and Summary of Significant
Accounting Policies” in our audited consolidated financial
statements included elsewhere in this Annual Report on
Form 10-K for a summary of accounting standards issued
but not yet adopted.
Changes to estimates or projections used to assess the
fair value of our assets, or operating results that are
lower than our current estimates at certain locations,
may cause us to incur impairment losses that could
adversely affect our results of operations.
Our total assets include goodwill, intangible assets with
indefinite lives, other intangible assets with finite useful
lives and substantial amounts of long-lived assets, princi-
pally property and equipment, including hotel properties.
We evaluate our goodwill and intangible assets with
indefinite lives for impairment on an annual basis or at
other times during the year if events or circumstances
indicate that it is more likely than not that the fair value is
below the carrying value. We evaluate intangible assets
with finite useful lives and long-lived assets for impairment
when circumstances indicate that the carrying amount
may not be recoverable. Our evaluation of impairment
requires us to make certain estimates and assumptions
including projections of future results. After performing
our evaluation for impairment, including an analysis to
determine the recoverability of long-lived assets, we will
record an impairment loss when the carrying value of the
underlying asset, asset group or reporting unit exceeds
its fair value. If the estimates or assumptions used in our
evaluation of impairment change, we may be required to
record additional impairment losses on certain of these
assets. If these impairment losses are significant, our
results of operations would be adversely affected.
Governmental regulation may adversely affect the
operation of our properties.
In many jurisdictions, the hotel industry is subject to
extensive foreign or U.S. federal, state and local govern-
mental regulations, including those relating to the service
of alcoholic beverages, the preparation and sale of food
and those relating to building and zoning requirements.
We are also subject to licensing and regulation by foreign
or U.S. state and local departments relating to health,
sanitation, fire and safety standards, and to laws governing
our relationships with employees, including minimum
wage requirements, overtime, working conditions status
and citizenship requirements. In addition, the National
Labor Relations Board has revised its standard for joint
employee relationships, which could increase our risk of
being considered a joint employer with our franchisees.
We or our third-party owners may be required to expend
funds to meet foreign or U.S. federal, state and local
regulations in connection with the continued operation
or remodeling of certain of our properties. The failure to
meet the requirements of applicable regulations and
licensing requirements, or publicity resulting from actual
or alleged failures, could have an adverse effect on our
results of operations.
Foreign or U.S. environmental laws and regulations
may cause us to incur substantial costs or subject us
to potential liabilities.
We are subject to certain compliance costs and potential
liabilities under various foreign and U.S. federal, state and
local environmental, health and safety laws and regulations.
These laws and regulations govern actions including air
emissions, the use, storage and disposal of hazardous and
toxic substances, and wastewater disposal. Our failure to
comply with such laws, including any required permits or
licenses, could result in substantial fines or possible revo-
cation of our authority to conduct some of our operations.
We could also be liable under such laws for the costs of
investigation, removal or remediation of hazardous or
toxic substances at our currently or formerly owned,
leased or operated real property (including managed and
franchised properties) or at third-party locations in
connection with our waste disposal operations, regardless
of whether or not we knew of, or caused, the presence or
release of such substances. From time to time, we may
be required to remediate such substances or remove,
abate or manage asbestos, mold, radon gas, lead or other
hazardous conditions at our properties. The presence or
release of such toxic or hazardous substances could result
in third-party claims for personal injury, property or
natural resource damages, business interruption or other
losses. Such claims and the need to investigate, remediate
or otherwise address hazardous, toxic or unsafe conditions
could adversely affect our operations, the value of any
affected real property, or our ability to sell, lease or assign
26
Hilton
2016 Annual Report
27
our rights in any such property, or could otherwise harm
our business or reputation. Environmental, health and
safety requirements have also become increasingly
stringent, and our costs may increase as a result. New or
revised laws and regulations or new interpretations of
existing laws and regulations, such as those related to
climate change, could affect the operation of our
properties or result in significant additional expense
and operating restrictions on us.
The cost of compliance with the Americans with
Disabilities Act and similar legislation outside of the
U.S. may be substantial.
We are subject to the Americans with Disabilities Act
(“ADA”) and similar legislation in certain jurisdictions out-
side of the U.S. Under the ADA all public accommodations
are required to meet certain federal requirements related
to access and use by disabled persons. These regulations
apply to accommodations first occupied after January 26,
1993; public accommodations built before January 26,
1993 are required to remove architectural barriers to
disabled access where such removal is “readily achievable.”
The regulations also mandate certain operational
requirements that hotel operators must observe. The
failure of a property to comply with the ADA could result
in injunctive relief, fines, an award of damages to private
litigants or mandated capital expenditures to remedy
such noncompliance. Any imposition of injunctive relief,
fines, damage awards or capital expenditures could
adversely affect the ability of an owner or franchisee to
make payments under the applicable management or
franchise agreement or negatively affect the reputation
of our brands. In November 2010, we entered into a
settlement with the U.S. Department of Justice related
to compliance with the ADA. Our obligations under this
settlement expired in March 2015 except that certain
managed and franchised hotels that were required to
conduct surveys of their facilities remain under an
obligation to remove architectural barriers at their facilities
through March 15, 2022 and we have an obligation to have
an independent consultant to monitor those barrier
removal efforts during this period. If we fail to comply with
the requirements of the ADA, we could be subject to fines,
penalties, injunctive action, reputational harm and other
business effects that could materially and negatively
affect our performance and results of operations.
Casinos featured on certain of our properties are
subject to gaming laws, and noncompliance could
result in the revocation of the gaming licenses.
Several of our properties feature casinos, most of which
are operated by third parties. Factors affecting the
economic performance of a casino property include:
location, including proximity to or easy access from
major population centers;
appearance;
local, regional or national economic and
political conditions;
the existence or construction of competing casinos;
dependence on tourism; and
governmental regulation.
Jurisdictions in which our properties containing casinos
are located, including Puerto Rico and Egypt, have laws
and regulations governing the conduct of casino gaming.
These jurisdictions generally require that the operator of
a casino must be found suitable and be registered. Once
issued, a registration remains in force until revoked. The
law defines the grounds for registration, as well as revo-
cation or suspension of such registration. The loss of a
gaming license for any reason would have a material
adverse effect on the value of a casino property and could
reduce fee income associated with such operations and
consequently negatively affect our business results.
We are subject to risks from litigation filed by or
against us.
Legal or governmental proceedings brought by or on
behalf of franchisees, third-party owners of managed
properties, employees or customers may adversely affect
our financial results. In recent years, a number of hospitality
companies have been subject to lawsuits, including class
action lawsuits, alleging violations of federal laws and reg-
ulations regarding workplace and employment matters,
consumer protection claims and other commercial
matters. A number of these lawsuits have resulted in the
payment of substantial damages by the defendants.
Similar lawsuits have been and may be instituted against
us from time to time, and we may incur substantial
damages and expenses resulting from lawsuits of this
type, which could have a material adverse effect on our
business. At any given time, we may be engaged in lawsuits
or disputes involving third-party owners of our hotels.
Similarly, we may from time to time institute legal
proceedings on behalf of ourselves or others, the ultimate
outcome of which could cause us to incur substantial
damages and expenses, which could have a material
adverse effect on our business.
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Hilton
2016 Annual Report
29
effective date provision, the legislation does not apply
to distributions described in a ruling request initially
submitted to the IRS before December 7, 2015. Because
our initial request for the private letter ruling was submitted
before that date and because we believe the distribution
has been described in that initial request, we believe the
legislation does not apply to the spin-off of Park. However,
no ruling was obtained on that issue and thus no assurance
can be given in that regard. In particular, the IRS or a court
could disagree with our view regarding the effective date
provision based on any differences that exist between the
description in the ruling request and the actual facts
relating to the spin-offs. If the legislation applied to the
spin-off of Park, either the spin-off would not qualify for
tax-free treatment or Park would not be eligible to elect
REIT status for a 10-year period following the spin-off.
If the spin-offs and certain related transactions were
determined to be taxable, the Company would be subject
to a substantial tax liability that would have a material
adverse effect on our financial condition, results of opera-
tions and cash flows. In addition, if the spin-offs were
taxable, each holder of our common stock who received
shares of Park and HGV would generally be treated as
receiving a taxable distribution of property in an amount
equal to the fair market value of the shares received.
Park or HGV may fail to perform under various
transaction agreements that we have executed as part
of the spin-offs.
In connection with the spin-offs, we, Park and HGV
entered into a distribution agreement and various other
agreements, including a transition services agreement, a
tax matters agreement, an employee matters agreement
and, as to Park, management agreements, and, as to HGV,
a license agreement. Certain of these agreements pro-
vide for the performance of services by each company for
the benefit of the other following the spin-offs. We are
relying on Park and HGV to satisfy their performance and
payment obligations under these agreements. In addition,
it is possible that a court would disregard the allocation
agreed to between us, Park and HGV and require that we
assume responsibility for certain obligations allocated
to Park and to HGV, particularly if Park or HGV were to
refuse or were unable to pay or perform such obligations.
The impact of any of these factors is difficult to predict,
but one or more of them could cause reputational harm
and could have an adverse effect on our financial position,
results of operations and/or cash flows.
Risks Related to Our Recent Spin-offs
We may be unable to achieve some or all of the benefits
that we expect to achieve from the spin-offs.
Although we believe that separating our ownership
business and our timeshare business by means of the
spin-offs will provide financial, operational, managerial
and other benefits to us and our stockholders, the
spin-offs may not provide results on the scope or scale
we anticipate, and we may not realize any or all of the
intended benefits. For example, if the statutory and
regulatory requirements relating to REITs are not met by
Park, the benefits of spinning off the ownership business
may be reduced or may be unavailable to us, our stock-
holders and stockholders of Park. In addition, the costs we
incur in connection with, or as a result of, the spin-offs
may exceed our estimates or could negate some of the
benefits we expect to realize. If we do not realize the
intended benefits of the spin-offs or if our costs exceed
our estimates, we or the businesses that were spun off
could suffer a material adverse effect on our or their
business, financial condition, results of operations and
cash flows.
The spin-offs could result in substantial tax liability
to us and our stockholders.
We received a private letter ruling from the IRS on certain
issues relevant to qualification of the spin-offs as tax-free
distributions under Section 355 of the Internal Revenue
Code of 1986, as amended (the “Code”). Although the private
letter ruling generally is binding on the IRS, the continued
validity of the private letter ruling will be based upon and
subject to the accuracy of factual statements and repre-
sentations made to the IRS by us. Further, the private
letter ruling is limited to specified aspects of the spin-offs
under Section 355 of the Code and does not represent
a determination by the IRS that all of the requirements
necessary to obtain tax-free treatment to holders of our
common stock and to us have been satisfied. Moreover, if
any statement or representation upon which the private
letter ruling was based was incorrect or untrue in any
material respect, or if the facts upon which the private
letter ruling was based were materially different from the
facts that prevailed at the time of the spin-offs, the
private letter ruling could be invalidated. The opinion of
tax counsel we received in connection with the spin-offs
regarding the qualification of the spin-offs as tax-free
distributions under Section 355 of the Code similarly
relied on, among other things, the continuing validity of
the private letter ruling and various assumptions and
representations as to factual matters made by each of
the spun-off companies and us which, if inaccurate or
incomplete in any material respect, would jeopardize the
conclusions reached by counsel in its opinion. The opinion
is not binding on the IRS or the courts, and there can be
no assurance that the IRS or the courts will not challenge
the conclusions stated in the opinion or that any such
challenge would not prevail. Additionally, recently enacted
legislation denies tax-free treatment to a spin-off in
which either the distributing corporation or the spun-off
corporation is a REIT and prevents a distributing corpora-
tion or a spun-off corporation from electing REIT status
for a 10-year period following a tax-free spin-off. Under an
28
Hilton
2016 Annual Report
29
increasing our vulnerability to adverse economic,
industry or competitive developments;
exposing us to increased interest expense, as our
degree of leverage may cause the interest rates of any
future indebtedness (whether fixed or floating rate
interest) to be higher than they would be otherwise;
exposing us to the risk of increased interest rates
because certain of our indebtedness is at variable rates
of interest;
making it more difficult for us to satisfy our obligations
with respect to our indebtedness, and any failure to
comply with the obligations of any of our debt instru-
ments, including restrictive covenants, could result in
an event of default that accelerates our obligation to
repay indebtedness;
restricting us from making strategic acquisitions or
causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing
for working capital, capital expenditures, product
development, satisfaction of debt service requirements,
acquisitions and general corporate or other
purposes; and
limiting our flexibility in planning for, or reacting to,
changes in our business or market conditions and
placing us at a competitive disadvantage compared to
our competitors who may be better positioned to take
advantage of opportunities that our leverage prevents
us from exploiting.
We are a holding company, and substantially all of our
consolidated assets are owned by, and most of our business
is conducted through, our subsidiaries. Revenues from
these subsidiaries are our primary source of funds for
debt payments and operating expenses. If our subsidiaries
are restricted from making distributions to us, that may
impair our ability to meet our debt service obligations or
otherwise fund our operations. Moreover, there may be
restrictions on payments by subsidiaries to their parent
companies under applicable laws, including laws that
require companies to maintain minimum amounts of
capital and to make payments to stockholders only from
profits. As a result, although a subsidiary of ours may have
cash, we may not be able to obtain that cash to satisfy
our obligation to service our outstanding debt or fund
our operations.
In connection with the spin-offs, each of Park and HGV
indemnified us for certain liabilities. These indemnities
may not be sufficient to insure us against the full
amount of the liabilities assumed by Park and HGV,
and Park and HGV may be unable to satisfy their
indemnification obligations to us in the future.
In connection with the spin-offs, each of Park and HGV
indemnified us with respect to such parties’ assumed or
retained liabilities pursuant to the distribution agreement
and breaches of the distribution agreement or other
agreements related to the spin-offs. There can be no
assurance that the indemnities from each of Park and
HGV will be sufficient to protect us against the full
amount of these and other liabilities. Third parties also
could seek to hold us responsible for any of the liabilities
that Park and HGV have agreed to assume. Even if we
ultimately succeed in recovering from Park or HGV any
amounts for which we are held liable, we may be tempo-
rarily required to bear those losses ourselves. Each of
these risks could negatively affect our business, financial
condition, results of operations and cash flows.
If we are required to indemnify Park or HGV in
connection with the spin-offs, we may need to divert
cash to meet those obligations, which could negatively
affect our financial results.
Pursuant to the distribution agreement entered into in
connection with the spin-offs and certain other agreements
among Park and HGV and us, we agreed to indemnify
each of Park and HGV from certain liabilities. Indemnities
that we may be required to provide Park and/or HGV may
be significant and could negatively affect our business.
Risks Related to Our Indebtedness
Our substantial indebtedness and other contractual
obligations could adversely affect our financial
condition, our ability to raise additional capital to fund
our operations, our ability to operate our business, our
ability to react to changes in the economy or our
industry and our ability to pay our debts and could
divert our cash flow from operations for debt payments.
We have a significant amount of indebtedness. As of
December 31, 2016, our total indebtedness, excluding
unamortized deferred financing costs and discounts, was
approximately $10.9 billion, including $696 million of time-
share debt, and our contractual debt maturities of our
long-term debt and timeshare debt for the years ending
December 31, 2017, 2018 and 2019, respectively, were
$179 million, $110 million and $543 million. Our substantial
debt and other contractual obligations could have
important consequences, including:
requiring a substantial portion of cash flow from
operations to be dedicated to the payment of principal
and interest on our indebtedness, thereby reducing
our ability to use our cash flow to fund our operations,
capital expenditures or dividends to stockholders and
to pursue future business opportunities;
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Hilton
2016 Annual Report
31
Servicing our indebtedness will require a significant
amount of cash. Our ability to generate sufficient cash
depends on many factors, some of which are not within
our control.
Our ability to make payments on our indebtedness, to
fund planned capital expenditures and to pay dividends to
our stockholders will depend on our ability to generate
cash in the future. To a certain extent, this is subject to
general economic, financial, competitive, legislative, regu-
latory and other factors that are beyond our control. If we
are unable to generate sufficient cash flow to service our
debt and meet our other commitments, we may need to
restructure or refinance all or a portion of our debt, sell
material assets or operations or raise additional debt or
equity capital. We may not be able to effect any of these
actions on a timely basis, on commercially reasonable
terms or at all, and these actions may not be sufficient to
meet our capital requirements. In addition, the terms of
our existing or future debt arrangements may restrict us
from effecting any of these alternatives. Finally, our ability
to raise additional equity capital may be restricted by the
stockholders agreement we entered into with HGV and
certain entities affiliated with Blackstone that is intended
to preserve the tax-free status of the spin-offs of Park
and HGV.
Despite our current level of indebtedness, we may be
able to incur substantially more debt and enter into
other transactions, which could further exacerbate the
risks to our financial condition described above.
We may be able to incur significant additional
indebtedness, including secured debt, in the future.
Although the credit agreements and indentures that
govern substantially all of our indebtedness contain
restrictions on the incurrence of additional indebtedness
and entering into certain types of other transactions,
these restrictions are subject to a number of qualifica-
tions and exceptions. Additional indebtedness incurred in
compliance with these restrictions could be substantial.
These restrictions also do not prevent us from incurring
obligations, such as trade payables, that do not constitute
indebtedness as defined under our debt instruments. To
the extent new debt is added to our current debt levels,
the substantial leverage risks described in the preceding
three risk factors would increase.
Certain of our debt agreements impose significant
operating and financial restrictions on us and our
subsidiaries, which may prevent us from capitalizing
on business opportunities.
The indentures that govern our senior notes and the
credit agreement that governs our senior secured credit
facilities impose significant operating and financial
restrictions on us. These restrictions limit our ability and/
or the ability of our subsidiaries to, among other things:
incur or guarantee additional debt or issue disqualified
stock or preferred stock;
pay dividends (including to us) and make other
distributions on, or redeem or repurchase, capital stock;
make certain investments;
incur certain liens;
enter into transactions with affiliates;
merge or consolidate;
enter into agreements that restrict the ability of
restricted subsidiaries to make dividends or other
payments to the issuers;
designate restricted subsidiaries as unrestricted
subsidiaries; and
transfer or sell assets.
In addition, if, on the last day of any period of four
consecutive quarters on or after June 30, 2014, the aggre-
gate principal amount of revolving credit loans, swing line
loans and/or letters of credit (excluding up to $50 million
of letters of credit and certain other letters of credit that
have been cash collateralized or back-stopped) that are
issued and/or outstanding is greater than 30 percent of
the revolving credit facility, the credit agreement will
require us to maintain a consolidated first lien net leverage
ratio not to exceed 7.0 to 1.0.
As a result of these restrictions, we are limited as to how
we conduct our business and we may be unable to raise
additional debt or equity financing to compete effectively
or to take advantage of new business opportunities. The
terms of any future indebtedness we may incur could
include more restrictive covenants. We may not be able to
maintain compliance with these covenants in the future
and, if we fail to do so, we may not be able to obtain
waivers from the lenders and/or amend the covenants.
Our failure to comply with the restrictive covenants
described above, as well as other terms of our other
indebtedness and/or the terms of any future indebted-
ness from time to time, could result in an event of default,
which, if not cured or waived, could result in our being
required to repay these borrowings before their due date.
If we are forced to refinance these borrowings on less
favorable terms or are unable to refinance these
borrowings, our results of operations and financial
condition could be adversely affected.
30
Hilton
2016 Annual Report
31
Risks Related to Ownership of Our
Common Stock
The interests of certain of our stockholders may
conflict with ours or yours in the future.
Blackstone and its affiliates beneficially owned
approximately 40.3 percent of our common stock as of
December 31, 2016. HNA has agreed to acquire 25 percent
of our outstanding common stock from Blackstone.
Moreover, under our bylaws and the stockholders’ agree-
ment with Blackstone, for so long as it retains specified
levels of ownership of us, we have agreed to nominate
to our board individuals designated by Blackstone. If
Blackstone’s proposed sale of our common stock to HNA
closes, HNA will have specified board designation rights,
as described in our Current Report on Form 8-K filed on
October 24, 2016. Thus, for so long as Blackstone and HNA
continue to own specified percentages of our stock, each
will be able to influence the composition of our board of
directors and the approval of actions requiring stockholder
approval. Accordingly, during that period of time, each of
Blackstone and HNA will have influence with respect to
our management, business plans and policies, including
the appointment and removal of our officers. For exam-
ple, for so long as Blackstone or HNA continues to own a
s ignificant percentage of our stock, Blackstone or HNA
may be able to influence whether or not a change of
control of our company or a change in the composition
of our board of directors occurs. The concentration of
ownership could deprive you of an opportunity to receive
a premium for your shares of common stock as part of
a sale of our company and ultimately might affect the
market price of our common stock.
Each of Blackstone and HNA and its respective affiliates
engage in a broad spectrum of activities, including invest-
ments in the hospitality industry. In the ordinary course
of their business activities, each of Blackstone and HNA
and their respective affiliates may engage in activities
where their interests conflict with ours or those of our
stockholders. For example, Blackstone owns interests in
Extended Stay America, Inc., La Quinta Holdings Inc.,
Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc.,
and certain other investments in the hospitality industry
and may pursue ventures that compete directly or indirectly
with us. HNA acquired Carlson Hotels in December 2016
and has an interest in NH Hotel Group. In addition, affiliates
of Blackstone and HNA directly and indirectly own hotels
that we manage or franchise, and they may in the future
enter into other transactions with us, including hotel
development projects, that could result in their having
interests that could conflict with ours. Our amended and
restated certificate of incorporation provides that none
of Blackstone, any of its affiliates or any director who is
not employed by us (including any non-employee director
who serves as one of our officers in both his or her director
and officer capacities) or his or her affiliates will have any
duty to refrain from engaging, directly or indirectly, in
the same business activities or similar business activities
or lines of business in which we operate. Under the
Company’s stockholders agreement with HNA, the
Company agreed to renounce any interest or expectancy,
or right to be offered an opportunity to participate in, any
business opportunity or corporate opportunity presented
to HNA or its affiliates. Blackstone or HNA also may
pursue acquisition opportunities that may be
complementary to our business, and, as a result, those
acquisition opportunities may be unavailable to us. In
addition, Blackstone or HNA may have an interest in
pursuing acquisitions, divestitures and other transactions
that, in their judgment, could enhance their respective
investments, even though such transactions might
involve risks to you.
While we currently pay a quarterly cash dividend
to holders of our common stock, we may change our
dividend policy at any time.
Although we currently pay a quarterly cash dividend to
holders of our common stock, we have no obligation to
do so, and our dividend policy may change at any time
without notice to our stockholders. The declaration and
payment of dividends is at the discretion of our board of
directors in accordance with applicable law after taking
into account various factors, including our financial con-
dition, operating results, current and anticipated cash
needs, limitations imposed by our indebtedness, legal
requirements and other factors that our board of
directors deems relevant.
Future issuances of common stock by us, and the
availability for resale of shares held by certain
investors, may cause the market price of our common
stock to decline.
Sales of a substantial number of shares of our common
stock in the public market, or the perception that these
sales could occur, could substantially decrease the mar-
ket price of our common stock. In addition, Blackstone
has pledged substantially all of the shares of our common
stock held by it pursuant to a margin loan agreement and
any foreclosure upon those shares could result in sales of
a substantial number of shares of our common stock in
the public market, which could substantially decrease the
market price of our common stock.
Pursuant to registration rights agreements, Blackstone
and certain management stockholders have, and HNA
will have, the right to cause us, in certain instances, at
our expense, to file registration statements under the
Securities Act covering resales of our common stock
held by them. These shares represented approximately
41.2 percent of our outstanding common stock as of
December 31, 2016. These shares also may be sold pur-
suant to Rule 144 under the Securities Act, depending on
their holding period and subject to restrictions in the case
of shares held by persons deemed to be our affiliates.
As restrictions on resale end or if these stockholders
exercise their registration rights, the market price of our
stock could decline if the holders of restricted shares sell
them or are perceived by the market as intending to
sell them.
32
Hilton
2016 Annual Report
33
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
Anti-takeover provisions in our organizational
documents and Delaware law might discourage or
delay acquisition attempts for us that you might
consider favorable.
Our amended and restated certificate of incorporation
and amended and restated bylaws contain provisions that
may make the merger or acquisition of our company
more difficult without the approval of our board of
directors. Among other things:
although we do not have a stockholder rights plan, and
would either submit any such plan to stockholders for
ratification or cause such plan to expire within a year,
these provisions would allow us to authorize the issu-
ance of undesignated preferred stock in connection
with a stockholder rights plan or otherwise, the terms of
which may be established and the shares of which may
be issued without stockholder approval, and which may
include super voting, special approval, dividend, or other
rights or preferences superior to the rights of the
holders of common stock;
these provisions prohibit stockholder action by written
consent from and after the date on which Blackstone
ceases to beneficially own at least 40 percent of the
total voting power of all then outstanding shares of our
capital stock unless such action is recommended by all
directors then in office, which would be the case upon
closing of the HNA transaction;
these provisions provide that our board of directors is
expressly authorized to make, alter or repeal our bylaws
and that our stockholders may only amend our bylaws
with the approval of 80 percent or more of all the out-
standing shares of our capital stock entitled to vote; and
these provisions establish advance notice requirements
for nominations for elections to our board or for pro-
posing matters that can be acted upon by stockholders
at stockholder meetings.
Further, as a Delaware corporation, we are subject to
provisions of Delaware law, which may impair a takeover
attempt that our stockholders may find beneficial. These
anti-takeover provisions and other provisions under
Delaware law could discourage, delay or prevent a trans-
action involving a change in control of our company,
including actions that our stockholders may deem
advantageous, or negatively affect the trading price of
our common stock. These provisions could also discourage
proxy contests and make it more difficult for you and
other stockholders to elect directors of your choosing
and to cause us to take other corporate actions
you desire.
32
Hilton
2016 Annual Report
33
ITEM 2. PROPERTIES
Hotel Properties
Owned or Controlled Hotels
As of December 31, 2016, we owned a majority or controlling financial interest in the following 56 hotels, representing
28,931 rooms.
Property
Location
Rooms
Ownership
Waldorf Astoria Hotels & Resorts
Waldorf Astoria Orlando(1)
Casa Marina, A Waldorf Astoria Resort(1)
The Reach, A Waldorf Astoria Resort(1)
Hilton Hotels & Resorts
Hilton Hawaiian Village Waikiki Beach Resort(1)
Hilton New York(1)
Hilton San Francisco Union Square(1)
Hilton New Orleans Riverside(1)
Hilton Chicago(1)
Hilton Waikoloa Village(1)
Hilton Parc 55(1)
Hilton Orlando Bonnet Creek(1)
Hilton Chicago O’Hare Airport(1)
Hilton Orlando Lake Buena Vista(1)
Caribe Hilton(1)
Hilton Boston Logan Airport(1)
Pointe Hilton Squaw Peak Resort(1)
Hilton Miami Airport(1)
Hilton Atlanta Airport(1)
Hilton São Paulo Morumbi(1)
Hilton McLean Tysons Corner(1)
Hilton Seattle Airport & Conference Center(1)
Hilton Oakland Airport(1)
Hilton Paris Orly Airport
Hilton Durban(1)
Hilton New Orleans Airport(1)
Hilton Short Hills(1)
Hilton Blackpool(1)
Hilton Rotterdam(1)
Hilton Chicago/Oak Brook Suites(1)
Hilton Belfast(1)
Hilton London Angel Islington(1)
Hilton Edinburgh Grosvenor(1)
Hilton Coylumbridge(1)
Hilton Bath City(1)
Hilton Odawara Resort & Spa
Hilton Nuremberg(1)
Hilton Milton Keynes(1)
Hilton Belfast Templepatrick Golf & Country Club
Hilton Sheffield(1)
Curio—A Collection by Hilton
Juniper Hotel Cupertino, Curio Collection by Hilton(1)
DoubleTree by Hilton
DoubleTree by Hilton Washington DC—Crystal City(1)
DoubleTree by Hilton San Jose(1)
DoubleTree by Hilton Ontario Airport(1)
DoubleTree by Hilton Spokane—City Center(1)
The Fess Parker Santa Barbara Hotel—
a DoubleTree by Hilton Resort(1)
Embassy Suites by Hilton
Embassy Suites by Hilton Parsippany(1)
Embassy Suites by Hilton Kansas City Plaza(1)
Embassy Suites by Hilton Austin Downtown Town Lake(1)
Embassy Suites by Hilton Atlanta Perimeter Center(1)
Embassy Suites by Hilton San Rafael Marin County(1)
Embassy Suites by Hilton Kansas City Overland Park(1)
Embassy Suites by Hilton Washington DC Georgetown(1)
Embassy Suites by Hilton Phoenix Airport(1)
Hilton Garden Inn
Hilton Garden Inn LAX El Segundo(1)
Hilton Garden Inn Chicago/Oakbrook Terrace(1)
Hampton by Hilton
Hampton Inn & Suites Memphis—Shady Grove(1)
Orlando, FL, USA
Key West, FL, USA
Key West, FL, USA
Honolulu, HI, USA
New York, NY, USA
San Francisco, CA, USA
New Orleans, LA, USA
Chicago, IL, USA
Waikoloa, HI, USA
San Francisco, CA, USA
Orlando, FL, USA
Chicago, IL, USA
Orlando, FL, USA
San Juan, Puerto Rico
Boston, MA, USA
Phoenix, AZ, USA
Miami, FL, USA
Atlanta, GA, USA
São Paulo, Brazil
McLean, VA, USA
Seattle, WA, USA
Oakland, CA, USA
Paris, France
Durban, South Africa
Kenner, LA, USA
Short Hills, NJ, USA
Blackpool, United Kingdom
Rotterdam, Netherlands
Oakbrook Terrace, IL, USA
Belfast, United Kingdom
London, United Kingdom
Edinburgh, United Kingdom
Coylumbridge, United Kingdom
Bath, United Kingdom
Odawara City, Japan
Nuremberg, Germany
Milton Keynes, United Kingdom
Templepatrick, United Kingdom
Sheffield, United Kingdom
Cupertino, CA, USA
Arlington, VA, USA
San Jose, CA, USA
Ontario, CA, USA
Spokane, WA, USA
Santa Barbara, CA, USA
Parsippany, NJ, USA
Kansas City, MO, USA
Austin, TX, USA
Atlanta, GA, USA
San Rafael, CA, USA
Overland Park, KS, USA
Washington, D.C., USA
Phoenix, AZ, USA
El Segundo, CA, USA
Oakbrook Terrace, IL, USA
Memphis, TN, USA
498
311
150
2,860
1,929
1,919
1,622
1,544
1,243
1,024
1,001
860
814
747
599
563
508
507
503
458
396
360
340
327
317
304
278
254
211
198
188
184
175
173
173
152
138
129
128
224
627
505
482
375
360
274
266
259
241
235
199
197
182
162
128
130
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
67%
10%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(1) Owned by Park effective January 3, 2017 as a result of the completion of the spin-offs.
34
Hilton
2016 Annual Report
35
Joint Venture Hotels
As of December 31, 2016, we had a minority or noncontrolling financial interest in and operated the following 15 properties,
representing 7,531 rooms. We have a right of first refusal to purchase additional equity interests in certain of these joint
ventures. We manage each of the hotels for the entity owning or leasing the hotel.
Property
Waldorf Astoria Hotels & Resorts
Waldorf Astoria Chicago
Conrad Hotels & Resorts
Conrad Cairo
Conrad Dublin(1)
Hilton Hotels & Resorts
Hilton Orlando(1)
Hilton San Diego Bayfront(1)
Hilton Tokyo Bay
Hilton Berlin(1)
Capital Hilton(1)
Hilton Nagoya
Hilton La Jolla Torrey Pines(1)
Hilton Mauritius Resort & Spa
Hilton Imperial Dubrovnik
DoubleTree by Hilton
DoubleTree by Hilton Las Vegas—Airport(1)
Embassy Suites by Hilton
Embassy Suites by Hilton Alexandria Old Town(1)
Embassy Suites by Hilton Secaucus Meadowlands(1)
Location
Rooms
Ownership
Chicago, IL, USA
Cairo, Egypt
Dublin, Ireland
Orlando, FL, USA
San Diego, CA, USA
Urayasu-shi, Japan
Berlin, Germany
Washington, D.C., USA
Nagoya, Japan
La Jolla, CA, USA
Flic-en-Flac, Mauritius
Dubrovnik, Croatia
Las Vegas, NV, USA
Alexandria, VA, USA
Secaucus, NJ, USA
215
614
192
1,417
1,190
819
601
550
460
394
193
147
190
288
261
12%
10%
48%
20%
25%
24%
40%
25%
24%
25%
20%
18%
50%
50%
50%
(1) Ownership interest in such property was transferred to Park on January 3, 2017 in connection with the spin-offs.
Leased Hotels
As of December 31, 2016, we leased the following 70 hotels, representing 21,254 rooms.
Property
Waldorf Astoria Hotels & Resorts
Rome Cavalieri, Waldorf Astoria Hotels & Resorts
Waldorf Astoria Amsterdam
Hilton Hotels & Resorts
Hilton Tokyo(2)
Ramses Hilton
Hilton London Kensington
Hilton Vienna
Hilton Tel Aviv
Hilton Osaka(2)
Hilton Istanbul Bosphorus
Hilton Salt Lake City(1)
Hilton Munich Park
Hilton Munich City
London Hilton on Park Lane
Hilton Diagonal Mar Barcelona
Hilton Mainz
Hilton Trinidad & Conference Centre
Hilton London Heathrow Airport
Hilton Izmir
Hilton Addis Ababa
Hilton Vienna Danube Waterfront
Hilton Frankfurt
Hilton Brighton Metropole
Hilton Sandton
Hilton Milan
Hilton Brisbane
Hilton Glasgow
Ankara Hilton
Adana Hilton
Location
Rooms
Rome, Italy
Amsterdam, Netherlands
(Shinjuku-ku) Tokyo, Japan
Cairo, Egypt
London, United Kingdom
Vienna, Austria
Tel Aviv, Israel
Osaka, Japan
Istanbul, Turkey
Salt Lake City, UT, USA
Munich, Germany
Munich, Germany
London, United Kingdom
Barcelona, Spain
Mainz, Germany
Port of Spain, Trinidad
London, United Kingdom
Izmir, Turkey
Addis Ababa, Ethiopia
Vienna, Austria
Frankfurt, Germany
Brighton, United Kingdom
Sandton, South Africa
Milan, Italy
Brisbane, Australia
Glasgow, United Kingdom
Ankara, Turkey
Adana, Turkey
370
93
821
771
601
579
560
527
500
499
484
480
453
433
431
418
398
380
372
367
342
340
329
320
319
319
309
308
34
Hilton
2016 Annual Report
35
Leased Hotels (Continued)
Property
The Waldorf Hilton, London
Hilton Cologne
Hilton Stockholm Slussen
Hilton Nairobi(2)
Hilton Madrid Airport
Parmelia Hilton Perth
Hilton London Canary Wharf
Hilton Amsterdam
Hilton Newcastle Gateshead
Hilton Vienna Plaza
Hilton Bonn
Hilton London Tower Bridge
Hilton Manchester Airport
Hilton Bracknell
Hilton Antwerp Old Town
Hilton Reading
Hilton Leeds City
Hilton Watford
Mersin Hilton
Hilton Warwick/Stratford-upon-Avon
Hilton Leicester
Hilton Innsbruck
Hilton Nottingham
Hilton St. Anne’s Manor, Bracknell
Hilton London Croydon
Hilton London Green Park
Hilton Cobham
Hilton Paris La Defense
Hilton East Midlands Airport
Hilton Maidstone
Hilton Avisford Park, Arundel
Hilton Northampton
Hilton London Hyde Park
Hilton York
Hilton Mainz City
Hilton ParkSA Istanbul
Hilton Puckrup Hall, Tewkesbury
Hilton Glasgow Grosvenor
DoubleTree by Hilton
DoubleTree by Hilton Seattle—Airport(1)
DoubleTree by Hilton San Diego—Mission Valley(1)
DoubleTree by Hilton Sonoma Wine Country(1)
DoubleTree by Hilton Durango(1)
Location
Rooms
London, United Kingdom
Cologne, Germany
Stockholm, Sweden
Nairobi, Kenya
Madrid, Spain
Parmelia Perth, Australia
London, United Kingdom
Amsterdam, Netherlands
Newcastle Upon Tyne, United Kingdom
Vienna, Austria
Bonn, Germany
London, United Kingdom
Manchester, United Kingdom
Bracknell, United Kingdom
Antwerp, Belgium
Reading, United Kingdom
Leeds, United Kingdom
Watford, United Kingdom
Mersin, Turkey
Warwick, United Kingdom
Leicester, United Kingdom
Innsbruck, Austria
Nottingham, United Kingdom
Wokingham, United Kingdom
Croydon, United Kingdom
London, United Kingdom
Cobham, United Kingdom
Paris, France
Derby, United Kingdom
Maidstone, United Kingdom
Arundel, United Kingdom
Northampton, United Kingdom
London, United Kingdom
York, United Kingdom
Mainz, Germany
Istanbul, Turkey
Tewkesbury, United Kingdom
Glasgow, United Kingdom
Seattle, WA, USA
San Diego, CA, USA
Rohnert Park, CA, USA
Durango, CO, USA
298
296
289
287
284
284
282
271
254
254
252
246
230
215
210
210
208
200
186
181
179
176
176
170
168
163
158
153
152
146
140
139
136
131
127
117
112
97
850
300
245
159
(1) Leased by Park effective January 3, 2017 in connection with the spin-offs.
(2) We own a majority or controlling financial interest, but less than a 100 percent interest, in entities that lease these properties.
36
Hilton
2016 Annual Report
37
Corporate Headquarters and Regional Offices
Our corporate headquarters are located at 7930 Jones
Branch Drive, McLean, Virginia 22102. These offices con-
sist of approximately 223,000 square feet of leased space.
The lease for this property expires on December 31, 2023,
with options to renew and increase the rentable square
footage. We also have corporate offices in Watford,
England (Europe), Dubai, United Arab Emirates (Middle
East and Africa) and Singapore (Asia Pacific). Additionally,
to support our operations, we have our Hilton Honors and
other commercial services office in Addison, Texas, the
Hilton Grand Vacations headquarters in Orlando, Florida
and timeshare sales offices in the U.S. in Hawaii, Nevada,
New York, Florida, South Carolina, Utah and Washington,
D.C. and outside the U.S. in London, Scotland, Japan and
South Korea.
Other non-operating real estate holdings include a
centralized operations center located in Memphis,
Tennessee, and our Hilton Reservations and Customer
Care offices in Carrollton, Texas and Tampa, Florida.
We believe that our existing office properties are in good
condition and are sufficient and suitable for the conduct
of our business. In the event we need to expand our oper-
ations, we believe that suitable space will be available on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in
the ordinary course of business, some of which include
claims for substantial sums, including proceedings
involving tort and other general liability claims, employee
claims, consumer protection claims and claims related
to our management of certain hotel properties. Most
occurrences involving liability, claims of negligence and
employees are covered by insurance with solvent insur-
ance carriers. For those matters not covered by insurance,
which include commercial matters, we recognize a liability
when we believe the loss is probable and can be reasonably
estimated. The ultimate results of claims and litigation
cannot be predicted with certainty. We believe we have
adequate reserves against such matters. We currently
believe that the ultimate outcome of such lawsuits and
proceedings will not, individually or in the aggregate, have
a material adverse effect on our consolidated financial
position, results of operations or liquidity. However,
depending on the amount and timing, an unfavorable
resolution of some or all of these matters could materially
affect our future results of operations in a particular period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information and Dividends
Our common stock began trading publicly on the NYSE
under the symbol “HLT” on December 12, 2013. As of
December 31, 2016, there were approximately 35 holders
of record of our common stock. This stockholder figure
does not include a substantially greater number of hold-
ers whose shares are held of record by banks, brokers and
other financial institutions. On January 3, 2017, we com-
pleted a 1-for-3 Reverse Stock Split of our outstanding
common stock.
We declared regular quarterly cash dividends beginning in
the third quarter of 2015 and expect to continue paying
regular dividends on a quarterly basis. Any decision to
declare and pay dividends in the future will be made at the
sole discretion of our board of directors and will depend
on, among other things, our results of operations, cash
requirements, financial condition, contractual restrictions
and other factors that our board of directors may deem
relevant. Because we are a holding company and have no
direct operations, we will only be able to pay dividends
from funds we receive from our subsidiaries. The following
table presents the high and low sales prices for our com-
mon stock as reported by the NYSE and the cash dividends
we declared for the last two fiscal years, adjusted to reflect
the Reverse Stock Split, but not the spin-offs:
Stock Price
Dividends
Declared per
High
Low
Share
Fiscal Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$68.67
70.80
73.29
83.85
Fiscal Year Ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$90.18
94.80
85.56
78.81
$48.48
60.75
66.51
65.40
$73.08
81.90
62.79
62.73
$0.21
0.21
0.21
0.21
$ —
—
0.21
0.21
36
Hilton
2016 Annual Report
37
Performance Graph
The following graph compares the cumulative total stockholder return since December 12, 2013 with the S&P 500 Index
(“S&P 500”) and the S&P Hotels, Resorts & Cruise Lines Index (“S&P Hotel”). The graph assumes that the value of the
investment in our common stock and each index was $100 on December 12, 2013 and that all dividends and other
distributions were reinvested.
$150.0
$137.5
$125.0
$112.5
$100.0
$ 87.5
$ 75.0
12/12/13
12/31/16
Hilton
S&P 500
S&P Hotel
12/12/2013
12/31/2013
12/31/2014
12/31/2015
12/31/2016
$100.00
100.00
100.00
$103.49
104.10
109.17
$121.35
115.96
132.84
$ 99.53
115.12
135.47
$128.87
126.10
142.45
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
38
Hilton
2016 Annual Report
39
•Hilton •S&P 500 •S&P Hotel
ITEM 6. SELECTED FINANCIAL DATA
We derived the selected statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the
selected balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. We derived the selected statement of operations data for the years ended
December 31, 2013 and 2012 and the selected balance sheet data as of December 31, 2014, 2013 and 2012 from our audited
consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not
necessarily indicative of the results expected for any future period.
The selected consolidated financial data below should be read together with the consolidated financial statements
including the related notes thereto, and “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included elsewhere in this Annual Report on Form 10-K.
(in millions, except per share data)
2016
2015
2014
2013
2012
Year ended December 31,
Statement of Operations Data:
Total revenues
Operating income
Net income
Net income attributable to Hilton stockholders
Earnings per share(1):
Basic
Diluted
Cash dividends declared per share
(in millions)
Selected Balance Sheet Data:
Total assets(2)
Long-term debt(2)(3)(4)
Timeshare debt(2)(3)
$11,663
1,861
364
348
$
$
$
1.06
1.05
0.84
$11,272
2,071
1,416
1,404
$10,502
1,673
682
673
$ 9,735
1,102
460
415
$ 9,276
1,100
359
352
$ 4.27
$ 4.26
$ 2.05
$ 2.05
$ 1.35
$ 1.35
$ 1.15
$ 1.15
$
0.42
$
—
$
—
$
—
2016
2015
2014
2013
2012
December 31,
$26,211
10,118
694
$25,622
9,951
502
$26,001
10,943
625
$26,410
11,899
672
$27,043
15,972
—
(1) Per share amounts used in the computation of basic and diluted earnings per share were adjusted to reflect the Reverse Stock Split.
(2) All periods presented reflect the adoption of Accounting Standards Updates (“ASU”) No. 2015-03 and No. 2015-15.
(3) Includes current maturities and is net of unamortized deferred financing costs and discounts.
(4) Includes capital lease obligations and debt of consolidated variable interest entities (“VIEs”).
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ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements
and related notes included elsewhere in this Annual
Report on Form 10-K.
On January 3, 2017, we completed a 1-for-3 reverse
stock split of Hilton’s outstanding common stock. The
authorized number of shares of common stock was
reduced from 30,000,000,000 to 10,000,000,000, and the
authorized number of shares of preferred stock remains
3,000,000,000. All share and share-related information
presented in this Annual Report on Form 10-K, including
our consolidated financial statements, have been
retro actively adjusted to reflect the decreased number
of shares resulting from the Reverse Stock Split.
Overview
Our Business
Hilton is one of the largest and fastest growing hospitality
companies in the world, with 4,922 hotels, resorts and
timeshare properties comprising 804,097 rooms in 104
countries and territories as of December 31, 2016. Our
premier brand portfolio includes: our luxury and lifestyle
hotel brands, Waldorf Astoria Hotels & Resorts, Conrad
Hotels & Resorts and Canopy by Hilton; our full service
hotel brands, Hilton Hotels & Resorts, Curio—A Collection
by Hilton, DoubleTree by Hilton and Embassy Suites by
Hilton; our focused service hotel brands, Hilton Garden
Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites
by Hilton and Home2 Suites by Hilton; our timeshare
brand, Hilton Grand Vacations; and our new full service
brand, Tapestry Collection by Hilton, launched in January
2017. We had approximately 60 million members in our
award-winning customer loyalty program, Hilton Honors,
as of December 31, 2016.
Recent Events
On January 3, 2017, we completed the previously
announced spin-offs of a portfolio of hotels and resorts,
as well as our timeshare business, into two independent,
publicly traded companies: Park and HGV, respectively.
The spin-offs were completed via a distribution to each of
Hilton’s stockholders of record, as of the close of business
on December 15, 2016, of 100 percent of the outstanding
common stock of Park and HGV. Each Hilton stockholder
received one share of Park common stock for every five
shares of Hilton common stock and one share of HGV
common stock for every ten shares of Hilton common stock.
Both Park and HGV have their common stock listed on
the NYSE under the symbols “PK” and “HGV,” respectively.
Unless otherwise stated, disclosures herein reflect the
results of Hilton, without giving effect to the spin-offs, for
the years ended December 31, 2016, 2015 and 2014. See
Item 1A. Risk Factors and Note 29: “Subsequent Events” in
our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K for additional discus-
sion. Refer to pro forma financial information included in
our Current Report on Form 8-K filed with the SEC on
January 4, 2017 for the historical results of operations and
performance of Hilton giving effect to the spin-offs, and
refer to the Registration Statements on Form 10 of Park
and HGV and their subsequent periodic and other reports
filed with the SEC for their respective historical financial
results. Additionally, refer to our press release on our
fourth quarter and full year 2016 results for our pro forma
financial information for the year ended December 31,
2016 included in our Current Report on Form 8-K filed
with the SEC on February 15, 2017.
In January 2017, we launched our newest brand, Tapestry
Collection by Hilton, which is a curated portfolio of original
hotels in the upscale hotel segment that have recogniz-
able features distinct to each hotel. Tapestry guests are
looking for new experiences and choose to stay where
they can expect to never see the same thing twice.
The first property is expected to open by the third quarter
of 2017.
Segments and Regions
During the periods covered by this report, management
analyzed our operations and business by both operating
segments and geographic regions, which consisted of
three reportable segments that are based on similar
products or services: ownership; management and fran-
chise; and timeshare. The ownership segment primarily
derives earnings from providing hotel room rentals, food
and beverage sales and other services at our owned and
leased hotels. The management and franchise segment
provides services, which include hotel management and
licensing of our brands to franchisees, as well as property
management at timeshare properties. This segment
generates its revenue from management and franchise
fees charged to hotel owners, including our owned and
leased hotels, and to homeowners’ associations at time-
share properties. As a manager of hotels and timeshare
resorts, we typically are responsible for supervising or
operating the property in exchange for management
fees. As a franchisor of hotels, we charge franchise fees
in exchange for the use of one of our brand names and
related commercial services, such as our reservation
system, marketing and information technology services.
The timeshare segment consists of multi-unit vacation
ownership properties and generates revenue by marketing
and selling timeshare intervals owned by us and third
parties, resort operations and providing consumer
financing for the timeshare interests.
Geographically, management conducts business through
three distinct geographic regions: the Americas; Europe,
Middle East and Africa (“EMEA”); and Asia Pacific. The
Americas region includes North America, South America
and Central America, including all Caribbean nations.
Although the U.S. is included in the Americas, it represents
a significant portion of our system-wide hotel rooms,
which was 75 percent as of December 31, 2016; therefore,
the U.S. is often analyzed separately and apart from the
Americas geographic region and, as such, it is presented
separately within the analysis herein. The EMEA region
includes Europe, which represents the western-most
peninsula of Eurasia stretching from Ireland in the west to
Russia in the east, and the Middle East and Africa (“MEA”),
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41
which represents the Middle East region and all African
nations, including the Indian Ocean island nations. Europe
and MEA are often analyzed separately by management.
The Asia Pacific region includes the eastern and south-
eastern nations of Asia, as well as India, Australia, New
Zealand and the Pacific island nations. Refer to “Part I—
Item 2. Properties” for the specific properties and respec-
tive locations of the properties that were distributed to
Park in connection with the spin-offs.
System Growth and Pipeline
We continue to expand our global footprint and fee-based
business. As we enter into new management and franchise
contracts, we expand our business with minimal or no
capital investment by us as the manager or franchisor, as
the capital required to build and maintain hotels is typically
provided by the third-party owner of the respective hotel
that we contract with to provide management or franchise
services. Additionally, prior to approving the addition of
new hotels to our management and franchise develop-
ment pipeline, we evaluate the economic viability of the
hotel based on the geographic location, the credit quality
of the third-party owner and other factors. As a result, by
increasing the number of management and franchise
agreements with third-party owners, we expect to
achieve a higher overall return on invested capital.
As of December 31, 2016, we had a total of 1,968 hotels in
our development pipeline, representing approximately
310,000 rooms under construction or approved for devel-
opment throughout 96 countries and territories, including
32 countries and territories where we do not currently
have any open hotels. Over 99 percent of the rooms in the
pipeline are within our management and franchise
segment. Of the rooms in the pipeline, over 159,000 rooms,
or more than half of the pipeline, were located outside
the U.S. As of December 31, 2016, over 157,000 rooms,
representing approximately half of our development
pipeline, were under construction. We do not consider any
individual development project to be material to us.
Principal Components and Factors Affecting
our Results of Operations
Revenues
Principal Components
During the periods presented in this report, we primarily
derived our revenues from the following sources:
Owned and leased hotels. Represents revenues derived
from hotel operations, including room rentals, food and
beverage sales and other ancillary goods and services.
These revenues are primarily derived from two catego-
ries of customers: transient and group. Transient guests
are individual travelers who are traveling for business
or leisure. Group guests are traveling for group events
that reserve rooms for meetings, conferences or social
functions sponsored by associations, corporate, social,
military, educational, religious or other organizations.
Group business usually includes a block of room
accommodations, as well as other ancillary services,
such as meeting facilities and catering and banquet
services. A majority of our food and beverage sales and
other ancillary services are provided to customers who
are also occupying rooms at our hotel properties. As a
result, occupancy affects all components of our owned
and leased hotel revenues.
Management and franchise fees and other. Represents
revenues derived from management fees earned from
hotels and timeshare properties managed by us, fran-
chise fees received in connection with the franchising
of our brands and other revenue generated by the
incidental support of hotel operations for owned,
leased, managed and franchised properties and other
rental income.
Terms of our management agreements vary, but our
fees generally consist of a base fee, which is typically
a percentage of each hotel’s gross revenue, and in
some cases an incentive fee, which is based on gross
operating profits, cash flow or a combination thereof.
Management fees from timeshare properties are
generally a fixed amount as stated in the management
agreement. Outside of the U.S., our fees are often
more dependent on hotel profitability measures,
either through a single management fee structure
where the entire fee is based on a profitability mea-
sure, or because our two-tier fee structure is more
heavily weighted toward the incentive fee than the
base fee. Additionally, we receive one-time upfront
fees upon execution of certain management
contracts, as well as a monthly fee based on a
percentage of the total gross room revenue that
covers the costs of advertising and marketing
programs; internet, technology and reservation
systems expenses; and quality assurance program
costs. In general, the hotel owner pays all operating
and other expenses and reimburses costs we incur
in operating the hotel.
Under our franchise agreements, franchisees pay us
franchise fees which consist of initial application and
initiation fees for new hotels entering the system and
monthly royalty fees, generally calculated as a per-
centage of room revenues. Royalty fees for our full
service brands may also include a percentage of gross
food and beverage revenues and other revenues,
where applicable. In addition to the franchise applica-
tion and royalty fees, franchisees also generally pay a
monthly program fee based on a percentage of the
total gross room revenue that covers the cost of
advertising and marketing programs; internet,
technology and reservation system expenses; and
quality assurance program costs. We also earn fees
when certain franchise agreements are terminated
early or there is a change in ownership.
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Timeshare. Represents revenues derived from the sale
and financing of timeshare intervals and revenues from
enrollments and other fees, rentals of timeshare units,
food and beverage sales and other ancillary services at
our timeshare properties, which we refer to as resort
operations. Additionally, in recent years, we began a
transformation of our timeshare business to a capital
light model in which third-party timeshare owners and
developers provided capital for development while we
acted as the sales and marketing agent and property
manager. Through these transactions, we received a
sales and marketing commission and branding fees
based on the total sales price of the timeshare interval,
recurring fees to operate the homeowners’ associations
and revenues from resort operations.
Other revenues from managed and franchised
properties. These revenues represent the payroll and
related costs for properties that we manage where the
property employees are legally our responsibility, as well
as certain other operating costs of the managed and
franchised properties’ operations, marketing expenses
and other expenses associated with our brands and
shared services that are contractually either reimbursed
to us by the property owners or paid from fees collected
in advance from these properties when the costs are
incurred. We have no legal responsibility for employees
at franchised properties. The corresponding expenses
are presented as other expenses from managed and
franchised properties in our consolidated statements of
operations resulting in no effect on operating income
or net income.
Factors Affecting our Revenues
Agreements with third-party owners and franchisees
and relationships with developers. We depend on our
long-term management and franchise agreements
with third-party owners and franchisees for a significant
portion of our management and franchise fee revenues.
The success and sustainability of our management and
franchise business depends on our ability to perform
under our management and franchise agreements and
maintain good relationships with third-party owners
and franchisees. Our relationships with these third par-
ties also generate new relationships with developers
and opportunities for property development that can
support our growth. Growth and maintenance of our
hotel system and earning fees relating to hotels in the
pipeline are dependent on the ability of developers
and owners to access capital for the development,
maintenance and renovation of properties. We believe
that we have good relationships with our third-party
owners, franchisees and developers and are committed
to the continued growth and development of these
relationships. These relationships exist with a diverse
group of owners, franchisees and developers and are
not significantly concentrated with any particular
third party.
Additionally, we entered into sales and marketing
agreements to sell timeshare intervals on behalf of
third-party developers. We relied on these relationships
to expand our timeshare interval supply without
deploying capital for asset construction.
Expenses
Principal Components
The following factors affected the revenues we derived
from our operations during the periods presented:
We primarily incurred the following expenses during the
periods presented:
Consumer demand and global economic conditions.
Consumer demand for our products and services is
closely linked to the performance of the general
economy and is sensitive to business and personal
discretionary spending levels. Declines in consumer
demand due to adverse general economic conditions,
risks affecting or reducing travel patterns, lower
consumer confidence and adverse political conditions
can lower the revenues and profitability of our owned
and leased operations and the amount of management
and franchise fee revenues we are able to generate
from our managed and franchised properties. Further,
competition for hotel guests and the supply of hotel
services affect our ability to sustain or increase rates
charged to customers at our hotels. Also, declines in
hotel profitability during an economic downturn directly
affect the incentive portion of our management fees,
which is based on hotel profit measures. Our timeshare
segment also is linked to cycles in the general economy,
consumer discretionary spending and availability of
financing. As a result, changes in consumer demand
and general business cycles have historically subjected
and could in the future subject our revenues to
significant volatility.
Owned and leased hotels. Reflects the operating
expenses of our consolidated owned and leased hotels,
including room expense, food and beverage costs,
other support costs and property expenses. Room
expense includes compensation costs for house-
keeping, laundry and front desk staff and supply costs
for guest room amenities and laundry. Food and beverage
costs include costs for wait and kitchen staff and food
and beverage products. Other support expenses
consist of costs associated with property-level
management, utilities, sales and marketing, operating
hotel spas, telephones, parking and other guest
recreation, entertainment and services. Property
expenses include property taxes, repairs and
maintenance, rent and insurance.
Timeshare. Includes the cost of inventory sold during
the period, sales and marketing expenses, resort
operations expenses and other overhead expenses
associated with our timeshare business.
Depreciation and amortization. These are non-cash
expenses that primarily consist of depreciation of fixed
assets such as buildings, furniture, fixtures and equip-
ment at our consolidated owned and leased hotels
and certain corporate assets, as well as amortization
of our management and franchise intangibles and
capitalized software.
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General, administrative and other expenses. Consists
primarily of compensation expense for our corporate
staff and personnel supporting our business segments
(including divisional offices that support our man-
agement and franchise segment), professional fees
(including consulting, audit and legal fees), travel and
entertainment expenses, bad debt expenses for
uncollected management, franchise and other fees,
contractual performance obligations and office
administrative and related expenses. Expenses incurred
by our supply management business, laundry facilities
and other ancillary businesses are also included in
general, administrative and other expenses.
Impairment losses. We hold significant amounts of
goodwill, amortizing and non-amortizing intangible
assets and long-lived assets. We evaluate these assets
for impairment as further discussed in “—Critical
Accounting Policies and Estimates.” These evaluations
have resulted in impairment losses for certain of these
assets based on the specific facts and circumstances
surrounding the assets and our estimates of fair value.
Based on economic conditions or other factors at a
property-specific or company-wide level, we may be
required to take additional impairment losses to reflect
further declines in our asset values.
Other expenses from managed and franchised
properties. These expenses represent the payroll and
related costs for properties that we manage where the
property employees are legally our responsibility, as well
as certain other operating costs of the managed and
franchised properties’ operations, marketing expenses
and other expenses associated with our brands and
shared services that are contractually either reim-
bursed to us by the property owners or paid from fees
collected in advance from these properties when the
costs are incurred. We have no legal responsibility for
employees at franchised properties. The corresponding
revenues are presented as other revenues from managed
and franchised properties in our consolidated statements
of operations resulting in no effect on operating
income or net income.
Factors Affecting our Costs and Expenses
The following are principal factors that affect the costs
and expenses we incur in the course of our operations:
Fixed expenses. Many of the expenses associated with
owning, leasing, managing and franchising hotels and
timeshare resorts are relatively fixed. These expenses
include personnel costs, rent, property taxes, insurance
and utilities. If we are unable to decrease these costs
significantly or rapidly when demand for our hotels and
other properties decreases, the resulting decline in our
revenues can have an adverse effect on our net cash
flow, margins and profits. This effect can be especially
pronounced during periods of economic contraction or
slow economic growth. Economic downturns generally
affect the results of our ownership segment more
significantly than the results of our management and
franchising segment due to the high fixed costs
associated with operating an owned or leased hotel.
The effectiveness of any cost-cutting efforts is limited
by the amount of fixed costs inherent in our business.
As a result, we may not be able to offset revenue
reductions through cost cutting. Employees at some
of our owned and leased hotels are parties to collective
bargaining agreements that may also limit our ability
to make timely staffing or labor changes in response
to declining revenues. In addition, any efforts to reduce
costs, or to defer or cancel capital improvements, could
adversely affect the economic value of our hotels and
brands. We have taken steps to reduce our fixed costs
to levels we believe are appropriate to maximize
profitability and respond to market conditions without
jeopardizing the overall customer experience or the
value of our hotels or brands. Also, a significant portion
of our costs to support our timeshare business relates
to direct sales and marketing of these units. In periods
of decreased demand for timeshare intervals, we may
be unable to reduce our sales and marketing expenses
quickly enough to prevent a deterioration of our profit
margins on our timeshare business.
Changes in depreciation and amortization expense.
Changes in depreciation expense may be driven by ren-
ovations of existing hotels, acquisition or development
of new hotels, the disposition of existing hotels through
sale or closure or changes in estimates of the useful
lives of our assets. As we place new assets into service,
we will be required to recognize additional depreciation
expense on those assets. Additionally, we capitalize
costs associated with certain software development
projects, and as those projects are completed and
placed into service, amortization expense will increase.
Other Items
Effect of foreign currency exchange rate fluctuations
Significant portions of our operations are conducted in
functional currencies other than our reporting currency,
which is the U.S. dollar (“USD”), and we have assets and
liabilities denominated in a variety of foreign currencies. As
a result, we are required to translate those results, assets
and liabilities from the functional currency into USD at
market based exchange rates for each reporting period.
When comparing our results of operations between peri-
ods, there may be material portions of the changes in our
revenues or expenses that are derived from fluctuations
in exchange rates experienced between those periods.
Seasonality
The lodging industry is seasonal in nature. However, the
periods during which our hotels experience higher or
lower levels of demand vary from property to property
and depend upon location, type of property and compe-
titive mix within the specific location. Based on historical
results, we generally expect our revenue to be lower
during the first calendar quarter of each year than during
each of the three subsequent quarters.
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Key Business and Financial Metrics Used
by Management
Comparable Hotels
We define our comparable hotels as those that: (i) were
active and operating in our system for at least one full cal-
endar year as of the end of the current period, and open
January 1st of the previous year; (ii) have not undergone
a change in brand or ownership during the current or
comparable periods reported; and (iii) have not sustained
substantial property damage, business interruption,
undergone large-scale capital projects or for which
comparable results are not available. Of the 4,875 hotels
in our system as of December 31, 2016, 3,740 have been
classified as comparable hotels. Our 1,135 non-comparable
hotels included 135 properties, or approximately
three percent of the total hotels in our system, that were
removed from the comparable group during the year
because they sustained substantial property damage,
business interruption, underwent large-scale capital
projects or comparable results were not available. Of the
4,565 hotels in our system as of December 31, 2015, 3,624
were classified as comparable hotels for the year ended
December 31, 2015.
Occupancy
Occupancy represents the total number of room nights
sold divided by the total number of room nights available
at a hotel or group of hotels. Occupancy measures the
utilization of our hotels’ available capacity. Management
uses occupancy to gauge demand at a specific hotel or
group of hotels in a given period. Occupancy levels also
help us determine achievable ADR levels as demand for
hotel rooms increases or decreases.
ADR
ADR represents hotel room revenue divided by total
number of room nights sold in a given period. ADR mea-
sures average room price attained by a hotel and ADR
trends provide useful information concerning the pricing
environment and the nature of the customer base of a
hotel or group of hotels. ADR is a commonly used
performance measure in the industry, and we use ADR
to assess pricing levels that we are able to generate by
type of customer, as changes in rates have a different
effect on overall revenues and incremental profitability
than changes in occupancy, as described above.
RevPAR
We calculate RevPAR by dividing hotel room revenue
by total number of room nights available to guests for a
given period. We consider RevPAR to be a meaningful
indicator of our performance as it provides a metric
correlated to two primary and key drivers of operations at
a hotel or group of hotels: occupancy and ADR. RevPAR is
also a useful indicator in measuring performance over
comparable periods for comparable hotels.
References to RevPAR, ADR and occupancy are
presented on a comparable basis and references to
RevPAR and ADR are presented on a currency neutral
basis (all periods use the same exchange rates), unless
otherwise noted.
EBITDA and Adjusted EBITDA
For a discussion of our definition of Adjusted EBITDA,
see Note 23: “Business Segments” in our consolidated
financial statements.
EBITDA and Adjusted EBITDA are not recognized terms
under U.S. GAAP and should not be considered as alterna-
tives to net income (loss) or other measures of financial
performance or liquidity derived in accordance with U.S.
GAAP. In addition, our definitions of EBITDA and Adjusted
EBITDA may not be comparable to similarly titled
measures of other companies.
We believe that EBITDA and Adjusted EBITDA provide
useful information to investors about us and our financial
condition and results of operations for the following rea-
sons: (i) these measures are among the measures used
by our management team to evaluate our operating
performance and make day-to-day operating decisions;
and (ii) these measures are frequently used by securities
analysts, investors and other interested parties as a
common performance measure to compare results or
estimate valuations across companies in our industry.
Additionally, these measures exclude certain items that
can vary widely across different industries and among
competitors within our industry. For instance, interest
expense and income tax expense are dependent on
company specifics, including, among other things, our
capital structure and operating jurisdictions, respectively,
and, therefore could vary significantly across companies.
Depreciation and amortization are dependent upon
company policies, including the method of acquiring and
depreciating assets and the useful lives that are used.
For Adjusted EBITDA, we also exclude items such as:
(i) share-based compensation expense, as this could vary
widely among companies due to the different plans in
place and the usage of them; (ii) furniture, fixtures and
equipment (“FF&E”) replacement reserve to be consistent
with the treatment of FF&E for its owned and leased
hotels where it is capitalized and depreciated over the life
of the FF&E; and (iii) other items that are not core to our
operations and are not reflective of our performance.
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EBITDA and Adjusted EBITDA have limitations as
analytical tools and should not be considered either in
isolation or as a substitute for net income (loss), cash flow
or other methods of analyzing our results as reported
under U.S. GAAP. Some of these limitations are:
Results of Operations
Year Ended December 31, 2016 Compared with
Year Ended December 31, 2015
The hotel operating statistics for our system-wide
comparable hotels were as follows:
EBITDA and Adjusted EBITDA do not reflect changes in,
or cash requirements for, our working capital needs;
EBITDA and Adjusted EBITDA do not reflect our
interest expense, or the cash requirements necessary
to service interest or principal payments, on
our indebtedness;
EBITDA and Adjusted EBITDA do not reflect our tax
expense or the cash requirements to pay our taxes;
EBITDA and Adjusted EBITDA do not reflect historical
cash expenditures or future requirements for capital
expenditures or contractual commitments;
EBITDA and Adjusted EBITDA do not reflect the effect
on earnings or changes resulting from matters that we
consider not to be indicative of our future operations;
although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized
will often have to be replaced in the future, and EBITDA
and Adjusted EBITDA do not reflect any cash require-
ments for such replacements; and
other companies in our industry may calculate EBITDA
and Adjusted EBITDA differently, limiting their useful-
ness as comparative measures.
Because of these limitations, EBITDA and Adjusted
EBITDA should not be considered as discretionary cash
available to us to reinvest in the growth of our business or
as measures of cash that will be available to us to meet
our obligations.
Owned and leased hotels
Occupancy
ADR
RevPAR
Managed and franchised hotels
Occupancy
ADR
RevPAR
System-wide
Occupancy
ADR
RevPAR
Year Ended
Variance
December 31, 2016 2016 vs. 2015
78.6%
(0.9)% pts.
$185.18
$145.49
1.4%
0.3%
74.6%
$ 139.31
$103.92
75.0%
$143.63
$107.65
—% pts.
1.9%
2.0%
—% pts.
1.9%
1.8%
The hotel operating statistics by region for our system-wide
comparable hotels were as follows:
U.S.
Occupancy
ADR
RevPAR
Americas (excluding U.S.)
Occupancy
ADR
RevPAR
Europe
Occupancy
ADR
RevPAR
MEA
Occupancy
ADR
RevPAR
Asia Pacific
Occupancy
ADR
RevPAR
Year Ended
Variance
December 31, 2016 2016 vs. 2015
75.9%
(0.1)% pts.
$143.75
$109.14
2.0%
1.8%
72.3%
$122.05
$ 88.22
—% pts.
4.2%
4.2%
73.9%
(0.7)% pts.
$146.04
$107.95
2.0%
1.1%
63.1%
(3.3)% pts.
$166.26
$104.94
3.6%
(1.5)%
71.5%
3.8% pts.
$145.75
$104.26
(2.1)%
3.5%
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45
In 2016, we experienced system-wide RevPAR growth
from continued ADR growth at both of our hotel segments.
Regionally, the U.S., Americas and Europe all experienced
RevPAR growth as a result of ADR growth, with Americas
outpacing all other regions, driven by strength in Canada
and Mexico. The Asia Pacific increase in RevPAR was
driven by increased occupancy, particularly in China. MEA
performance continued to be negatively affected by geo-
political and terrorism concerns, resulting in a decrease
in occupancy.
Year Ended December 31, 2015 Compared with
Year Ended December 31, 2014
The hotel operating statistics for our system-wide
comparable hotels were as follows:
Owned and leased hotels
Occupancy
ADR
RevPAR
Managed and franchised hotels
Occupancy
ADR
RevPAR
System-wide
Occupancy
ADR
RevPAR
Year Ended
Variance
December 31, 2015 2015 vs. 2014
79.1%
$184.78
$146.19
75.1%
$136.60
$102.61
75.4%
$ 141.19
$ 106.51
1.3% pts.
2.5%
4.2%
1.3% pts.
3.6%
5.5%
1.3% pts.
3.6%
5.4%
The hotel operating statistics by region for our system-wide
comparable hotels were as follows:
U.S.
Occupancy
ADR
RevPAR
Americas (excluding U.S.)
Occupancy
ADR
RevPAR
Europe
Occupancy
ADR
RevPAR
MEA
Occupancy
ADR
RevPAR
Asia Pacific
Occupancy
ADR
RevPAR
Year Ended
Variance
December 31, 2015 2015 vs. 2014
76.2%
$ 140.31
$106.89
73.1%
$ 126.14
$ 92.18
77.0%
$ 154.81
$ 119.24
1.0% pts.
3.8%
5.2%
1.2% pts.
4.8%
6.7%
1.7% pts.
3.7%
6.1%
66.0%
2.3% pts.
$ 153.91
$ 101.53
(1.9)%
1.7%
68.8%
$140.82
$ 96.85
5.0% pts.
1.3%
9.3%
All world regions experienced RevPAR growth in 2015
with nearly all growing in occupancy and ADR. Asia Pacific
RevPAR growth led all regions at 9.3 percent, primarily
through occupancy, which is a result of our portfolio
ramping up in China. The MEA region continues to face
geopolitical unrest and low oil prices, nonetheless
RevPAR still increased as a result of improved year over
year demand. U.S. RevPAR growth of 5.2 percent was pri-
marily driven by ADR with demand outpacing supply
growth, which is still below the long-term industry average.
46
Hilton
2016 Annual Report
47
Revenues
Owned and leased hotels
(in millions)
U.S. owned and leased hotels
International owned and leased hotels
Total owned and leased hotels
Year Ended December 31,
Percent Change
2016
$2,484
1,642
$4,126
2015
$2,414
1,819
$4,233
2014
$2,227
2,012
$4,239
2016 vs. 2015
2015 vs. 2014
2.9
(9.7)
(2.5)
8.4
(9.6)
(0.1)
Owned and leased hotels: 2016 compared with 2015
The following details the changes in revenues at our owned and leased hotels, giving effect to foreign currency (“FX”) changes
and acquired and disposed hotels:
Year Ended December 31,
2015
2016
Increase/
(decrease)
Net decrease
due to FX
changes(1)
Net increase/
(decrease)
excluding
FX changes
and the effect
of acquired and
disposed hotels(2) disposed hotels
Net increase/
(decrease) from
acquired and
(in millions)
U.S. owned and leased hotels:
Comparable(3)
Non-comparable
U.S. owned and leased hotels
International owned and leased hotels:
Comparable(3)
Non-comparable
$2,095
389
$2,484
$ 1,551
91
International owned and leased hotels $1,642
$2,056
358
$ 2,414
$ 1,621
198
$ 1,819
$ 39
31
$ 70
$ (70)
(107)
$(177)
$ —
—
$ —
$(67)
(6)
$(73)
$ —
41
$ 41
$ —
(95)
$(95)
$39
(10)
$29
$ (3)
(6)
$ (9)
(1) Unfavorable movements were a result of the strengthening of the USD compared to other currencies, primarily the British pound (“GBP”), partially offset
by the strengthening of the Japanese Yen (“JPY”) compared to the USD.
(2) From January 1, 2015 to December 31, 2016, five properties were added to our U.S. owned and leased portfolio on a net basis and six hotels were removed
from our international owned and leased portfolio on a net basis.
(3) Represents comparable hotels for the year ended December 31, 2016.
The increase in comparable U.S. owned and leased hotel revenue during the year ended December 31, 2016 was primarily
a result of an increase in food and beverage revenue, as well as an increase in RevPAR of 0.4 percent, attributable to an
increase in ADR of 2.1 percent, largely offset by a decrease in occupancy of 1.4 percentage points. Additionally, U.S. owned
and leased hotel revenue increased in 2016 as a result of increases in revenues from properties acquired in February and
June of 2015, net of the decrease in revenues from the Waldorf Astoria New York, which was sold in February 2015.
Excluding acquisitions and dispositions, revenues from non-comparable U.S. owned and leased hotels decreased for the
year ended December 31, 2016, primarily as a result of renovations at one property during 2016.
The decrease in revenues at our international hotels during the year ended December 31, 2016 was primarily a result of the
effect of FX changes and decreases in revenues from properties disposed of between January 1, 2015 and December 31, 2016.
Owned and leased hotels: 2015 compared with 2014
The following details the changes in revenues at our owned and leased hotels, giving effect to FX changes and acquired
and disposed hotels:
Year Ended December 31,
2014
2015
Increase/
(decrease)
Net decrease
due to FX
changes(1)
Net increase/
(decrease)
excluding
FX changes
and the effect
of acquired and
disposed hotels(2) disposed hotels
Net increase/
(decrease) from
acquired and
(in millions)
U.S. owned and leased hotels:
Comparable(3)
Non-comparable
U.S. owned and leased hotels
International owned and leased hotels:
Comparable(3)
Non-comparable
$2,020
394
$ 2,414
$ 1,448
371
International owned and leased hotels $ 1,819
$ 1,913
314
$2,227
$ 1,572
440
$2,012
$ 107
80
$ 187
$(124)
(69)
$(193)
$
—
—
$
—
$(176)
(38)
$(214)
$ —
81
$ 81
$ —
(80)
$(80)
$107
(1)
$106
$ 52
49
$ 101
46
Hilton
(1) Unfavorable movements were a result of the strengthening of the USD compared to other currencies, primarily the GBP and the euro.
(2) From January 1, 2014 to December 31, 2015, 10 properties were added to our U.S. owned and leased portfolio on a net basis and five hotels were removed
from our international owned and leased portfolio on a net basis.
(3) Represents comparable hotels for the year ended December 31, 2015.
2016 Annual Report
47
The increase in revenues at our comparable U.S. owned and leased hotels during the year ended December 31, 2015 was
primarily a result of an increase in RevPAR of 4.2 percent, which was mostly attributable to increases in both transient and
group business. The increase in revenues at our non-comparable U.S. owned and leased hotels in 2015 was the result of the
increase in revenues from properties acquired during 2015, net of the decrease in revenues from properties disposed of
in 2015.
The decrease in revenues at our international owned and leased hotels during the year ended December 31, 2015 was
primarily a result of the effect of FX changes and decreases in revenues from properties disposed of between January 1, 2014
and December 31, 2015. On a currency neutral basis, comparable international owned and leased hotel revenues increased
as a result of an increase in RevPAR of 4.2 percent, which was primarily a result of an increase in transient guest business.
Additionally, excluding dispositions and FX changes, there was an increase in revenues at our non-comparable international
owned and leased hotels during the year ended December 31, 2015, primarily as a result of the completion of large
renovation projects at certain hotels, which had previously limited the availability of those properties to guests.
Management and franchise fees and other
(in millions)
Management fees
Franchise fees
Other
Year Ended December 31,
Percent Change
2016
$ 414
1,192
95
$1,701
2015
$ 395
1,122
84
$1,601
2014
$ 384
927
90
$1,401
2016 vs. 2015
2015 vs. 2014
4.8
6.2
13.1
6.2
2.9
21.0
(6.7)
14.3
The increases in management and franchise fees for all periods were driven by increases in revenues from our
non-comparable managed and franchised hotels due to the addition of new managed and franchised properties to
our portfolio. Including new development and ownership type transfers, from January 1, 2015 to December 31, 2016, we
added 600 managed and franchised properties on a net basis, and from January 1, 2014 to December 31, 2015, we added
501 managed and franchised properties on a net basis, providing an additional 89,410 rooms and 81,474 rooms, respectively,
to our managed and franchised segment. As new hotels stabilize in our system, we expect the fees received from such
hotels to increase as they are part of our system for full periods.
Additionally, our management and franchise fees increased during the years ended December 31, 2016 and 2015
compared to the years ended December 31, 2015 and 2014, respectively, as a result of increases in RevPAR at our comparable
managed and franchised hotels due to increases in ADR. During the years ended December 31, 2016 and 2015, RevPAR
increased 1.7 percent and 6.3 percent, respectively, at our comparable managed hotels, and 2.1 percent and 5.2 percent,
respectively, at our comparable franchised hotels. Franchise fees also increased on a currency neutral basis as a result of
increases in licensing fees of $16 million and $57 million during the years ended December 31, 2016 and 2015, respectively.
Timeshare
(in millions)
Timeshare sales
Resort operations
Financing and other
Year Ended December 31,
Percent Change
2016
$ 997
238
155
$1,390
2015
$ 959
207
142
$1,308
2014
$ 844
195
132
$1,171
2016 vs. 2015
2015 vs. 2014
4.0
15.0
9.2
6.3
13.6
6.2
7.6
11.7
Timeshare sales revenue increased during the years ended December 31, 2016 and 2015 compared to the years ended
December 31, 2015 and 2014, respectively, as a result of increases in commissions recognized from the sale of third-party
developed timeshare intervals of $23 million and $136 million, respectively. During the year ended December 31, 2016,
revenue from the sale of owned timeshare intervals increased $15 million due to increased sales volume. However, during
the year ended December 31, 2015, sales volume of owned timeshare intervals decreased due to the shift in sales mix
toward third-party developed interval sales, which resulted in a decrease of owned interval sales revenue of $21 million.
Overall timeshare sales volume increased 10 percent and 18 percent, respectively, during the years ended December 31,
2016 and 2015, as a result of increased tour flow and net volume per guest. Additionally, revenues from our resort opera-
tions increased during the years ended December 31, 2016 and 2015 as a result of increases in fees earned related to our
Hilton Grand Vacations Club, including fees generated by new members.
48
Hilton
2016 Annual Report
49
Operating Expenses
Owned and leased hotels
(in millions)
U.S. owned and leased hotels
International owned and leased hotels
Total owned and leased hotels
Year Ended December 31,
Percent Change
2016
$1,661
1,439
$3,100
2015
$1,589
1,579
$3,168
2014
$1,497
1,755
$3,252
2016 vs. 2015
2015 vs. 2014
4.5
(8.9)
(2.1)
6.1
(10.0)
(2.6)
Fluctuations in operating expenses at our owned and leased hotels relate to various factors, including changes in
occupancy levels, labor costs, utilities, taxes, insurance costs and foreign currency. The change in the number of occupied
room nights directly affects certain variable expenses, which include payroll, supplies and other operating expenses.
Owned and leased hotels: 2016 compared with 2015
The following details the changes in operating expenses at our owned and leased hotels, giving effect to FX changes and
acquired and disposed hotels:
Year Ended December 31,
2015
2016
Increase/
(decrease)
Net decrease
due to FX
changes(1)
Net increase/
(decrease)
excluding
FX changes
and the effect
of acquired and
disposed hotels(2) disposed hotels
Net increase/
(decrease) from
acquired and
(in millions)
U.S. owned and leased hotels:
Comparable(3)
Non-comparable
U.S. owned and leased hotels
International owned and leased hotels:
Comparable(3)
Non-comparable
$ 1,413
248
$ 1,661
$1,356
83
International owned and leased hotels $1,439
$1,363
226
$1,589
$1,409
170
$1,579
$ 50
22
$ 72
$ (53)
(87)
$(140)
$ —
—
$ —
$(68)
(6)
$(74)
$ —
25
$ 25
$ —
(74)
$(74)
$50
(3)
$47
$ 15
(7)
$ 8
(1) Unfavorable movements were a result of the strengthening of the USD compared to other currencies, primarily the GBP, partially offset by the
strengthening of the JPY, compared to the USD.
(2) From January 1, 2015 to December 31, 2016, five properties were added to our U.S. owned and leased portfolio on a net basis and six hotels were removed
from our international owned and leased hotel portfolio on a net basis.
(3) Represents comparable hotels for the year ended December 31, 2016.
The increase in operating expenses at our U.S. owned and leased hotels during the year ended December 31, 2016 was
primarily the result of increases at our comparable hotels due to increased wages and benefits and other operating
expenses. Operating expenses at our non-comparable U.S. owned and leased hotels increased during the year ended
December 31, 2016 primarily as a result of increases in operating expenses from properties acquired during 2015, net of
the decrease in operating expenses from properties disposed of in 2015.
The decrease in operating expenses at our international owned and leased hotels during the year ended December 31,
2016 was primarily a result of the effect of FX changes and properties disposed of between January 1, 2015 and
December 31, 2016.
48
Hilton
2016 Annual Report
49
Owned and leased hotels: 2015 compared with 2014
The following details the changes in revenues at our owned and leased hotels, giving effect to FX changes and acquired
and disposed hotels:
Year Ended December 31,
2014
2015
Increase/
(decrease)
Net decrease
due to FX
changes(1)
Net increase/
(decrease) from
acquired and
disposed hotels(2)
Net Increase
excluding
FX changes
and the effect
of acquired
and disposed
hotels
(in millions)
U.S. owned and leased hotels:
Comparable(3)
Non-comparable
U.S. owned and leased hotels
International owned and leased hotels:
Comparable(3)
Non-comparable
$1,347
242
$1,589
$1,298
281
International owned and leased hotels $1,579
$1,273
224
$1,497
$1,407
348
$1,755
$ 74
18
$ 92
$(109)
(67)
$(176)
$ —
—
$ —
$(154)
(32)
$(186)
$ —
17
$ 17
$ —
(60)
$(60)
$74
1
$75
$45
25
$70
(1) Unfavorable movements were a result of the strengthening of the USD compared to other currencies, primarily the GBP and the euro.
(2) From January 1, 2014 to December 31, 2015, 10 properties were added to our U.S. owned and leased portfolio on a net basis and five hotels were removed
from out international owned and leased portfolio on a net basis.
(3) Represents comparable hotels for the year ended December 31, 2015.
The increase in operating expenses at our U.S. owned and leased hotels during the year ended December 31, 2015
was primarily the result of increases at our comparable hotels due to higher variable operating costs due to increased
occupancy. Operating expenses at our non-comparable U.S. owned and leased hotels increased during the year ended
December 31, 2015 primarily as a result of the increase in operating expenses from properties acquired in 2015, net of the
decrease in operating expenses from properties disposed of in 2015.
The decrease in operating expenses at our international owned and leased hotels during the year ended December 31,
2015 was primarily a result of the effect of FX changes and decreases in operating expenses from properties disposed of
between January 1, 2014 and December 31, 2015. On a currency neutral basis, operating expenses increased at our inter-
national comparable owned and leased hotels during the year ended December 31, 2015, primarily as a result of increases
in variable operating costs resulting from increased occupancy. Additionally, excluding dispositions and FX changes, the
increase in operating expenses at our non-comparable international owned and leased hotels during the year ended
December 31, 2015 was consistent with the increase in revenues for these hotels. The changes were primarily the result of
the completion of large renovation projects at certain hotels in 2015. The renovations limited occupancy and, therefore,
reduced revenues and operating expenses.
Timeshare
(in millions)
Timeshare sales
Resort operations
Financing and other
Year Ended December 31,
Percent Change
2016
$739
133
76
$948
2015
$701
130
66
$897
2014
$586
123
58
$767
2016 vs. 2015
2015 vs. 2014
5.4
2.3
15.2
5.7
19.6
5.7
13.8
16.9
Timeshare sales expense increased during the years ended December 31, 2016 and 2015 compared to the years ended
December 31, 2015 and 2014, respectively, primarily as a result of higher sales and marketing expenses related to increases
in sales volume of third-party developed timeshare intervals for both periods and in sales volume of owned intervals for the
year ended December 31, 2016. Additionally, cost of product related to the reacquisition of owned timeshare inventory for
customer upgrades into third-party developed properties decreased during the year ended December 31, 2016, partially
offsetting the increase in sales and marketing expenses, and increased during the year ended December 31, 2015,
contributing to the increase in timeshare sales expense.
Depreciation and amortization
(in millions)
Depreciation
Amortization
50
Hilton
Year Ended December 31,
Percent Change
2016
$358
328
$686
2015
$351
341
$692
2014
$313
315
$628
2016 vs. 2015
2015 vs. 2014
2.0
(3.8)
(0.9)
12.1
8.3
10.2
2016 Annual Report
51
The increases in depreciation expense during the years ended December 31, 2016 and 2015 compared to the years ended
December 31, 2015 and 2014, respectively, resulted primarily from the addition of property and equipment related to the
properties acquired in 2015, partially offset by decreases as a result of disposed hotels. The decrease in amortization expense
during the year ended December 31, 2016, compared to the year ended December 31, 2015, and the increase in amortization
expense during the year ended December 31, 2015, compared to the year ended December 31, 2014, were primarily a result
of $13 million in accelerated amortization that was recognized in 2015 on a management contract intangible asset for a
property that was managed by us prior to our acquisition of it. The increase in amortization expense during the year ended
December 31, 2015 was also related to capitalized software costs placed into service during 2014 and 2015.
General, administrative and other
(in millions)
General and administrative
Other
Year Ended December 31,
Percent Change
2016
$547
69
$616
2015
$547
64
$611
2014
$416
75
$491
2016 vs. 2015
2015 vs. 2014
—
7.8
0.8
31.5
(14.7)
24.4
General and administrative expense was unchanged during the year ended December 31, 2016 compared to the year
ended December 31, 2015, however, there were significant offsetting increases and decreases during the year. These
included a decrease of $73 million in severance costs related to the sale of the Waldorf Astoria New York, as well as a
decrease in share-based compensation expense due to $66 million of additional expense recognized during the year
ended December 31, 2015, when certain remaining awards granted in connection with our initial public offering vested.
The decreases were offset by an increase of $133 million of costs associated with the spin-offs.
The increase in general and administrative expenses during the year ended December 31, 2015 compared to the year
ended December 31, 2014 was primarily a result of the recognition of approximately $95 million in severance costs related
to the sale of the Waldorf Astoria New York and the additional $66 million of share-based compensation expense recog-
nized during the year, as previously discussed. The increase was also a result of the reversal of accruals in 2014 related to
the termination of a cash-based, long-term incentive plan that was replaced with our 2013 Omnibus Incentive Plan,
resulting in an $18 million reduction in general and administrative expense during the year ended December 31, 2014.
Gain on sales of assets, net
(in millions)
Gain on sales of assets, net
(1) Fluctuation in terms of percentage change is not meaningful.
Year Ended December 31,
Percent Change
2016
$9
2015
$306
2014
$—
2016 vs. 2015
2015 vs. 2014
(97.1)
NM(1)
During the year ended December 31, 2016, we recognized a gain on the sale of one of our hotels held by a consolidated VIE.
See Note 9: “Consolidated Variable Interest Entities” in our consolidated financial statements for additional discussion.
During the year ended December 31, 2015, we recognized gains upon completion of the sales of the Hilton Sydney and the
Waldorf Astoria New York.
Non-operating Income and Expenses
(in millions)
Interest expense
Year Ended December 31,
Percent Change
2016
$587
2015
$575
2014
$618
2016 vs. 2015
2015 vs. 2014
2.1
(7.0)
The increase in interest expense during the year ended December 31, 2016 compared to the year ended December 31, 2015
was primarily due to the issuance of new debt, partially offset by the reduction of principal on certain debt from prepayments
and the amendment of our senior secured term loan facility entered into in 2013 (the “2013 Term Loans”), which extended
the maturity and reduced the interest rate. See Note 12: “Debt” in our consolidated financial statements for details of our
issuances and repayments related to financing transactions that occurred during the year ended December 31, 2016, as
well as the interest rates for each debt instrument.
The decrease in interest expense during the year ended December 31, 2015 compared to the year ended December 31,
2014 was primarily as a result of a decrease in our indebtedness due to debt prepayments of $775 million on our 2013 Term
Loans during the year, which resulted in lower debt principal balances on which interest expense was calculated.
(in millions)
Equity in earnings from unconsolidated affiliates
Year Ended December 31,
Percent Change
2016
$8
2015
$23
2014
$19
2016 vs. 2015
2015 vs. 2014
(65.2)
21.1
50
Hilton
2016 Annual Report
51
The decrease in equity in earnings from unconsolidated affiliates during the year ended December 31, 2016 compared
to the year ended December 31, 2015 was primarily due to a $17 million impairment loss for the impairment of one of our
investments in affiliates recognized in 2016.
The increase in equity in earnings from unconsolidated affiliates during the year ended December 31, 2015 compared
to the year ended December 31, 2014 was primarily due to improved performance at our unconsolidated hotels, partially
offset by $3 million in equity in earnings included in the year ended December 31, 2014 from unconsolidated affiliates
that were involved in an equity investments exchange or sold during that year.
(in millions)
Gain (loss) on foreign currency transactions
(1) Fluctuation in terms of percentage change is not meaningful.
Year Ended December 31,
Percent Change
2016
$(13)
2015
$(41)
2014
$26
2016 vs. 2015
2015 vs. 2014
(68.3)
NM(1)
The net loss on foreign currency transactions for the years ended December 31, 2016 and 2015 primarily related to changes
in foreign currency rates on our short-term cross-currency intercompany loans, predominantly for loans denominated in
Australian dollar (“AUD”), euro and GBP during the year ended December 31, 2016, and loans denominated in AUD, Brazilian
real and GBP during the year ended December 31, 2015. The net gain on foreign currency transactions for the year ended
December 31, 2014 was primarily a result of changes in foreign currency rates on our short-term cross-currency
intercompany loans, predominantly those denominated in GBP and AUD.
(in millions)
Other gain (loss), net
(1) Fluctuation in terms of percentage change is not meaningful.
Year Ended December 31,
Percent Change
2016
$(26)
2015
$(1)
2014
$37
2016 vs. 2015
2015 vs. 2014
NM(1)
NM(1)
The other loss, net for the year ended December 31, 2016 primarily related to the write-off of: (i) $20 million of unamortized
debt issuance costs as a result of the full repayment of the commercial mortgage-backed securities loan entered into in
2013 (the “2013 CMBS Loan”); and (ii) $4 million of debt issuance costs incurred in connection with the amendment of the
2013 Term Loans that were not capitalized.
The other loss, net for the year ended December 31, 2015 was primarily related to $26 million of transaction costs from
the acquisition of properties in connection with the tax deferred exchange, partially offset by a $24 million gain from the
capital lease liability reduction from one of our consolidated VIEs.
The other gain, net for the year ended December 31, 2014 was primarily related to a pre-tax gain of $23 million resulting
from an equity investments exchange, as well as pre-tax gains of $13 million resulting from the sale of two hotels and a
vacant parcel of land.
(in millions)
Income tax expense
Year Ended December 31,
Percent Change
2016
$891
2015
$80
2014
$465
2016 vs. 2015
2015 vs. 2014
NM(1)
(82.8)
Income tax expense for the year ended December 31, 2016 increased compared to the year ended December 31, 2015
primarily as a result of two corporate structuring transactions that were effected during the three months ended
December 31, 2016 and included: (i) the organization of Hilton’s assets and subsidiaries in preparation for the spin-offs; and
(ii) a restructuring of Hilton’s international assets and subsidiaries (the “international restructuring”). The international
restructuring involved a transfer of certain assets, including intellectual property used in the international business, from
U.S. subsidiaries to foreign subsidiaries and became effective in December 2016. The transfer of the intellectual property
resulted in the recognition of tax expense representing the estimated U.S. tax expected to be paid in future years on
income generated from the intellectual property transferred to foreign jurisdictions. Further, our deferred effective tax rate
is determined based upon the composition of applicable federal and state tax rates. Due to the changes in the footprint
of the Company and the expected applicable tax rates at which our domestic deferred tax assets and liabilities will reverse
in future periods as a result of the described structuring activities, our estimated deferred effective tax rate has increased.
In total, these structuring transactions resulted in additional income tax expense of $513 million during the three months
ended December 31, 2016. See Note 18: “Income Taxes” in our consolidated financial statements for additional discussion.
52
Hilton
2016 Annual Report
53
The decrease in income tax expense during the year ended December 31, 2015 compared to the year ended December 31,
2014 was primarily the result of a $640 million deferred tax benefit resulting from transactions involving the conversion
of certain U.S. subsidiaries from corporations to limited liability companies and the election to disregard certain foreign
subsidiaries for U.S. federal income tax purposes. This benefit was offset by an increase in tax expense resulting from a
$349 million increase in our income before income taxes. Further, income tax expense was affected by the reduction in
goodwill in connection with the sales of the Waldorf Astoria New York and the Hilton Sydney, as well as compensation
costs incurred for certain awards granted in connection with our initial public offering for which no tax benefits
were recognized.
Segment Results
We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 23:
“Business Segments” in our consolidated financial statements. For a discussion of how management uses EBITDA and
Adjusted EBITDA to evaluate and manage our business and material limitations on their usefulness, refer to
“—Key Business and Financial Metrics Used by Management.”
The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts:
Year Ended December 31,
Percent Change
2016
2015
2014
2016 vs. 2015
2015 vs. 2014
(in millions)
Revenues:
Ownership
Management and franchise
Timeshare
Segment revenues
Other revenues from managed
and franchised properties
Other revenues
Intersegment fees elimination(1)
$ 4,157
1,786
1,390
7,333
4,446
102
(218)
$ 4,262
1,691
1,308
7,261
4,130
91
(210)
$ 4,271
1,468
1,171
6,910
3,691
99
(198)
Total revenues
$11,663
$11,272
$10,502
Adjusted EBITDA(1):
Ownership
Management and franchise
Timeshare
Corporate and other
Adjusted EBITDA
$ 1,029
1,786
381
(221)
$ 2,975
$ 1,064
1,691
352
(228)
$ 2,879
$ 1,000
1,468
337
(255)
$ 2,550
(2.5)
5.6
6.3
1.0
7.7
12.1
3.8
3.5
(3.3)
5.6
8.2
(3.1)
3.3
(0.2)
15.2
11.7
5.1
11.9
(8.1)
6.1
7.3
6.4
15.2
4.5
(10.6)
12.9
(1) Refer to Note 23: “Business Segments” in our consolidated financial statements for additional detail on our intersegment fees included in our segment
revenues and segment Adjusted EBITDA.
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Management and franchise
Management and franchise segment revenues
increased $95 million and $223 million for the years ended
December 31, 2016 and 2015 compared to the years ended
December 31, 2015 and 2014, respectively, primarily as a
result of the net addition of hotels to our managed and
franchised system, as well as increases in RevPAR at our
comparable managed and franchised properties of
2.0 percent and 5.5 percent, respectively. The increase in
segment revenues was also due to an increase in licensing
and other fees. Refer to “—Revenues—Management and
franchise fees and other” for further discussion on the
increases in revenues from our managed and franchised
properties. Management and franchise Adjusted EBITDA
increased in line with the increases in management and
franchise segment revenues.
Timeshare
Timeshare segment revenues increased $82 million and
$137 million for the years ended December 31, 2016 and
2015 compared to the years ended December 31, 2015 and
2014, respectively, primarily as a result of increased
timeshare sales revenue due to increases in commissions
recognized from the sale of third-party developed inter-
vals, as well as increased revenues from our resort
operations. During the year ended December 31, 2016,
timeshare sales revenue also increased from the sale of
owned timeshare intervals. Refer to “— Revenues—
Timeshare” for further discussion of the changes in
revenues from our timeshare segment.
Timeshare Adjusted EBITDA increased $29 million and
$15 million for the years ended December 31, 2016 and
2015 compared to the years ended December 31, 2015 and
2014, respectively, as a result of the increases in timeshare
revenues, partially offset by the increases in timeshare
operating expenses of $51 million and $130 million,
respectively. Refer to “— Revenues—Timeshare” and “—
Operating Expenses—Timeshare” for a discussion of the
changes in revenues and operating expenses from our
timeshare segment.
The following table reconciles net income to EBITDA and
Adjusted EBITDA:
(in millions)
Net income
Interest expense
Income tax expense
Depreciation and amortization
Interest expense, income tax and
depreciation and amortization
included in equity in earnings
from unconsolidated affiliates
EBITDA
Gain on sales of assets, net
Loss (gain) on foreign
Year Ended December 31,
2016
2015
2014
$ 364 $ 1,416
575
80
692
587
891
686
$ 682
618
465
628
30
32
2,558
(9)
2,795
(306)
37
2,430
—
currency transactions
13
FF&E replacement reserve
56
Share-based compensation expense 91
Impairment loss
15
Impairment loss included
in equity in earnings from
unconsolidated affiliates
Other loss (gain), net
Other adjustment items
17
26
208
41
48
162
9
—
1
129
(26)
46
74
—
—
(37)
63
Adjusted EBITDA
$2,975
$2,879
$2,550
Ownership
Ownership segment revenues decreased $105 million
and $9 million for the years ended December 31, 2016 and
2015 compared to the years ended December 31, 2015 and
2014, respectively. The decrease in revenues at our owned
and leased hotels was primarily a result of the disposal of
international hotels and FX fluctuations, partially offset
by the net effect of acquired and disposed hotels in the
U.S. During the year ended December 31, 2015, the overall
decrease in revenues was also offset by the increase in
revenues at our comparable owned and leased hotels
due to increased RevPAR of 4.2 percent. Ownership
Adjusted EBITDA decreased $35 million for the year
ended December 31, 2016 compared to the year ended
December 31, 2015, primarily as a result of the decrease in
ownership segment revenues partially offset by decreases
in owned and leased operating expenses of $68 million.
Ownership Adjusted EBITDA increased $64 million for the
year ended December 31, 2015 compared to the year
ended December 31, 2014, primarily as a result of the
decrease in owned and leased operating expenses of
$84 million, partially offset by the decrease in ownership
segment revenues. Refer to “—Revenues—Owned and
leased hotels” and “—Operating Expenses—Owned and
leased hotels” for further discussion of the changes
in revenues and operating expenses at our owned and
leased hotels.
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Supplemental Financial Data for Unrestricted
U.S. Real Estate Subsidiaries
As of December 31, 2016, we owned majority or controlling
financial interests in 56 hotels, representing 28,931 rooms.
See “Part I—Item 2. Properties” for more information on
each of our owned hotels. Of these owned hotels, 36 hotels
representing an aggregate of 23,570 rooms as of
December 31, 2016, were owned by subsidiaries that we
collectively refer to as our “Unrestricted U.S. Real Estate
Subsidiaries.” The Unrestricted U.S. Real Estate
Subsidiaries are not subject to any of the restrictive
covenants in the indentures that govern our senior notes
due 2021 and the 4.25% Senior Notes due 2024 (together,
the “Senior Notes”), which are unsecured.
We have included this supplemental financial data to
comply with certain financial information requirements
regarding our Unrestricted U.S. Real Estate Subsidiaries
set forth in the indenture that governs our Senior Notes.
Upon completion of the spin-offs, our Unrestricted
U.S. Real Estate Subsidiaries will not meet the threshold
to constitute a “significant subsidiary” as defined by
Regulation S-X and we will no longer be required to
disclose this supplemental financial data.
For the year ended December 31, 2016, the Unrestricted
U.S. Real Estate Subsidiaries represented 19.6 percent of
our total revenues, 20.0 percent of income before income
taxes, 43.1 percent of net income attributable to Hilton
stockholders and 23.6 percent of our Adjusted EBITDA,
and as of December 31, 2016, represented 34.4 percent of
our total assets and 24.2 percent of our total liabilities.
The following tables present supplemental unaudited
financial data, as required by the indenture, for our
Unrestricted U.S. Real Estate Subsidiaries and all periods
presented reflect the adoption of ASU No. 2015-03 and
No. 2015-15:
(in millions)
Revenues
Net income attributable
to Hilton stockholders
Capital expenditures for
property and equipment
Adjusted EBITDA(1)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Year Ended December 31,
2016
2015
2014
$2,288
$2,239
$2,060
150
222
157
185
702
378
(184)
3
203
702
415
273
(626)
152
621
438
(149)
(317)
(1) The following table provides a reconciliation of our Unrestricted U.S. Real
Estate Subsidiaries’ net income to EBITDA and Adjusted EBITDA, which
we believe is the most closely comparable U.S. GAAP financial measure:
Year Ended December 31,
2016
$ 151
167
100
254
2015
$224
174
168
244
2014
$156
173
110
202
(in millions)
Net income
Interest expense
Income tax expense
Depreciation and amortization
Interest expense and depreciation
and amortization included in
equity in earnings from
unconsolidated affiliates
EBITDA
675
Gain on sales of assets, net
(1)
Share-based compensation expense 1
Other loss (gain), net
23
Other adjustment items
4
3
—
810
(143)
2
32
1
—
641
—
—
(23)
3
Adjusted EBITDA
$702
$702
$621
(in millions)
Assets
Liabilities
December 31,
2016
2015
$9,005
4,918
$8,914
6,718
Liquidity and Capital Resources
Overview
As of December 31, 2016, we had total cash and cash
equivalents of $1,684 million, including $266 million of
restricted cash and cash equivalents. The majority of our
restricted cash and cash equivalents balance related to
cash collateral on our self-insurance programs, escrowed
cash from our timeshare operations and cash restricted
in accordance with our long-term debt and timeshare
debt agreements.
Our known short-term liquidity requirements primarily
consist of funds necessary to pay for operating expenses
and other expenditures, including corporate expenses,
payroll and related benefits, legal costs, operating costs
associated with the management of hotels, interest and
scheduled principal payments on our outstanding indebt-
edness, costs associated with the spin-offs, contract
acquisition costs and capital expenditures for renovations
and maintenance at our owned and leased hotels. Our
long-term liquidity requirements primarily consist of
funds necessary to pay for scheduled debt maturities,
capital improvements at our owned and leased hotels,
purchase commitments, dividends as declared, costs
associated with potential acquisitions and corporate
capital expenditures.
We finance our business activities primarily with
existing cash and cash generated from our operations.
We believe that this cash will be adequate to meet antici-
pated requirements for operating expenses and other
expenditures, including corporate expenses, payroll and
related benefits, legal costs and purchase commitments
for the foreseeable future. The objectives of our cash
management policy are to maintain the availability of
liquidity and minimize operational costs. Further, we have
an investment policy that is focused on the preservation
of capital and maximizing the return on new and existing
investments and returning available capital
to stockholders.
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We and our affiliates, and/or our major stockholders and their respective affiliates, may from time to time purchase
our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or
retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material.
In preparation of the spin-offs that occurred on January 3, 2017, we completed several financing transactions during
the year ended December 31, 2016. For further information on these transactions, see Note 12: “Debt” in our consolidated
financial statements.
Sources and Uses of Our Cash and Cash Equivalents
The following table summarizes our net cash flows and key metrics related to our liquidity:
(in millions)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Working capital surplus(2)
(1) Fluctuation in terms of percentage change is not meaningful.
(2) Total current assets less total current liabilities.
As of and for the year ended December 31,
Percent Change
2016
$1,350
(478)
(29)
873
2015
$ 1,407
414
(1,714)
142
2014
2016 vs. 2015
2015 vs. 2014
$ 1,307
(310)
(1,075)
267
(4.1)
NM(1)
(98.3)
NM(1)
7.7
NM(1)
59.4
(46.8)
Our ratio of current assets to current liabilities was 1.33, 1.06 and 1.12 as of December 31, 2016, 2015 and 2014, respectively.
Operating Activities
Cash flow from operating activities is primarily generated
from management and franchise fee revenue, operating
income from our owned and leased hotels and sales of
timeshare units.
The $57 million decrease in net cash provided by operating
activities during the year ended December 31, 2016
compared to the year ended December 31, 2015 was
primarily as a result of an increase in net cash paid for
taxes of $202 million, partially offset by improved
operating results in our management and franchise
and timeshare businesses.
The $100 million increase in net cash provided by
operating activities during the year ended December 31,
2015 compared to the year ended December 31, 2014 was
primarily as a result of improved operating results in each
of our three business segments, as well as a decrease in
cash paid for interest of $29 million, offset by an increase
in net cash paid for income taxes of $46 million.
Investing Activities
For the year ended December 31, 2016, net cash used
in investing activities was $478 million, and consisted
primarily of capital expenditures, including contract
acquisition costs and capitalized software costs.
During the year ended December 31, 2015, we generated
$414 million in cash from investing activities primarily as
a result of net proceeds from the tax deferred exchange
of the Waldorf Astoria New York and the sale of the Hilton
Sydney of $456 million and $331 million, respectively.
This amount was partially offset by $409 million in capital
expenditures, including contract acquisition costs and
capitalized software costs.
During the year ended December 31, 2014, net cash used
in investing activities was $310 million, and consisted
primarily of capital expenditures, including contract
acquisition costs and capitalized software costs.
Our capital expenditures for property and equipment
primarily include expenditures related to the renovation
of existing owned and leased properties and our corpo-
rate facilities. Our software capitalization costs relate to
various systems initiatives for the benefit of our hotel
owners and our overall corporate operations.
Financing Activities
The $1,685 million decrease in net cash used in financing
activities during the year ended December 31, 2016 com-
pared to the year ended December 31, 2015 was primarily
attributable to an increase in proceeds from borrowings
of $4,667 million, partially offset by an increase in
repayments of debt of $2,735 million and an increase in
cash dividends of $139 million. The borrowings comprised
$4,415 million of long-term debt, of which $2,915 million was
for Park and $500 million was for HGV, and $300 million
of additional borrowings under our timeshare financing
receivables credit facility (the “Timeshare Facility”). We
used proceeds from the borrowings and available cash
to repay the outstanding balance of the 2013 CMBS Loan
of $3,418 million, $554 million of mortgage loans and
$250 million on the 2013 Term Loans. For details of our
issuances and repayments related to financing transac-
tions that occurred during the year ended December 31,
2016, refer to Note 12: “Debt” in our consolidated financial
statements. The increase in cash dividends was due to the
declaration of quarterly cash dividends beginning in the
third quarter of 2015 and continuing quarterly for the full
year of 2016.
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The $639 million increase in net cash used in financing
activities during the year ended December 31, 2015 com-
pared to the year ended December 31, 2014 was primarily
attributable to a decrease in proceeds from borrowings
of $302 million, an increase of repayments of debt of
$200 million and the payment of cash dividends totaling
$138 million in 2015. During the year ended December 31,
2015, we repaid a $525 million mortgage loan and made
$775 million in prepayments on our 2013 Term Loans,
while during the year ended December 31, 2014 we made
prepayments of $1.0 billion on our 2013 Term Loans.
Additionally, during the year ended December 31, 2014,
we issued $350 million of notes backed by timeshare
financing receivables, of which $300 million of the
proceeds was used to reduce the outstanding balance
on our Timeshare Facility.
Debt and Borrowing Capacity
As of December 31, 2016, our total indebtedness, excluding
$224 million of our share of debt of our investments in
affiliates, was approximately $10.8 billion, including
$694 million of timeshare debt. For further information
on our total indebtedness, debt repayments and
guarantees refer to Note 12: “Debt” in our consolidated
financial statements.
If we are unable to generate sufficient cash flow from
operations in the future to service our debt, we may be
required to reduce capital expenditures, issue additional
equity securities or draw on our revolving credit facilities.
Our ability to make scheduled principal payments and to
pay interest on our debt depends on our future operating
performance, which is subject to general conditions in
or affecting the hotel and timeshare industries that are
beyond our control.
Credit Facilities
As of December 31, 2016, we had three senior revolving
credit facilities that provided for an aggregate of $2.2 billion
in borrowings, including a $1.0 billion facility to remain with
Hilton after the spin-offs, and a $1.0 billion facility and a
$200 million facility for Park and HGV, respectively, to be
transferred in connection with the spin-offs. These senior
revolving credit facilities allowed for up to $230 million to
be drawn in the form of letters of credit, with $50 million
under Park’s facility, $30 million under HGV’s facility and
$150 million under Hilton’s facility. As of December 31,
2016, we had $45 million of letters of credit outstanding
under Hilton’s facility, leaving us with a borrowing capacity
of $955 million and there were no letters of credit or
borrowings outstanding under Park and HGV’s facilities.
For further information on our credit facilities and our
guarantors’ obligations thereunder, refer to Note 12: “Debt”
in our consolidated financial statements.
In August 2016, we amended the terms of our Timeshare
Facility to increase the borrowing capacity from $300 million
to $450 million, allowing us to borrow up to the maximum
amount until August 2018 and requiring all amounts bor-
rowed to be repaid by August 2019. In December 2016,
we borrowed an additional $300 million bringing our
outstanding borrowings under the Timeshare Facility
to $450 million as of December 31, 2016.
Letters of Credit
We had a total of $45 million in letters of credit outstanding
as of December 31, 2016 and 2015, the majority of which
were outstanding under one of our revolving credit facilities
and related to our guarantees on debt and other obliga-
tions of third parties and self-insurance programs. The
maturities of the letters of credit were within one year
as of December 31, 2016.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2016:
(in millions)
Long-term debt(1)(2)
Timeshare debt(2)
Capital lease obligations
Operating leases
Purchase commitments
Total contractual obligations
Payments Due by Period
Total
Less Than 1 Year
1-3 Years
3-5 Years
More Than 5 Years
$12,605
730
415
1,991
333
$16,074
$493
87
19
210
52
$861
$ 869
556
57
368
253
$2,103
$3,977
87
60
332
24
$4,480
$7,266
—
279
1,081
4
$8,630
(1) We have assumed all extensions, which are solely at our option, were exercised.
(2) Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.72 percent as of
December 31, 2016.
The total amount of unrecognized tax benefits as of December 31, 2016 was $253 million. These amounts are excluded
from the table above because they are uncertain and subject to the findings of the taxing authorities in the jurisdictions
where we are subject to tax. It is possible that the amount of the liability for unrecognized tax benefits could change during
the next year. Refer to Note 18: “Income Taxes” in our consolidated financial statements for further discussion of our liability
for unrecognized tax benefits.
In addition to the purchase commitments in the table above, in the normal course of business we enter into purchase
commitments for which we are reimbursed by the owners of our managed and franchised hotels. These obligations have
minimal or no effect on our net income and cash flow.
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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of December 31,
2016 included letters of credit of $45 million, guarantees
of $5 million for debt and obligations of third parties, per-
formance guarantees with possible cash outlays totaling
approximately $69 million, of which we have accrued
$28 million as of December 31, 2016 for estimated probable
exposure, and construction contract commitments of
approximately $43 million for capital expenditures at our
owned, leased and consolidated VIE hotels. Our contracts
contain clauses that allow us to cancel all or some portion
of the work. If cancellation of a contract occurred, our
commitment would be any costs incurred up to the
cancellation date, in addition to any costs associated with
the discharge of the contract. See Note 24: “Commitments
and Contingencies” in our consolidated financial
statements for further discussion.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements
in accordance with U.S. GAAP requires us to make esti-
mates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the consolidated
financial statements, the reported amounts of revenues and
expenses during the reporting periods and the related
disclosures in the consolidated financial statements and
accompanying footnotes. We believe that of our signifi-
cant accounting policies, which are described in Note 2:
“Basis of Presentation and Summary of Significant
Accounting Policies” in our consolidated financial
statements, the following accounting policies are critical
because they involve a higher degree of judgment, and
the estimates required to be made were based on
assumptions that are inherently uncertain. As a result,
these accounting policies could materially affect our
financial position, results of operations and related
disclosures. On an ongoing basis, we evaluate these
estimates and judgments based on historical experiences
and various other factors that are believed to reflect the
current circumstances. While we believe our estimates,
assumptions and judgments are reasonable, they are
based on information presently available. Actual results
may differ significantly from these estimates due to
changes in judgments, assumptions and conditions as a
result of unforeseen events or otherwise, which could
have a material effect on our financial position or results
of operations.
Management has discussed the development and
selection of these critical accounting policies and esti-
mates with the audit committee of the board of directors.
Property and Equipment and Intangible Assets
with Finite Lives
We evaluate the carrying value of our property and
equipment and intangible assets with finite lives for
potential impairment by comparing the expected undis-
counted future cash flows to the net book value of the
assets if we determine there are indicators of impairment.
If it is determined that the expected undiscounted future
cash flows are less than the net book value of the assets,
the excess of the net book value over the estimated
fair value is recorded in our consolidated statements of
operations as impairment losses.
As part of the process described above, we exercise
judgment to:
determine if there are indicators of impairment present.
Factors we consider when making this determination
include assessing the overall effect of trends in the
hospitality industry and the general economy, historical
experience, capital costs and other asset-specific
information;
determine the projected undiscounted future cash
flows when indicators of impairment are present.
Judgment is required when developing projections of
future revenues and expenses based on estimated
growth rates over the expected useful life of the asset
group. These estimated growth rates are based on
historical operating results, as well as various internal
projections and external sources; and
determine the asset fair value when required. In
determining the fair value, we often use internally-de-
veloped discounted cash flow models. Assumptions
used in the discounted cash flow models include
estimating cash flows, which may require us to adjust
for specific market conditions, as well as capitalization
rates, which are based on location, property or asset
type, market-specific dynamics and overall economic
performance. The discount rate takes into account our
weighted average cost of capital according to our capital
structure and other market specific considerations.
We had $8,930 million of property and equipment, net
and $1,526 million of intangible assets with finite lives as of
December 31, 2016. Changes in estimates and assump-
tions used in our impairment testing of property and
equipment and intangible assets with finite lives could
result in future impairment losses, which could be material.
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Investments in Affiliates
We evaluate our investments in affiliates for potential
impairment when there are indicators that the fair value
of our investment may be less than our carrying value.
Our investments in affiliates consist primarily of our
interests in entities that own or lease hotels. As such, the
factors we consider when determining if there are
indicators of potential impairment are similar to property
and equipment discussed above. We record an impairment
loss when we determine there has been an “oth-
er-than-temporary” decline in the investment’s fair value.
If an identified event or change in circumstances requires
an evaluation to determine if the value of an investment
may have an other-than-temporary decline, we assess the
fair value of the investment based on the accepted valua-
tion methods, which include internally-developed dis-
counted cash flow models. The principal factors used in
our discounted cash flow models that require judgment
are the same as the items discussed in property and
equipment above. If an investment’s fair value is below
its carrying value and the decline is considered to be oth-
er-than-temporary, we will recognize an impairment loss
in equity in earnings (losses) from unconsolidated affiliates
for equity method investments or impairment losses for
cost method investments in our consolidated statements
of operations.
We had $114 million of investments in affiliates as of
December 31, 2016. Changes in estimates and assumptions
used in our impairment testing of investments in affiliates
could result in future impairment losses, which could
be material.
Goodwill
We evaluate goodwill for potential impairment by
comparing the carrying value of our reporting units to
their fair value. Our reporting units are the same as our
operating segments as described in Note 23: “Business
Segments” in our consolidated financial statements. We
perform this evaluation annually or at an interim date if
indicators of impairment exist. In any given year we may
elect to 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 cannot
determine qualitatively that the fair value is in excess of
the carrying value, or we decide to bypass the qualitative
assessment, we proceed to the two-step quantitative
process. In the first step, we compare the estimated fair
value of the reporting unit to the carrying value. When
determining estimated fair value, we utilize discounted
future cash flow models, as well as market conditions
relative to the operations of our reporting units. Under
the discounted cash flow approach, we utilize various
assumptions that require judgment, including projections
of revenues and expenses based on estimated long-term
growth rates, and discount rates based on weighted aver-
age cost of capital. Our estimates of long-term growth
and costs are based on historical data, as well as various
internal projections and external sources. The weighted
average cost of capital is estimated based on each
reporting units’ cost of debt and equity and a selected
capital structure. The selected capital structure for each
reporting unit is based on consideration of capital
structures of comparable publicly traded companies
operating in the business of that reporting unit. If the
carrying amount of a reporting unit exceeds its estimated
fair value, then the second step must be performed. In
the second step, we estimate the implied fair value of
goodwill, which is determined by taking the fair value of
the reporting unit and allocating it to all of its assets and
liabilities, including any unrecognized intangible assets,
as if the reporting unit had been acquired in a
business combination.
We had $5,822 million of goodwill as of December 31, 2016.
Changes in the estimates and assumptions used in our
goodwill impairment testing could result in future impair-
ment losses, which could be material. Additionally, when a
portion of a reporting unit is disposed, goodwill is allocated
to the gain or loss on disposition based on the relative fair
values of the business or businesses disposed and the
portion of the reporting unit that will be retained. When
determining fair value of the businesses disposed of
and the reporting unit to be retained, we use estimates
and assumptions similar to that of those used in our
impairment analysis.
Brands
We evaluate our brand intangible assets for impairment
on an annual basis or at other times during the year if
events or circumstances indicate that it is more likely
than not that the fair value of the brand is below the
carrying value. When determining fair value, we utilize dis-
counted future cash flow models. Under the discounted
cash flow approach, we utilize various assumptions that
require judgment, including projections of revenues and
expenses based on estimated long-term growth rates and
discount rates based on weighted average cost of capital.
Our estimates of long-term growth and costs are based
on historical data, as well as various internal estimates.
If a brand’s estimated current fair value is less than its
respective carrying value, the excess of the carrying value
over the estimated fair value is recorded in our consolidated
statements of operations within impairment losses.
We had $4,848 million of brand intangible assets as
of December 31, 2016. Changes in the estimates and
assumptions used in our brands impairment testing, most
notably revenue growth rates and discount rates, could
result in future impairment losses, which could be material.
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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 financial statements. Assumptions and
estimates are used to determine the amount of tax bene-
fit to be recognized. Changes to these assumptions and
estimates can lead to an additional income tax benefit
(expense), which can materially change our consolidated
financial statements.
Legal Contingencies
We are subject to various legal proceedings and claims,
the outcomes of which are subject to significant uncer-
tainty. An estimated loss from a loss contingency should
be accrued by a charge to income if it is probable and
the amount of the loss can be reasonably estimated.
Significant judgment is required when we evaluate, among
other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate
of the amount of loss. Changes in these factors could
materially affect our consolidated financial statements.
Consolidations
We use judgment when evaluating whether we have a
controlling financial interest in an entity, including the
assessment of the importance of rights and privileges of
the partners based on voting rights, as well as financial
interests in an entity that are not controllable through
voting interests. If the entity is considered to be a VIE, we
use judgment determining 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 con-
trolling financial interest through our voting interest in
the entity. Changes to judgments used in evaluating our
partnerships and other investments could materially
affect our consolidated financial statements.
Share-Based Compensation
The process of estimating the fair value of stock-based
compensation awards and recognizing the associated
expense over the requisite service period involves signifi-
cant management estimates and assumptions. Refer to
Note 20: “Share-Based Compensation” in our consoli-
dated financial statements for additional discussion. Any
changes to these estimates will affect the amount of
compensation expense we recognize with respect to
future grants.
Hilton Honors
Hilton Honors defers revenue received from participating
hotels and program partners in an amount equal to the
estimated cost per point of the future redemption obliga-
tion. We engage outside actuaries to assist in determining
the fair value of the future award redemption obligation
using statistical formulas that project future point
redemptions based on factors that require judgment,
including an estimate of “breakage” (points that will never
be redeemed), an estimate of the points that will eventually
be redeemed and the cost of the points to be redeemed.
The cost of the points to be redeemed includes further
estimates of available room nights, occupancy rates,
room rates and any devaluation or appreciation of points
based on changes in reward prices or changes in points
earned per stay.
We had $1,432 million of guest loyalty liability as of
December 31, 2016, including $543 million in accounts
payable, accrued expenses and other liabilities. Changes
in the estimates used in developing our breakage rate or
other expected future program operations could result in
a material change to our guest loyalty liability.
Allowance for Loan Losses
The allowance for loan losses is related to the receivables
generated by our financing of timeshare interval sales,
which are secured by the underlying timeshare properties.
We determine our timeshare financing receivables to be
past due based on the contractual terms of the individual
mortgage loans. We use a technique referred to as static
pool analysis as the basis for determining our general
reserve requirements on our timeshare financing
receivables. The adequacy of the related allowance is
determined by management through analysis of several
factors requiring judgment, such as current economic
conditions and industry trends, as well as the specific
risk characteristics of the portfolio, including assumed
default rates.
We had $120 million of allowance for loan losses as of
December 31, 2016. Changes in the estimates used in
developing our default rates could result in a material
change to our allowance.
Income Taxes
We recognize deferred tax assets and liabilities based on
the differences between the financial statement carrying
amounts and the tax basis of assets and liabilities using
currently enacted tax rates. We regularly review our
deferred tax assets to assess their potential realization
and establish a valuation allowance for portions of such
assets that we believe will not be ultimately realized. In
performing this review, we make estimates and assump-
tions regarding projected future taxable income, the
expected timing of reversals of existing temporary
differences and the implementation of tax planning
strategies. A change in these assumptions may increase
or decrease our valuation allowance resulting in an
increase or decrease in our effective tax rate, which could
materially affect our consolidated financial statements.
60
Hilton
2016 Annual Report
61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may
affect future income, cash flows and fair value of the Company, depending on changes to interest rates and/or foreign
exchange rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates
and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion
of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged.
We enter into derivative financial arrangements to the extent they meet the objective described above, and we do not use
derivatives for trading or speculative purposes.
Interest Rate Risk
We are exposed to interest rate risk on our variable-rate debt. Interest rates on our variable-rate debt discussed below
are based on one-month and three-month LIBOR, so we are most vulnerable to changes in these rates.
The following table sets forth the contractual maturities and the total fair values as of December 31, 2016 for our financial
instruments that are materially affected by interest rate risk:
(in millions, excluding average interest rates)
2017
2018
2019
2020
2021
Thereafter
Carrying
Value
Fair
Value
Maturities by Period
Assets:
Fixed-rate timeshare financing receivables $152
Average interest rate(1)
Liabilities:
Fixed-rate long-term debt(2)(3)
Average interest rate(1)
Fixed-rate timeshare debt(3)
Average interest rate(1)
Variable-rate long-term debt(3)(4)
Average interest rate(1)
Variable-rate timeshare debt
Average interest rate(1)
$ 54
$ 35
$ 73
$ —
$132
$ 133
$134
$ 130
$ 471
$1,152
$1,153
11.98%
$ —
$ —
$ —
$1,481
$3,430
$4,965
$5,037
4.77%
$ 50
$ 36
$ 46
$
39
$
—
$ 244
$ 246
1.97%
$ 35
$ 35
$776
$ 931
$3,066
$4,878
$4,987
$ —
$450
$ —
$
—
$
—
$ 450
$ 450
3.12%
1.96%
(1) Average interest rate as of December 31, 2016.
(2) Excludes capital lease obligations with a carrying value of $242 million and debt of certain consolidated VIEs with a carrying value of $33 million
as of December 31, 2016.
(3) Carrying value includes unamortized deferred financing costs and discounts.
(4) For maturity date extensions that are solely at our option, we assumed they were exercised.
Refer to Note 16: “Fair Value Measurements” in our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for further discussion of the fair value measurements of our financial assets and liabilities.
Foreign Currency Exchange Rate Risk
We conduct business in various currencies and are exposed to earnings and cash flow volatility associated with changes
in foreign currency exchange rates. Our principal exposure results from management and franchise fees earned in foreign
currencies and revenues from our international owned and leased hotels, partially offset by foreign operating expenses
and capital expenditures, the value of which could change materially in reference to our reporting currency, the U.S. dollar.
We also have exposure from our international financial assets and liabilities, including certain intercompany loans not
deemed to be permanently invested, the value of which could change materially in reference to the functional currencies
of the exposed entities. As of December 31, 2016, our largest net exposures were to the euro, GBP and AUD. As of
December 31, 2016, we held 68 short-term foreign exchange forward contracts with a total notional amount of $326 million.
These offset exposure to financial assets and liabilities and are not designated as hedges for accounting purposes.
60
Hilton
2016 Annual Report
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Page No.
63
64
65
66
68
69
70
71
72
62
Hilton
2016 Annual Report
63
Management’s Report on Internal Control Over Financial Reporting
Management of Hilton Worldwide Holdings Inc. (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with
U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on this
assessment, management determined that the Company maintained effective internal control over financial reporting as
of December 31, 2016.
Ernst & Young LLP, the independent registered public accounting firm that has audited the consolidated financial
statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal
control over financial reporting as of December 31, 2016. The report is included herein.
62
Hilton
2016 Annual Report
63
Report of Independent Registered Public
Accounting Firm
The Board of Directors and Stockholders of
Hilton Worldwide Holdings Inc.
We have audited Hilton Worldwide Holdings Inc.’s internal
control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 frame-
work) (the COSO criteria). Hilton Worldwide Holdings Inc.’s
management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on
the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over finan-
cial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed
risk, and performing such other procedures as we
considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements
in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may
become inadequate because of changes in conditions,
or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Hilton Worldwide Holdings Inc. maintained,
in all material respects, effective internal control over
financial reporting as of December 31, 2016, based on the
COSO criteria.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Hilton
Worldwide Holdings Inc. as of December 31, 2016 and 2015,
and the related consolidated statements of operations,
comprehensive income, stockholders’ equity and cash
flows for each of the three years in the period ended
December 31, 2016 of Hilton Worldwide Holdings Inc. and
our report dated February 15, 2017 expressed an
unqualified opinion thereon.
McLean, Virginia
February 15, 2017
64
Hilton
Report of Independent Registered Public
Accounting Firm
The Board of Directors and Stockholders of
Hilton Worldwide Holdings Inc.
We have audited the accompanying consolidated balance
sheets of Hilton Worldwide Holdings Inc. as of December 31,
2016 and 2015, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity
and cash flows for each of the three years in the period
ended December 31, 2016. These financial statements are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material mis-
statement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hilton Worldwide Holdings Inc. at
December 31, 2016 and 2015, and the consolidated results
of its operations and its cash flows for each of the three
years in the period ended December 31, 2016, in confor-
mity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), Hilton Worldwide Holdings Inc.’s internal
control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 frame-
work) and our report dated February 15, 2017 expressed an
unqualified opinion thereon.
McLean, Virginia
February 15, 2017
2016 Annual Report
65
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $36 and $30
Inventories
Current portion of financing receivables, net
Prepaid expenses
Income taxes receivable
Other
Total current assets (variable interest entities—$167 and $141)
Property, Intangibles and Other Assets:
Property and equipment, net
Financing receivables, net
Investments in affiliates
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Deferred income tax assets
Other
Total property, intangibles and other assets (variable interest entities—$569 and $481)
TOTAL ASSETS
December 31,
2016
2015
$ 1,418
266
1,005
541
138
137
13
39
$
609
247
876
442
129
147
97
38
3,557
2,585
8,930
963
114
5,822
4,848
1,019
507
117
334
9,119
887
138
5,887
4,919
1,149
586
78
274
22,654
23,037
$26,211
$25,622
(continued)
66
Hilton
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other
Current maturities of long-term debt
Current maturities of timeshare debt
Income taxes payable
Total current liabilities (variable interest entities—$124 and $157)
Long-term debt
Timeshare debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Total liabilities (variable interest entities—$766 and $627)
Commitments and contingencies—see Note 24
Equity:
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares,
none issued or outstanding as of December 31, 2016 and 2015
Common stock, $0.01 par value; 10,000,000,000 authorized shares,
329,351,581 issued and 329,341,992 outstanding as of December 31, 2016
and 329,162,376 issued and 329,152,787 outstanding as of December 31, 2015(1)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
December 31,
2016
2015
$ 2,453
98
73
60
2,684
10,020
621
64
4,575
889
1,509
20,362
$ 2,206
94
110
33
2,443
9,857
392
283
4,630
784
1,282
19,671
—
—
10
10,213
(3,323)
(1,001)
5,899
(50)
5,849
10
10,151
(3,392)
(784)
5,985
(34)
5,951
$26,211
$25,622
(1) Common stock shares authorized, issued and outstanding have been adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017.
See notes to consolidated financial statements.
2016 Annual Report
67
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Revenues
Owned and leased hotels
Management and franchise fees and other
Timeshare
Other revenues from managed and franchised properties
Total revenues
Expenses
Owned and leased hotels
Timeshare
Depreciation and amortization
Impairment loss
General, administrative and other
Other expenses from managed and franchised properties
Total expenses
Gain on sales of assets, net
Operating income
Interest income
Interest expense
Equity in earnings from unconsolidated affiliates
Gain (loss) on foreign currency transactions
Other gain (loss), net
Income before income taxes
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Hilton stockholders
Earnings per share(1):
Basic
Diluted
Cash dividends declared per share(1)
Year Ended December 31,
2016
2015
2014
$ 4,126
1,701
1,390
7,217
4,446
$ 4,233
1,601
1,308
7,142
4,130
$ 4,239
1,401
1,171
6,811
3,691
11,663
11,272
10,502
3,100
948
686
15
616
5,365
4,446
9,811
9
1,861
12
(587)
8
(13)
(26)
1,255
(891)
364
(16)
3,168
897
692
9
611
5,377
4,130
9,507
306
2,071
19
(575)
23
(41)
(1)
1,496
(80)
1,416
(12)
3,252
767
628
—
491
5,138
3,691
8,829
—
1,673
10
(618)
19
26
37
1,147
(465)
682
(9)
$
348
$ 1,404
$
673
$
$
$
1.06
1.05
0.84
$
$
$
4.27
4.26
0.42
$
$
$
2.05
2.05
—
(1) Weighted average shares outstanding used in the computation of basic and diluted earnings per share and cash dividends declared per share were adjusted to
reflect the 1-for-3 reverse stock split that occurred on January 3, 2017.
See notes to consolidated financial statements.
68
Hilton
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income
Other comprehensive loss, net of tax benefit (expense):
Currency translation adjustment, net of tax of $19, $(8), and $(73)
Pension liability adjustment, net of tax of $(2), $10, and $27
Cash flow hedge adjustment, net of tax of $2, $4, and $5
Total other comprehensive loss
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Year Ended December 31,
2016
$ 364
2015
$1,416
2014
$ 682
(159)
(57)
(2)
(218)
146
(15)
(134)
(15)
(7)
(156)
1,260
(12)
(299)
(45)
(9)
(353)
329
(14)
Comprehensive income attributable to Hilton stockholders
$ 131
$1,248
$ 315
See notes to consolidated financial statements.
2016 Annual Report
69
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Impairment loss
Gain on sales of assets, net
Equity in earnings from unconsolidated affiliates
Loss (gain) on foreign currency transactions
Other loss (gain), net
Share-based compensation
Amortization of deferred financing costs and other
Distributions from unconsolidated affiliates
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Prepaid expenses
Income taxes receivable
Other current assets
Accounts payable, accrued expenses and other
Income taxes payable
Change in timeshare financing receivables
Change in deferred revenues
Change in liability for guest loyalty program
Change in other liabilities
Other
Net cash provided by operating activities
Investing Activities:
Capital expenditures for property and equipment
Acquisitions, net of cash acquired
Proceeds from asset dispositions
Contract acquisition costs
Capitalized software costs
Other
Net cash provided by (used in) investing activities
Financing Activities:
Borrowings
Repayment of debt
Debt issuance costs
Capital contribution
Dividends paid
Distributions to noncontrolling interests
Excess tax benefits from share-based compensation
Net cash used in financing activities
Effect of exchange rate changes on cash, restricted cash and cash equivalents
Net increase (decrease) in cash, restricted cash and cash equivalents
Cash, restricted cash and cash equivalents, beginning of period
Cash, restricted cash and cash equivalents, end of period
Year Ended December 31,
2016
2015
2014
$ 364
$ 1,416
$ 682
686
15
(9)
(8)
13
26
65
32
22
(79)
(143)
15
—
84
(2)
217
28
(54)
(219)
154
199
(56)
692
9
(306)
(23)
41
1
124
38
26
(479)
(47)
(39)
(27)
35
32
59
13
(49)
(212)
64
154
(115)
628
—
—
(19)
(26)
(37)
78
50
22
14
(143)
56
(8)
(57)
(10)
8
10
(27)
(179)
206
12
47
1,350
1,407
1,307
(317)
—
11
(55)
(81)
(36)
(478)
4,715
(4,359)
(76)
—
(277)
(32)
—
(29)
(15)
828
856
(310)
(1,402)
2,205
(37)
(62)
20
414
48
(1,624)
—
—
(138)
(8)
8
(1,714)
(19)
88
768
(268)
—
44
(65)
(69)
48
(310)
350
(1,424)
(9)
13
—
(5)
—
(1,075)
(14)
(92)
860
$ 1,684
$ 856
$ 768
See notes to consolidated financial statements. For supplemental disclosures, see Note 26: “Supplemental Disclosures of Cash Flow Information.”
70
Hilton
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Equity Attributable to Hilton Stockholders
Common Stock
Shares(1)
Amount
(in millions)
Balance as of December 31, 2013
Share-based compensation
Net income
Other comprehensive income (loss), net of tax:
Currency translation adjustment
Pension liability adjustment
Cash flow hedge adjustment
Other comprehensive income (loss)
Capital contribution
Equity contributions to consolidated
variable interest entities
Distributions
Balance as of December 31, 2014
Share-based compensation
Net income
Other comprehensive loss, net of tax:
Currency translation adjustment
Pension liability adjustment
Cash flow hedge adjustment
Other comprehensive loss
Dividends
Excess tax benefits on equity awards
Distributions
Balance as of December 31, 2015
Share-based compensation
Net income
Other comprehensive loss, net of tax:
Currency translation adjustment
Pension liability adjustment
Cash flow hedge adjustment
328
—
—
—
—
—
—
—
—
—
328
1
—
—
—
—
—
—
—
—
329
—
—
—
—
—
Other comprehensive loss
—
Dividends
—
Cumulative effect of the adoption of ASU 2015-02 —
Deconsolidation of a variable interest entity
—
Distributions
—
Additional
Paid-in
Capital
$ 9,948
101
—
—
—
—
—
13
(34)
—
10,028
115
—
—
—
—
—
—
8
—
10,151
62
—
—
—
—
—
—
—
—
—
Accumulated
Other
Accumulated Comprehensive Noncontrolling
Loss
Interests
Deficit
$(5,331)
—
673
$ (264)
—
—
$(87)
—
9
—
—
—
—
—
—
—
(4,658)
—
1,404
—
—
—
—
(138)
—
—
(3,392)
—
348
—
—
—
—
(279)
—
—
—
(304)
(45)
(9)
(358)
—
(6)
—
(628)
—
—
(134)
(15)
(7)
(156)
—
—
—
(784)
—
—
(158)
(57)
(2)
(217)
—
—
—
—
5
—
—
5
—
40
(5)
(38)
—
12
—
—
—
—
—
—
(8)
(34)
—
16
(1)
—
—
(1)
—
5
(4)
(32)
Total
$4,276
101
682
(299)
(45)
(9)
(353)
13
—
(5)
4,714
115
1,416
(134)
(15)
(7)
(156)
(138)
8
(8)
5,951
62
364
(159)
(57)
(2)
(218)
(279)
5
(4)
(32)
$10
—
—
—
—
—
—
—
—
—
10
—
—
—
—
—
—
—
—
—
10
—
—
—
—
—
—
—
—
—
—
Balance as of December 31, 2016
329
$10
$10,213
$(3,323)
$(1,001)
$(50)
$5,849
(1) Common stock shares outstanding have been adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017.
See notes to consolidated financial statements.
2016 Annual Report
71
NOTE 1
ORGANIZATION
Hilton Worldwide Holdings Inc. (the “Parent,” or together
with its subsidiaries, “Hilton,” “we,” “us,” “our” or the
“Company”), a Delaware corporation, is one of the largest
hospitality companies in the world based upon the number
of hotel rooms and timeshare units. We are engaged in
owning, leasing, managing and fran chising hotels, resorts
and timeshare properties. As of December 31, 2016, we
owned, leased, managed or franchised 4,875 hotel and
resort properties, totaling 796,440 rooms in 104 countries
and territories, as well as 47 timeshare properties compris-
ing 7,657 units.
As of December 31, 2016, affiliates of The Blackstone
Group L.P. (“Blackstone”) beneficially owned approximately
40.3 percent of our common stock.
Spin-offs
On January 3, 2017, we completed the previously
announced spin-offs of our real estate and timeshare
businesses into two independent, publicly traded compa-
nies: Park Hotels & Resorts Inc. (“Park”) and Hilton Grand
Vacations Inc. (“HGV”) (the “spin-offs”). These consolidated
financial statements present the consolidated financial
position and results of operations of Hilton as of and
for the years ended December 31, 2016, 2015 and 2014,
without giving effect to these transactions as they were
not completed as of the most recent balance sheet date.
See Note 29: “Subsequent Events” for further discussion.
Reverse Stock Split
On January 3, 2017, we completed a 1-for-3 reverse
stock split of Hilton’s outstanding common stock (the
“Reverse Stock Split”). The authorized number of shares
of common stock was reduced from 30,000,000,000 to
10,000,000,000, and the authorized number of shares of
preferred stock remains 3,000,000,000. Stockholders
entitled to fractional shares as a result of the reverse
stock split received a cash payment in lieu of receiving
fractional shares. All share and share-related information
presented in these consolidated financial statements
have been retroactively adjusted to reflect the decreased
number of shares resulting from the Reverse Stock Split.
NOTE 2
BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the
accounts of Hilton, our wholly owned subsidiaries
and entities in which we have a controlling financial
interest, including variable interest entities (“VIEs”)
where we are the primary beneficiary. Entities in
which we have a controlling financial interest generally
comprise majority owned real estate ownership and
management enterprises.
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Hilton
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 other ownership interests. If the entity is considered to
be a VIE, we determine whether we are the primary bene-
ficiary, 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 interests in the entity. We
consolidate entities when we own more than 50 percent
of the voting shares of a company or otherwise have a
controlling financial interest.
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 noncontrolling interests, which represent
the outside 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 of America (“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 the following sources
and are generally recognized as services are rendered
and when collectibility is reasonably assured. Amounts
received in advance of revenue recognition are deferred
as liabilities.
Owned and leased hotel revenues primarily consist
of room rentals, food and beverage sales and other
ancillary goods and services from owned, leased and
consolidated non-wholly owned hotel properties.
Revenues are recorded when rooms are occupied or
goods and services have been delivered or rendered.
Management fees represent fees earned from hotels
and timeshare properties that we manage, usually
under long-term contracts with the property owner and
homeowners’ associations. Management fees from
hotels usually include a base fee, which is generally a
percentage of hotel revenues, and an incentive fee,
which is typically based on a fixed or variable percentage
of hotel profits and in some cases may be subject to a
stated return threshold to the owner, normally over a
one-calendar year period. We recognize base fees as
revenue when earned in accordance with the terms of
the management agreement. For incentive fees, we
recognize those amounts that would be due if the
contract was terminated at the financial statement
date. Management fees from timeshare properties are
generally a fixed percent as stated in the management
agreement and are recognized as the services
are performed.
Franchise fees represent fees earned in connection
with the licensing of one of our hotel brands, usually
under long-term contracts with the hotel owner. We
charge a monthly franchise royalty fee, generally based
on a percentage of room revenue, as well as application
and initiation fees for new hotels entering the system.
Royalty fees for our full service brands may also include
a percentage of gross food and beverage revenues and
other revenues, where applicable. We also earn fees
when certain franchise agreements are terminated
early or there is a change in ownership. Application and
initiation fees are recognized when all services and con-
ditions have been substantially performed or satisfied
by us, generally upon execution of the agreement. We
recognize royalty and other franchise fees as the fees
are earned, which is when all material services or
conditions have been performed or satisfied.
Other revenues include revenues generated by the
incidental support of hotel operations for owned,
leased, managed and franchised hotels, including
purchasing operations, and other rental income. This
includes any revenues received for vendor rebate
arrangements we participate in as a manager of hotel
and timeshare properties.
Timeshare revenues consist of revenues generated
from our Hilton Grand Vacations timeshare business.
Timeshare revenues are principally generated from the
sale and financing of fee-simple timeshare intervals
deeded in perpetuity, developed or acquired either by
us or by third parties. Revenue from a deeded timeshare
sale is recognized when the customer has executed a
binding sales contract, a minimum 10 percent down
payment has been received, certain minimum sales
thresholds for a timeshare project have been attained,
the purchaser’s period to cancel for a refund has expired
and the related receivable is deemed to be collectible.
We defer revenue recognition for sales that do not
meet these criteria. During periods of construction,
revenue from timeshare sales is recognized under the
percentage-of-completion method. In this case, sales
revenue is recognized on a straight-line basis over the
term of the lease. Additionally, we receive sales com-
missions from certain third-party developers that we
assist in selling their timeshare inventory. We recognize
revenue from commissions on these sales as intervals
are sold and we fulfill the service requirements under
the respective sales agreements with the developers.
Revenue from the financing of timeshare sales is
recognized on the accrual method as earned based on
the outstanding principal, interest rate and terms stated
in each individual financing agreement. We record an
estimate of uncollectible accounts as a reduction of
sales revenue at the time revenue is recognized on a
timeshare interval sale. See the “Financing Receivables”
section below for further discussion of the policies
applicable to our timeshare financing receivables. We
also generate revenues from club enrollment and other
fees, rentals of timeshare units, food and beverage sales
and other ancillary services at our timeshare properties
that are recognized when units are rented or goods and
services are delivered or rendered.
Other revenues from managed and franchised properties
represent payroll and related costs, certain other oper-
ating costs of the managed and franchised properties’
operations, marketing expenses and other expenses
associated with our brands and shared services that are
contractually reimbursed to us by the property owners or
paid from fees collected in advance from these properties
when the costs are incurred. The corresponding expenses
are presented as other expenses from managed and
franchised properties in our consolidated statements of
operations, resulting in no effect on operating income
(loss) or net income (loss).
We are required to collect certain taxes and fees from
customers on behalf of government agencies and remit
these back to the applicable governmental agencies on a
periodic basis. We have a legal obligation to act as a col-
lection agent. We do not retain these taxes and fees and,
therefore, they are not included in revenues. 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 original maturities, when purchased,
of three months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash
balances established as security for certain guarantees,
lender reserves, ground rent and property tax escrows,
insurance, deposits for assets we plan to acquire and
advance deposits received on timeshare sales that are
held in escrow until the contract is closed.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided on
accounts receivable when losses are probable based on
historical collection activity and current business conditions.
Inventories
Inventories include unsold, completed timeshare
intervals, timeshare intervals under construction and land
and infrastructure held for future timeshare interval
development at our timeshare properties (collectively,
timeshare inventory), as well as hotel inventories consisting
of operating supplies that have a period of consumption
of one year or less, guest room items and food and
beverage items.
Timeshare inventory is carried at the lower of cost or
estimated fair value less costs to sell, based on the relative
sales value. Capital expenditures associated with our
timeshare intervals are reflected as inventory until the
timeshare intervals are sold. Consistent with industry
practice, timeshare inventory is classified as a current
asset despite an operating cycle that exceeds 12 months.
The majority of sales and marketing costs incurred to sell
timeshare intervals are expensed when incurred. Certain
direct and incremental selling and marketing costs are
deferred on a contract until revenue from the interval sale
has been recognized.
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73
In accordance with the accounting standards for costs
and the initial rental operations of real estate projects, we
use the relative sales value method of costing our time-
share sales and relieving inventory. In addition, we continually
assess our timeshare inventory and, if necessary, impose
pricing adjustments to modify sales pace. It is possible
that any future changes in our development and sales
strategies could have a material effect on the carrying
value of our timeshare inventory and purchase commitments
for timeshare inventory. We monitor our projects and
inventory on an ongoing basis and complete an evaluation
each reporting period to ensure that the inventory and
purchase commitments for inventory are at the lower
of cost or market.
Hotel inventories are generally valued at the lower of cost
(using “first-in, first-out”, or FIFO) or net realizable value.
Property and Equipment
Property and equipment are recorded at cost, and
interest applicable to major construction or development
projects is capitalized. 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.
Depreciation is recorded using the straight-line method
over the assets’ estimated useful lives, which are generally
as follows: buildings and improvements (8 to 40 years),
furniture and equipment (3 to 8 years) and computer
equipment (3 to 5 years). Leasehold improvements are
depreciated over the shorter of the estimated useful life,
based on the estimates above, or the lease term.
We evaluate the carrying value of our property and
equipment if there are indicators of potential impairment.
We perform an analysis to determine the recoverability
of the asset’s carrying value by comparing the expected
undiscounted future cash flows to the net book value
of the asset. If it is determined that the expected undis-
counted future cash flows are less than the net book
value of the asset, the excess of the net book value over
the estimated fair value is recorded in our consolidated
statements of operations within impairment losses.
Fair value is generally estimated using valuation techniques
that consider the discounted cash flows of the asset using
discount and capitalization rates deemed reasonable for
the type of asset, as well as prevailing market conditions,
appraisals, recent similar transactions in the market and,
if appropriate and available, current estimated net sales
proceeds from pending offers.
If sufficient information exists to reasonably estimate
the fair value of a conditional asset retirement obligation,
including environmental remediation liabilities, we recog-
nize the fair value of the obligation when the obligation is
incurred, which is generally upon acquisition, construction
or development and/or through the normal operation of
the asset.
Business Combinations
We consider a business combination to occur when the
Company takes control of a business by acquiring its net
assets or equity interests. We record the assets acquired,
liabilities assumed and noncontrolling interests at fair
value as of the acquisition date, including any contingent
consideration. We evaluate several factors, including
market data for similar assets, expected future cash flows
discounted at risk-adjusted rates and replacement cost
for the assets to determine an appropriate fair value of the
assets. Acquisition-related costs, such as due diligence,
legal and accounting fees, are expensed in the period
incurred and are not capitalized or applied in determining
the fair value of the acquired assets.
Financing Receivables
We define financing receivables as financing arrangements
that represent a contractual right to receive money either
on demand or on fixed or determinable dates, which are
recognized as an asset in our consolidated balance
sheets. We record all financing receivables at amortized
cost in current and long-term financing receivables. We
recognize interest income as earned and provide an
allowance for cancellations and defaults. We have divided
our financing receivables into two portfolio segments
based on the level of aggregation at which we develop
and document a systematic methodology to determine
the allowance for loan losses. Based on their initial
measurement, risk characteristics and our method for
monitoring and assessing credit risk, we have determined
the classes of financing receivables to correspond to our
identified portfolio segments as follows:
Timeshare financing receivables comprise loans related
to our financing of timeshare interval sales and secured
by the underlying timeshare properties. We determine
our timeshare financing receivables to be past due
based on the contractual terms of the individual mort-
gage loans. We recognize interest income on our
timeshare financing receivables as earned. The interest
rate charged on the notes correlates to the risk profile
of the borrower at the time of purchase and the
percentage of the purchase that is financed, among
other factors. We monitor the credit quality of our
receivables on an ongoing basis. We evaluate this
portfolio collectively for uncollectibility, since we hold
a large group of homogeneous timeshare financing
receivables, which are individually immaterial. There are
no significant concentrations of credit risk with any
individual counterparty or groups of counterparties. We
use a technique referred to as static pool analysis as the
basis for determining our general reserve requirements
on our timeshare financing receivables. The adequacy
of the related allowance for loan loss is determined by
management through analysis of several factors, such
as current economic conditions and industry trends, as
well as the specific risk characteristics of the portfolio
including assumed default rates, aging and historical
write-offs of these receivables. The allowance for loan
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Hilton
loss is maintained at a level deemed adequate by
management based on a periodic analysis of the mortgage
portfolio. Once a note is 90 days past due or is
determined to be uncollectible prior to 90 days past
due, we cease accruing interest and reverse the
accrued interest recognized up to that point. We apply
payments we receive for loans, including those in
non-accrual status, to amounts due in the following
order: servicing fees, late charges, interest and
principal. We resume interest accrual for loans for
which we had previously ceased accruing interest once
the loan is less than 90 days past due. We fully reserve
for a timeshare financing receivable in the month
following the date that the loan is 120 days past due
and, subsequently, we write off the uncollectible note
against the reserve once the foreclosure process is
complete and we receive the deed for the foreclosed unit.
Other financing receivables primarily comprise
individual loans and other types of unsecured financing
arrangements provided to hotel owners. We individually
assess all financing receivables in this portfolio for col-
lectibility and impairment. We measure loan impairment
based on the present value of expected future cash
flows discounted at the loan’s effective interest rate.
For impaired loans, we establish a specific impairment
reserve for the difference between the recorded
investment in the loan and the present value of the
expected future cash flows. We do not recognize
interest income on unsecured financing to hotel
owners for notes that are greater than 90 days past due
and only resume interest recognition if the financing
receivable becomes current. We fully reserve unsecured
financing to hotel owners when we determine that the
receivables are uncollectible and when all commercially
reasonable means of recovering the receivable
balances have been exhausted.
Investments in Affiliates
We hold investments in affiliates that primarily own or
lease hotels under one of our distinct hotel brands. If we
do not have a controlling financial interest in the entity,
we account for the investment using the equity or cost
method. We account for investments using the equity
method when we have the ability to exercise significant
influence over the entity, typically through a more than
minimal investment. Investments in affiliates where we
own less than a minimal investment and are not able to
exercise significant influence are accounted for under
the cost method.
Our proportionate share of earnings (losses) from our
equity method investments is presented as equity in
earnings (losses) from unconsolidated affiliates in our con-
solidated statements of operations. Distributions from
investments in unconsolidated entities are presented as
an operating activity in our consolidated statements of
cash flows when such distributions are a return on invest-
ment. Distributions from unconsolidated affiliates are
recorded as an investing activity in our consolidated
statements of cash flows when such distributions are a
return of investment.
We assess the recoverability of our equity method and
cost method investments if there are indicators of
potential impairment. If an identified event or change in
circumstances requires an evaluation to determine if an
investment may have an other-than-temporary impair-
ment, we assess the fair value of the investment based
on accepted valuation methodologies, which include
discounted cash flows, estimates of sales proceeds and
external appraisals. If an investment’s fair value is below
its carrying value and the decline is considered to be oth-
er-than-temporary, we will recognize an impairment loss
in equity in earnings (losses) from unconsolidated affili-
ates for equity method investments or impairment
losses for cost method investments in our consolidated
statements of operations.
In connection with the October 24, 2007 transaction
whereby we became a wholly owned subsidiary of an affili-
ate of Blackstone (the “Merger”), we recorded our equity
method investments at their estimated fair value, which
resulted in an increase to our historical basis in those
entities, primarily as a result of an increase in the fair value
of the real estate assets of the investee entities. The basis
difference is being amortized as a component of equity in
earnings (losses) from unconsolidated affiliates over a
period of approximately 40 years.
Goodwill
Goodwill represents the future economic benefits arising
from other assets acquired in a business combination
that are not individually identified and separately recog-
nized. We do not amortize goodwill, but rather evaluate
goodwill for potential impairment on an annual basis or at
other times during the year if events or circumstances
indicate that it is more likely than not that the fair value
of a reporting unit is below the carrying amount.
As part of the Merger, we recorded goodwill representing
the excess purchase price over the fair value of the other
identified assets and liabilities. We evaluate goodwill for
potential impairment by comparing the carrying value of
our reporting units to their fair value. Our reporting units
are the same as our operating segments as described in
Note 23: “Business Segments.” We perform this evaluation
annually or at an interim date if indicators of impairment
exist. In any year we may elect to perform a qualitative
assessment to determine whether it is more likely than
not that the fair value of a reporting unit is in excess of its
carrying value. If we cannot determine qualitatively that
the fair value is in excess of the carrying value, or we
decide to bypass the qualitative assessment, we proceed
to the two-step quantitative process. In the first step, we
determine the fair value of each of our reporting units.
The valuation is based on internal projections of expected
future cash flows and operating plans, as well as market
conditions relative to the operations of our reporting
units. If the estimated fair value of the reporting unit
exceeds its carrying amount, goodwill of the reporting
unit is not impaired and the second step of the impairment
test is not necessary. However, if the carrying amount of a
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75
reporting unit exceeds its estimated fair value, then the
second step must be performed. In the second step, we
estimate the implied fair value of goodwill, which is deter-
mined by taking the fair value of the reporting unit and
allocating it to all of its assets and liabilities (including any
unrecognized intangible assets) as if the reporting unit
had been acquired in a business combination. If the carry-
ing amount of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill, the excess is recog-
nized within impairment losses in our consolidated state-
ments of operations.
Brands
We own, operate and franchise hotels under our portfolio
of brands. 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. Our
hotel brand portfolio includes Hilton Hotels & Resorts,
Waldorf Astoria Hotels & Resorts, Conrad Hotels &
Resorts, Canopy by Hilton, Curio—A Collection by Hilton,
DoubleTree by Hilton, Embassy Suites by Hilton, Hilton
Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood
Suites by Hilton and Home2 Suites by Hilton. In addition,
we also develop and operate timeshare properties under
our Hilton Grand Vacations brand.
At the time of the Merger, our brands were assigned a
fair value based on a common valuation technique known
as the relief from royalty approach. Canopy by Hilton,
Curio—A Collection by Hilton, Tru by Hilton and Home2
Suites by Hilton were launched post-Merger and, as such,
they were not assigned fair values. We evaluate our brands
for impairment on an annual basis or at other times
during the year if events or circumstances indicate that it
is more likely than not that the fair value of the brand is
below the carrying value. If we cannot determine qualita-
tively that the fair value is in excess of the carrying value,
or we decide to bypass the qualitative assessment, we
proceed to the two-step quantitative process. If a brand’s
estimated current fair value is less than its respective
carrying value, the excess of the carrying value over the
estimated fair value is recognized in our consolidated
statements of operations within impairment losses.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were
initially recorded at their fair value at the time of the
Merger. These intangible assets consist of management
agreements, franchise contracts, leases, certain propri-
etary technologies and our guest loyalty program, Hilton
Honors. Additionally, we capitalize direct and incremental
management and franchise contract acquisition costs as
finite-lived intangible assets. Intangible assets with finite
useful lives are amortized using the straight-line method
over their respective estimated useful lives.
We capitalize costs incurred to develop internal-use
computer software and costs to acquire software licenses.
Internal and external costs incurred in connection with
development of upgrades or enhancements that result
in additional functionality are also capitalized. These
capitalized costs are amortized on a straight-line basis
over the estimated useful life of the software. These
capitalized costs are recorded in other intangible assets
in our consolidated balance sheets.
We review all finite lived intangible assets for impairment
when circumstances indicate that their carrying amounts
may not be recoverable. If the carrying value of an asset
group is not recoverable, we recognize an impairment loss
for the excess of carrying value over the fair value in our
consolidated statements of operations.
Hilton Honors
Hilton Honors is a guest loyalty program provided to
hotels and timeshare properties. Nearly all of our owned,
leased, managed and franchised hotels and timeshare
properties participate in the Hilton Honors program.
Hilton Honors members earn points based on their
spending at our participating hotels and timeshare
properties and through participation in affiliated partner
programs. When points are earned by Hilton Honors
members, the property or affiliated partner pays Hilton
Honors based on an estimated cost per point for the
costs of operating the program, which include marketing,
promotion, communication, administration and the esti-
mated cost of award redemptions. Hilton Honors member
points are accumulated and may be redeemed for the
right to stay at participating properties, as well as for
other goods and services from third parties, including,
but not limited to, airlines, car rentals, cruises, vacation
packages, shopping and dining. We provide Hilton Honors
as a marketing program to participating hotels and
timeshare properties, with the objective of operating
the program on a break-even basis to us.
Hilton Honors records a liability related to revenue
received from participating hotels and program partners
in an amount equal to the estimated cost per point of
the future redemption obligation. We engage outside
actuaries to assist in determining the fair value of the
future award redemption obligation using statistical
formulas that project future point redemptions based on
factors that include historical experience, an estimate
of “breakage” (points that will never be redeemed), an
estimate of the points that will eventually be redeemed
and the cost of reimbursing hotels and other third parties
in respect to other redemption opportunities available to
members. Revenue is recognized by participating hotels
and resorts only when points that have been redeemed
for hotel stay certificates are used by members or their
designees at the respective properties. Additionally, when
members of the Hilton Honors loyalty program redeem
award certificates at our owned and leased hotels, we
recognize room revenue, included in owned and leased
hotels revenues in our consolidated statements
of operations.
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Hilton
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 (an exit price). We use the three-level
valuation hierarchy for classification of fair value mea-
surements. 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
in the 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 report-
ing period. The use of different market assumptions or
estimation methods may have a material effect on the
estimated fair value amounts.
Derivative Instruments
We use derivative instruments as part of our overall
strategy to manage our exposure to market risks asso ci-
ated with fluctuations in interest rates and foreign currency
exchange rates. We regularly monitor the financial
stability and credit standing of the counterparties to our
derivative instruments. Under the terms of certain loan
agreements, we are required to maintain derivative
financial instruments to manage interest rates. We do not
enter into derivative financial instruments for trading or
speculative purposes.
We record all derivatives at fair value. On the date the
derivative contract is entered, we may designate the
derivative as one of the following: a hedge of a forecasted
transaction or the variability of cash flows to be paid
(“cash flow hedge”), a hedge of the fair value of a recog-
nized asset or liability (“fair value hedge”) or a hedge of our
foreign currency exposure (“net investment hedge”).
Changes in the fair value of a derivative that is qualified,
designated and highly effective as a cash flow hedge or net
investment hedge are recorded in other comprehensive
income (loss) in the consolidated statements of
comprehensive income (loss) until they are reclassified
into earnings in the same period or periods during which
the hedged transaction affects earnings. Changes in the
fair value of a derivative that is qualified, designated and
highly effective as a fair value hedge, along with the gain
or loss on the hedged asset or liability that is attributable
to the hedged risk, are recorded in current period earnings.
If we do not specifically designate a derivative as one of
the above, changes in the fair value of undesignated
derivative instruments are reported in current period
earnings. Likewise, the ineffective portion of designated
derivative instruments are reported in current period
earnings. Cash flows from designated derivative financial
instruments are classified within the same category as
the item being hedged in the consolidated statements of
cash flows. Cash flows from undesignated derivative
financial instruments are included as an investing activity
in our consolidated statements of cash flows.
If we determine that we qualify for and will designate a
derivative as a hedging instrument, at the designation date
we formally document all relationships between hedging
activities, including the risk management objective and
strategy for undertaking various hedge transactions.
This process includes matching all derivatives that are
designated as cash flow hedges to specific forecasted
transactions, linking all derivatives designated as fair value
hedges to specific assets and liabilities in our consolidated
balance sheets and determining the foreign currency
exposure of the net investment of the foreign operation
for a net investment hedge.
On a quarterly basis, we assess the effectiveness of our
designated hedges in offsetting the variability in the cash
flows or fair values of the hedged assets or obligations
using the Hypothetical Derivative Method. This method
compares the cumulative change in fair value of each
hedging instrument to the cumulative change in fair value
of a hypothetical hedging instrument, which has terms
that identically match the critical terms of the respective
hedged transactions. Thus, the hypothetical hedging
instrument is presumed to perfectly offset the hedged
cash flows. Ineffectiveness results when the cumulative
change in the fair value of the hedging instrument
exceeds the cumulative change in the fair value of the
hypothetical hedging instrument. We discontinue hedge
accounting prospectively, when the derivative is not
highly effective as a hedge, the underlying hedged trans-
action is no longer probable, or the hedging instrument
expires, is sold, terminated or exercised.
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77
Currency Translation
The United States dollar (“USD”) is our reporting currency
and is the functional currency of our consolidated and
unconsolidated entities operating in the U.S. The functional
currency for our consolidated and unconsolidated entities
operating outside of the U.S. is the currency of the primary
economic environment in which the respective entity
operates. Assets and liabilities measured in foreign curren-
cies are translated into USD at the prevailing 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
sheets. Income and expense accounts are translated at
the average exchange rate for the period. Gains and
losses from foreign 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 as gain (loss) on foreign
currency transactions in our consolidated statements 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 exchange rate changes are
recognized as other comprehensive income (loss) in our
consolidated statements of comprehensive income (loss).
Insurance
We are self-insured for losses up to our third-party
insurance deductibles for general liability, auto liability and
workers’ compensation at our owned, leased and man-
aged properties that participate in our programs. We
purchase insurance coverage for claim amounts that
exceed our deductible obligations. In addition, through
our captive insurance subsidiary, we participate in a
reinsurance arrangement that provides coverage for a
certain portion of our deductibles. Our insurance reserves
are accrued based on our deductibles related to the
estimated ultimate cost 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 outside
actuaries and consultants. The ultimate cost of claims for
a covered period may differ from our original estimates.
Share-based Compensation
As part of our 2013 Omnibus Incentive Plan (the “Stock
Plan”), which was adopted on December 11, 2013, we award
time-vesting restricted stock units (“RSUs”), nonqualified
stock options (“options”), performance-vesting restricted
stock units and restricted stock (collectively, “performance
shares”) and deferred share units (“DSUs”) to eligible
employees and directors.
RSUs generally vest in annual installments over two or
three years from the date of grant. Vested RSUs gener-
ally will be settled for our 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.
78
Hilton
Options vest over three years in equal annual
installments from the date of grant and will terminate
10 years from the date of grant or earlier if the indi-
vidual’s service terminates. The exercise price is equal to
the closing price of the Company’s common stock on
the date of grant. The grant date fair value is estimated
using the Black-Scholes-Merton Model.
Performance shares are settled at the end of a
three-year performance period with 50 percent of the
shares subject to achievement based on a measure of
(1) the Company’s total shareholder return relative to
the total shareholder return of members of a peer
company group (“relative shareholder return”) and the
other 50 percent of the shares subject to achievement
based on (2) the Company’s earnings before interest
expense, income tax and depreciation and amortization
(“EBITDA”) compound annual growth rate (“EBITDA
CAGR”). The total number of performance shares that
vest based on each performance measure (relative
shareholder return and EBITDA CAGR) is based on an
achievement factor that in each case, ranges from a
zero to 200 percent payout. The grant date fair value of
the relative shareholder return awards is estimated
using the Monte Carlo Simulation, and the grant date
fair value for the EBITDA CAGR awards is equal to the
closing stock price on the date of grant.
DSUs are issued to our independent directors and are
fully vested and non-forfeitable on the date of grant.
DSUs are settled for shares of our common stock,
which are deliverable upon the earlier of termination of
the individual’s service on our board of directors or a
change in control. The grant date fair value is equal to
the closing stock price on the date of grant.
We recognize the cost of services received in these
share-based payment transactions with employees as
services are received and recognize either a corresponding
increase in additional paid-in capital or accounts payable,
accrued expenses and other in our consolidated balance
sheets, depending on whether the instruments granted
satisfy the equity or liability classification criteria. The
measurement objective for these equity awards is the
estimated fair value at the grant date of the equity instru-
ments 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, including an
estimate of forfeitures. The requisite service period 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 fair value, and the fair
value is remeasured at each reporting date until the date
of settlement. 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 at the reporting date) in
the fair value of the instrument for each reporting period,
including an estimate of forfeitures. Forfeiture rates are
estimated based on historical employee terminations for
each grant cycle. Compensation expense for awards with
performance conditions is recognized over the requisite
service period if it is probable that the performance
condition will be satisfied. If such performance conditions
are not considered probable until they occur, no compen-
sation expense for these awards is recognized.
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 refund-
able for the current year, 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 loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in
which the respective temporary differences or operating
loss or tax credit carryforwards are expected to be
recovered or settled. The realization of deferred tax assets
and tax loss and tax credit carryforwards 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 use a prescribed recognition threshold for the
financial statement recognition and measurement of a
tax position taken in a tax return. 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
the position. 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.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In August 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-15 (“ASU 2016-15”), Statement of Cash
Flows (Topic 230)—Classification of Certain Cash Receipts
and Cash Payments. This ASU addresses eight specific
cash flow issues with the objective of reducing the
existing diversity in practice. In November 2016, the FASB
issued ASU No. 2016-18 (“ASU 2016-18”), Statement of
Cash Flows (Topic 230)—Restricted Cash. This ASU requires
amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and
cash equivalents when reconciling beginning-of-period
and end-of-period total amounts shown on the statement
of cash flows. The provisions of both ASUs are effective
for reporting periods beginning after December 15, 2017
and are to be applied retrospectively; early adoption is
permitted. We elected, as permitted by the standards, to
early adopt ASU 2016-15 and ASU 2016-18 in the fourth
quarter of 2016, and we restated all prior periods presented
in the consolidated statements of cash flows. The
adoption of ASU 2016-15 did not have a material effect on
our consolidated financial statements. The effect of the
adoption of ASU 2016-18 on our consolidated statements
of cash flows was to include restricted cash and restricted
cash equivalents balances in the beginning and end of
period balances of cash, restricted cash and cash
equivalents. The change in restricted cash and restricted
cash equivalents was previously disclosed in operating
activities, investing activities and financing activities in
the consolidated statements of cash flows.
In April 2015, the FASB issued ASU No. 2015-03
(“ASU 2015-03”), Interest—Imputation of Interest (Subtopic
835-30)—Simplifying the Presentation of Debt Issuance
Costs. This ASU requires debt issuance costs related to a
recognized debt liability to be presented in the balance
sheet as a direct deduction from the debt liability rather
than as an asset, which is consistent with the presenta-
tion of debt discounts and premiums. In August 2015, the
FASB issued ASU No. 2015-15 (“ASU 2015-15”), Interest—
Imputation of Interest (Subtopic 835-30)—Presentation
and Subsequent Measurement of Debt Issuance
Costs Associated with Line-of-Credit Arrangements,
which clarifies that, absent authoritative guidance in
ASU 2015-03 for debt issuance costs related to
line-of-credit arrangements, the staff of the SEC would
not object to an entity deferring and presenting debt
issuance costs as an asset and subsequently amortizing
the deferred debt issuance costs ratably over the term
of the line-of-credit arrangement, regardless of whether
there are any outstanding borrowings on the line-of-credit
arrangement. We adopted ASU 2015-03 and ASU 2015-15
retrospectively as of January 1, 2016. As a result,
approximately $94 million of debt issuance costs that
were previously presented in other non-current assets as of
December 31, 2015 are now included within long-term debt
and timeshare debt. We elected to continue presenting
the debt issuance costs related to our line-of-credit
arrangements within other non-current assets.
In February 2015, the FASB issued ASU No. 2015-02
(“ASU 2015-02”), Consolidation (Topic 810)—Amendments
to the Consolidation Analysis. This ASU modifies existing
consolidation guidance for reporting organizations that
are required to evaluate whether they should consolidate
certain legal entities. All legal entities are subject to
reevaluation under the revised consolidation model.
We elected, as permitted by the standard, to adopt
ASU 2015-02 as of January 1, 2016 using a modified retro-
spective approach by recording a cumulative-effect
adjustment to equity as of January 1, 2016 of approximately
$5 million. Additionally, certain consolidated entities that
were not previously considered VIEs prior to the adoption
of ASU 2015-02 were considered to be VIEs for which
we are the primary beneficiary and continue to be
consolidated following adoption; prior period VIE
disclosures do not include the balances or activity
associated with these VIEs.
2016 Annual Report
79
NOTE 3
ACQUISITIONS
Tax Deferred Exchange
During the year ended December 31, 2015, we used
proceeds from the sale of the Waldorf Astoria New York
to acquire, as part of a tax deferred exchange of real
property, the following properties from sellers affiliated
with Blackstone and an unrelated third party, for a total
purchase price of $1.87 billion:
the resort complex consisting of the Waldorf Astoria
Orlando and the Hilton Orlando Bonnet Creek in
Orlando, Florida (the “Bonnet Creek Resort”);
the Casa Marina Resort in Key West, Florida;
the Reach Resort in Key West, Florida;
the Parc 55 in San Francisco, California; and
the Juniper Hotel Cupertino in Cupertino, California.
We incurred transaction costs of $26 million recognized
in other gain (loss), net in our consolidated statement of
operations for the year ended December 31, 2015.
The results of operations from these properties included
in the consolidated statement of operations for the year
ended December 31, 2015 were as follows:
(in millions)
Total revenues
Income before income taxes
$316
58
Equity Investments Exchange
During the year ended December 31, 2014, we entered
into an agreement to exchange our ownership interest in
six hotels for the remaining interest in five other hotels
that were part of an equity investment portfolio we
owned with one other partner. As a result of this exchange,
we have a 100 percent ownership interest in five hotels
and no longer have any ownership interest in the remain-
ing six hotels. This transaction was accounted for as a
business combination achieved in stages, resulting in a
remeasurement gain based upon the fair values of the
equity investments. The carrying values of these equity
investments immediately before the exchange totaled
$59 million and the fair values of these equity investments
immediately before the exchange totaled $83 million,
resulting in a pre-tax gain of $23 million, net of transaction
costs, recognized in other gain (loss), net in our
consolidated statement of operations for the year
ended December 31, 2014.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02
(“ASU 2016-02”), Leases (Topic 842), which supersedes
existing guidance on accounting for leases in Leases
(Topic 840) and generally requires all leases, including
operating leases, to be recognized in the statement of
financial position as right-of-use assets and lease liabilities
by lessees. The provisions of ASU 2016-02 are to be applied
using a modified retrospective approach and are effective
for reporting periods beginning after December 15, 2018;
early adoption is permitted. We are currently evaluating
the effect that this ASU will have on our consolidated
financial statements, but we expect this ASU to have a
material effect on our consolidated balance sheet.
In May 2014, the FASB issued ASU No. 2014-09
(“ASU 2014-09”), Revenue from Contracts with Customers
(Topic 606). This ASU supersedes the revenue recognition
requirements in Revenue Recognition (Topic 605) and
requires entities to recognize revenue when a customer
obtains control of promised goods or services and is
recognized in an amount that reflects the consideration
the entity expects to receive in exchange for those goods
or services. Subsequent to ASU 2014-09, the FASB has
issued several related ASUs. The provisions of ASU 2014-09
and the related ASUs will be effective for us beginning
January 1, 2018, and adoption as of the original effective
date of January 1, 2017 is permitted. We will not early
adopt the new standard. This ASU permits two transition
approaches: retrospective or modified retrospective.
We are still evaluating our transition approach and expect
to reach a decision in early 2017.
We anticipate that ASU 2014-09 will have a material effect
on our consolidated financial statements. However, we
expect revenue recognition related to our accounting for
ongoing royalty and management fee revenues and direct
reimbursable fees from our management and franchise
agreements and hotel guest transactions at our owned
and leased hotels to remain substantially unchanged.
While we are continuing to assess all other potential
effects of the standard, we currently believe the provisions
of ASU 2014-09 will affect revenue recognition as follows:
(i) application and initiation fees for new hotels entering
the system will be recognized over the term of the fran-
chise agreement; (ii) certain contract acquisition costs
related to our management and franchise agreements
will be recognized over the term of the agreements as a
reduction to revenue; and (iii) incentive management fees
will be recognized to the extent that it is probable that a
significant reversal will not occur as a result of future hotel
profits or cash flows. We do not expect the changes in
revenue recognition for certain contract acquisition costs
or incentive management fees to affect the Company’s
net income for any full year period. We are currently
assessing the effect of the standard on indirect
reimbursable fees related to our management and
franchise agreements and the accounting for our guest
loyalty program. We continue to update our assessment
of the effect that ASU 2014-09 and related ASUs will have
on our consolidated financial statements, and we will
disclose further material effects, if any, when known.
80
Hilton
NOTE 4
DISPOSALS
Hilton Sydney
In July 2015, we completed the sale of the Hilton Sydney
for a purchase price of 442 million Australian dollars
(equivalent to $340 million as of the closing date). As a result
of the sale, we recognized a pre-tax gain of $163 million
included in gain on sales of assets, net in our consolidated
statement of operations for the year ended December 31,
2015. The pre-tax gain was net of transaction costs, a
goodwill reduction of $36 million and a reclassification of
a currency translation adjustment of $25 million from
accumulated other comprehensive loss into earnings
concurrent with the disposition. The goodwill reduction
was due to our consideration of the Hilton Sydney property
as a business within our ownership segment; therefore,
we reduced the carrying amount of our goodwill by the
amount representing the fair value of the business
disposed relative to the fair value of the portion of our
ownership reporting unit goodwill that was retained.
Waldorf Astoria New York
In February 2015, we completed the sale of the Waldorf
Astoria New York for a purchase price of $1.95 billion and
we repaid in full the existing mortgage loan secured by
our Waldorf Astoria New York property (the “Waldorf
Astoria Loan”) of approximately $525 million. As a result of
the sale, we recognized a gain of $143 million included in
gain on sales of assets, net in our consolidated statement
of operations for the year ended December 31, 2015. The
gain was net of transaction costs and a goodwill reduction
of $185 million. The goodwill reduction was due to our
consideration of the Waldorf Astoria New York property
as a business within our ownership segment; therefore,
we reduced the carrying amount of our goodwill by the
amount representing the fair value of the business dis-
posed relative to the fair value of the portion of our
ownership reporting unit goodwill that was retained.
Additionally, we recognized a loss of $6 million in other
gain (loss), net in our consolidated statement of operations
for the year ended December 31, 2015 related to the
reduction of the Waldorf Astoria Loan’s remaining carrying
amount of debt issuance costs.
Sale of Other Property and Equipment
During the year ended December 31, 2014, we completed
the sale of two hotels and a vacant parcel of land for
approximately $15 million. As a result of these sales, we
recognized a pre-tax gain of $13 million, including the
reclassification of a currency translation adjustment of
$3 million, from accumulated other comprehensive loss
concurrent with the disposition. The gain was included
in other gain (loss), net in our consolidated statement
of operations for the year ended December 31, 2014.
Additionally, during the year ended December 31, 2014, we
completed the sale of certain land and easement rights to
an affiliate of Blackstone in connection with a timeshare
project. As a result, the affiliate of Blackstone acquired
the rights to the name, plans, designs, contracts and other
documents related to the timeshare project. The total
consideration received for this transaction was approxi-
mately $37 million. We recognized $13 million, net of tax,
as a capital contribution within additional paid-in capital,
representing the excess of the fair value of the consider-
ation received over the carrying value of the assets sold.
NOTE 5
INVENTORIES
Inventories were as follows:
(in millions)
Timeshare
Hotel
NOTE 6
PROPERTY AND EQUIPMENT
Property and equipment were as follows:
(in millions)
Land
Buildings and leasehold improvements
Furniture and equipment
Construction-in-progress
Accumulated depreciation
December 31,
2016
$517
24
$541
2015
$420
22
$442
December 31,
2016
2015
$3,396
6,423
1,295
105
$3,486
6,410
1,263
80
11,219
(2,289)
11,239
(2,120)
$8,930
$ 9,119
Depreciation expense of property and equipment,
including assets recorded for capital lease assets, was
$358 million, $351 million and $313 million during the years
ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016 and 2015, property and
equipment included approximately $142 million and
$144 million, respectively, of capital lease assets primarily
consisting of buildings and leasehold improvements,
net of $82 million and $71 million, respectively, of
accumulated depreciation.
2016 Annual Report
81
As of December 31, 2016 and 2015, we had ceased
accruing interest on timeshare financing receivables with
an aggregate principal balance of $38 million and
$32 million, respectively. The following table details an
aged analysis of our gross timeshare financing
receivables balance:
(in millions)
Current
30-89 days past due
90-119 days past due
120 days and greater past due
December 31,
2016
2015
$1,099
14
6
32
$1,035
15
4
28
$ 1,151
$1,082
The changes in our allowance for loan loss were as follows:
(in millions)
Balance as of December 31, 2013
Write-offs
Provision for loan loss
Balance as of December 31, 2014
Write-offs
Provision for loan loss
Balance as of December 31, 2015
Write-offs
Provision for loan loss
Balance as of December 31, 2016
NOTE 8
INVESTMENTS IN AFFILIATES
Investments in affiliates were as follows:
$ 92
(30)
34
96
(29)
39
106
(35)
49
$120
December 31,
2016
$105
9
$ 114
2015
$129
9
$138
We maintain investments in affiliates accounted for
under the equity method, which are primarily investments
in entities that owned or leased 15 and 16 hotels as of
December 31, 2016 and 2015, respectively. These entities
had total debt of approximately $956 million and
$959 million as of December 31, 2016 and 2015, respec-
tively. Substantially all of the debt is secured solely by
the affiliates’ assets or is guaranteed by other partners
without recourse to us.
NOTE 7
FINANCING RECEIVABLES
Financing receivables were as follows:
December 31, 2016
Securitized Unsecuritized
Timeshare(1)
(in millions)
Timeshare
Financing receivables $204
Less: allowance
for loan loss
$795
(97)
(7)
197
698
49
(2)
47
103
(14)
89
Current portion of
financing receivables
Less: allowance
for loan loss
Total financing
receivables
Other
$68
Total
$1,067
—
68
2
—
2
(104)
963
154
(16)
138
$244
$787
$70
$ 1,101
December 31, 2015
Securitized Unsecuritized
Timeshare(1)
(in millions)
Timeshare
Financing receivables $309
Less: allowance
for loan loss
$632
(14)
(79)
Current portion of
financing receivables
Less: allowance
for loan loss
295
553
58
(3)
55
83
(10)
73
Other
$39
Total
$ 980
—
39
1
—
1
(93)
887
142
(13)
129
Total financing
receivables
$350
$626
$40
$1,016
Timeshare Financing Receivables
As of December 31, 2016, our timeshare financing
receivables had interest rates ranging from 5.25 percent
to 20.50 percent, a weighted average interest rate
of 11.98 percent, a weighted average remaining term
of 7.8 years and maturities through 2028.
Our timeshare financing receivables as of December 31,
2016 mature as follows:
(in millions)
Year
2017
2018
2019
2020
2021
Thereafter
Less: allowance for loan loss
Securitized Unsecuritized
Timeshare
Timeshare
$ 49
48
45
41
33
37
253
(9)
$244
$ 103
84
89
93
96
433
898
(111)
$787
82
Hilton
(1) Included in this balance, we had $509 million and $163 million of gross
timeshare financing receivables securing our revolving non-recourse
timeshare financing receivables credit facility (the “Timeshare Facility”),
as of December 31, 2016 and 2015, respectively.
(in millions)
Equity investments
Other investments
NOTE 9
CONSOLIDATED VARIABLE
INTEREST ENTITIES
As of December 31, 2016, we consolidated eight VIEs: five
that own or lease hotel properties; two that issued debt in
connection with our timeshare financing receivables
securitization transactions (collectively, the “Securitized
Timeshare Debt”); and one management company. As of
December 31, 2015, prior to the adoption of ASU 2015-02,
we consolidated three VIEs that owned or leased hotel
properties and two that issued our Securitized Timeshare
Debt. Of the three additional entities considered to be
VIEs following the adoption of ASU 2015-02, two were
previously consolidated by us and one was an
unconsolidated investment in affiliate.
We are the primary beneficiaries of these VIEs as we have
the power to direct the activities that most significantly
affect their economic performance. Additionally, we have
the obligation to absorb their losses and the right to
receive benefits that could be significant to them. The
assets of our VIEs are only available to settle the obligations
of the respective entities. Our consolidated balance sheets
included the assets and liabilities of these entities, which
primarily comprised the following:
December 31,
(in millions)
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable, net
Property and equipment, net
Financing receivables, net
Deferred income tax assets
Other non-current assets
Accounts payable, accrued expenses
and other
Long-term debt
Timeshare debt
Deferred income tax liabilities
2016
$ 64
30
19
260
244
58
53
40
418
244
53
2015
$ 46
15
19
72
350
62
52
35
219
353
1
During the years ended December 31, 2016, 2015 and 2014,
we did not provide any financial or other support to any
VIEs that we were not previously contractually required to
provide, nor do we intend to provide such support in
the future.
In December 2016, a VIE that we consolidated as a result
of the adoption of ASU 2015-02 sold the hotel asset that
it owned. As a result of the sale, we deconsolidated the
VIE as we no longer had the power to direct the activities
that most significantly affected its performance. Our
retained interest in the entity was included in investments
in affiliates in our consolidated balance sheet as of
December 31, 2016.
In June 2015, one of our consolidated VIEs modified
the terms of its capital lease, resulting in a reduction in
long-term debt of $24 million. Since the capital lease
asset had previously been fully impaired, this amount
was recognized as a gain in other gain (loss), net in our
consolidated statement of operations during the year
ended December 31, 2015.
NOTE 10
GOODWILL AND INTANGIBLE ASSETS
Goodwill
Our goodwill balances, by reporting unit, were as follows:
(in millions)
Goodwill
Accumulated impairment losses
Balance as of December 31, 2014
Dispositions of business(1)
Foreign currency translation
Goodwill
Accumulated impairment losses
Balance as of December 31, 2015
Foreign currency translation
Goodwill
Accumulated impairment losses
Ownership
$4,552
(3,527)
1,025
(221)
(4)
3,575
(2,775)
800
(12)
3,563
(2,775)
Management
and Franchise
Total
$5,129
—
$ 9,681
(3,527)
5,129
—
(42)
5,087
—
5,087
(53)
5,034
—
6,154
(221)
(46)
8,662
(2,775)
5,887
(65)
8,597
(2,775)
Balance as of December 31, 2016 $ 788
$5,034
$ 5,822
(1) In connection with the sales of the Waldorf Astoria New York and the
Hilton Sydney, goodwill was reduced by $973 million and accumulated
impairment losses was reduced by $752 million.
Intangible Assets
Intangible assets were as follows:
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$2,653
348
555
335
42
$ (1,634)
(158)
(391)
(192)
(32)
$ 1,019
190
164
143
10
$3,933
$(2,407)
$1,526
(in millions)
Amortizing Intangible Assets:
Management and
franchise agreements
Leases
Capitalized software
Hilton Honors
Other
Non-amortizing Intangible
Assets:
Brands
$4,848
$
—
$4,848
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$ 2,616
390
468
341
38
$(1,467)
(156)
(293)
(174)
(28)
$ 1,149
234
175
167
10
$3,853
$ (2,118)
$1,735
(in millions)
Amortizing Intangible Assets:
Management and
franchise agreements
Leases
Capitalized software
Hilton Honors
Other
Non-amortizing Intangible
Assets:
Brands
$4,919
$
—
$4,919
2016 Annual Report
83
We recorded amortization expense of $328 million,
$341 million and $315 million for the years ended
December 31, 2016, 2015 and 2014, respectively, including
$95 million, $94 million and $79 million, respectively, of
amortization expense on capitalized software. Changes
to our brands intangible asset during the years ended
December 31, 2016 and 2015 were due to foreign
currency translations.
We estimate our future amortization expense for our
amortizing intangible assets to be as follows:
(in millions)
Year
2017
2018
2019
2020
2021
Thereafter
NOTE 12
DEBT
Long-term Debt
$ 302
282
259
208
81
394
$1,526
NOTE 11
ACCOUNTS PAYABLE, ACCRUED EXPENSES
AND OTHER
Accounts payable, accrued expenses and other were as
follows:
(in millions)
December 31,
2016
2015
Accrued employee compensation
and benefits
Accounts payable
Liability for guest loyalty program, current
Deposit liabilities
Deferred revenues, current
Insurance reserves, current
Other accrued expenses
$ 584
381
543
218
65
99
563
$ 475
331
494
212
65
90
539
$2,453
$2,206
Deferred revenues and deposit liabilities are related to our
timeshare business and hotel operations. Other accrued
expenses consist of taxes, rent, interest and various other
accrued balances.
Long-term debt balances, including obligations for capital leases, and associated interest rates as of December 31, 2016,
as well as issuances and repayments related to financing transactions that occurred during the year ended December 31,
2016 were as follows:
December 31,
2016
December 31,
2015
Interest
Rate (%) (1)
Balance
Issuance
Repayments
Balance
(in millions)
Senior notes due 2021
Senior notes due 2024(2)
Senior notes due 2024(3)
Senior secured term loan facility due 2020
Senior secured term loan facility due 2023(4)
Senior secured term loan facility due 2021(3)
Senior unsecured term loan facility due 2021(5)
Commercial mortgage-backed securities loan due 2018
Commercial mortgage-backed securities loans due 2023 to 2026(5)
Mortgage loan due 2018
Mortgage loan due 2026(5)
Other mortgage loans and other property debt due 2017 to 2022(6)
Other unsecured notes due 2017
Capital lease obligations due 2018 to 2094
5.625
4.25
6.125
3.50
3.26
2.94
2.22
N/A
4.17
N/A
4.17
2.95
7.50
6.38
Less: unamortized deferred financing costs and discounts
Less: current maturities of long-term debt(7)
$ 1,500
1,000
300
750
3,209
200
750
—
2,000
—
165
63
54
242
10,233
(115)
(98)
$10,020
$
—
1,000
300
—
—
200
750
—
2,000
—
165
$
—
—
—
(250)
(16)
—
—
(3,418)
—
(450)
(104)
$ 1,500
—
—
1,000
3,225
—
—
3,418
—
450
104
62
54
245
10,058
(107)
(94)
$ 9,857
(1) Weighted average rate, where applicable.
(2) Issued by Hilton.
(3) Issued by HGV.
(4) This term loan was amended during the year ended December 31, 2016, as discussed under “Senior Credit Facilities” below.
(5) Issued by Park.
(6) For mortgage loans with maturity date extensions that are solely at our option, we assumed they were exercised.
(7) Net of unamortized deferred financing costs and discounts attributable to current maturities of long-term debt.
84
Hilton
Senior Notes
In November 2016, HGV issued $300 million aggregate
principal amount of 6.125% senior notes due 2024 (the
“6.125% Senior Notes due 2024”) and incurred $8 million of
debt issuance costs. Interest on the 6.125% Senior Notes
due 2024 is payable semi-annually in arrears on June 1 and
December 1 of each year, beginning in June 2017. The
6.125% Senior Notes due 2024 are guaranteed on a senior
unsecured basis by certain HGV subsidiaries.
In August 2016, Hilton issued $1.0 billion aggregate
principal amount of 4.25% senior notes due 2024 (the
“4.25% Senior Notes due 2024”) and incurred $20 million of
debt issuance costs. Interest on the 4.25% Senior Notes
due 2024 is payable semi-annually in arrears on March 1
and September 1 of each year, beginning in March 2017.
The senior notes due 2021 (the “Senior Notes due 2021”)
and the 4.25% Senior Notes due 2024 are guaranteed on a
senior unsecured basis by the same subsidiaries as the
senior secured credit facility that we entered into in 2013
(the “2013 Senior Secured Credit Facility”). See below and
Note 27: “Condensed Consolidating Guarantor Financial
Information” for additional details.
Senior Credit Facilities
Senior Secured Credit Facilities
In December 2016, HGV entered into a senior secured
credit facility (the “2016 Senior Secured Credit Facility”),
consisting of a $200 million senior secured revolving
credit facility (the “2016 Revolving Credit Facility”) and a
$200 million senior secured term loan facility (the “2016
Term Loan”), each with a five-year maturity. The 2016
Revolving Credit Facility allows for up to $30 million to be
drawn in the form of letters of credit. As of December 31,
2016, we had no letters of credit or borrowings outstand-
ing under the 2016 Revolving Credit Facility. There is a
minimum commitment fee of 0.30 percent per annum
under the 2016 Revolving Credit Facility in respect of the
unused commitments thereunder. The 2016 Term Loan
bears interest at a variable rate, which is payable quarterly.
The obligations under the 2016 Senior Secured Credit
Facility are unconditionally and irrevocably guaranteed by
Hilton on an unsecured basis, through the date of the
spin-offs, and certain HGV subsidiaries on a secured basis.
The 2013 Senior Secured Credit Facility, which remained
with Hilton following the spin-offs, consists of a $1.0 billion
senior secured revolving credit facility (the “2013
Revolving Credit Facility”) and a senior secured term loan
facility (the “2013 Term Loans”). The obligations of the 2013
Senior Secured Credit Facility are unconditionally and
irrevocably guaranteed by us and substantially all of our
direct or indirect wholly owned domestic subsidiaries,
excluding our subsidiaries that were designated for
spin-off to Park and HGV.
In November 2016, we amended the 2013 Revolving
Credit Facility to extend the maturity to November 2021
and incurred $5 million of debt issuance costs. As of
December 31, 2016, we had $45 million of letters of credit
outstanding under the 2013 Revolving Credit Facility and
a borrowing capacity of $955 million. We are required to
pay a commitment fee of 0.125 percent per annum under
the 2013 Revolving Credit Facility in respect of the unused
commitments thereunder.
In August 2016, we amended the 2013 Term Loans pursuant
to which $3,225 million of outstanding 2013 Term Loans
were converted into a new tranche of 2013 Term Loans
due October 2023 with interest of LIBOR plus 2.50 percent
per annum. In connection with the modification of the
2013 Term Loans, we recognized an $8 million discount as
a reduction to long-term debt in our consolidated balance
sheet and $4 million of other debt issuance costs included
in other gain (loss), net in our consolidated statement
of operations.
Senior Unsecured Credit Facility
In December 2016, Park entered into a senior unsecured
credit facility (the “Senior Unsecured Credit Facility”), con-
sisting of a $1.0 billion senior unsecured revolving credit
facility (the “Unsecured Revolving Credit Facility”) with a
four-year maturity and a $750 million senior unsecured
term loan facility (the “Unsecured Term Loan”) with a five-
year maturity. Both components of the Senior Unsecured
Credit Facility bear interest at a variable rate, which is
payable monthly or at the end of any applicable LIBOR
interest period, but not less frequently than once every
three months. We incurred $7 million and $6 million of
debt issuance costs in connection with the Unsecured
Revolving Credit Facility and Unsecured Term Loan,
respectively. The Unsecured Revolving Credit Facility
allows for up to $50 million to be drawn in the form of
letters of credit and up to $50 million for short-term
swingline borrowings. There is a commitment fee under
the Unsecured Revolving Credit Facility in respect of
the unused commitments thereunder of 0.20 percent to
0.30 percent per annum, depending on the usage of the
Unsecured Revolving Credit Facility. Borrowings under
the Unsecured Revolving Credit Facility were not
permitted until the consummation of the spin-offs and,
therefore, there were no letters of credit or borrowings
outstanding under the Unsecured Revolving Credit
Facility as of December 31, 2016.
CMBS and Mortgage Loans
In October 2016, we issued two new commercial
mortgage-backed securities loans (the “2016 CMBS
Loans”) for Park, including a $725 million loan that bears
interest at 4.11 percent per annum, matures in November
2023 and is secured by two of our U.S. owned real estate
assets, and a $1,275 million loan that bears interest at
4.20 percent per annum, matures in November 2026 and
is secured by one of our U.S. owned real estate assets. In
connection with these issuances, we incurred $8 million
of debt issuance costs.
2016 Annual Report
85
During the year ended December 31, 2016, we repaid in full
the commercial mortgage-backed securities loan entered
into in 2013 (the “2013 CMBS Loan”) and, as a result, all
collateral securing it was released. In connection with the
repayment, we wrote-off $19 million of debt issuance
costs to other gain (loss), net in our consolidated
statement of operations.
In November 2016, we repaid a $104 million mortgage loan
secured by one of our U.S. owned hotel properties and
issued a new mortgage loan secured by this property
(the “2016 Mortgage Loan”) in the aggregate amount of
$165 million. The 2016 Mortgage Loan bears interest at
4.17 percent per annum and has an initial term of 10 years,
with one five-year extension at the lenders’ option. Interest
is payable monthly in arrears beginning in January 2017.
As a result of an acquisition made during the year ended
December 31, 2015, we assumed a $450 million mortgage
loan secured by the Bonnet Creek Resort (the “Bonnet
Creek Loan”), which was repaid in full during the year
ended December 31, 2016.
Our commercial mortgage backed-securities loans and
certain of our mortgage loans require us to deposit with
the lenders certain cash reserves for restricted uses. As
of December 31, 2016 and 2015, our consolidated balance
sheets included $49 million of restricted cash and cash
equivalents related to the loans outstanding as of each
balance sheet date.
We are required to deposit payments received from
customers on the pledged timeshare financing receiv-
ables and securitized timeshare financing receivables
related to the Timeshare Facility and Securitized
Timeshare Debt, respectively, into a depository account
maintained by a third party. On a monthly basis, the
depository account will be used to make any required
principal, interest and other payments due with respect
to the Timeshare Facility and Securitized Timeshare
Debt. The balance in the depository account, totaling
$22 million and $17 million as of December 31, 2016 and
2015, respectively, was included in restricted cash and
cash equivalents in our consolidated balance sheets.
Debt Maturities
The contractual maturities of our debt as of December 31,
2016 were as follows:
(in millions)
Year
2017
2018
2019
2020
2021
Thereafter(1)
Long-term
Debt
Timeshare
Debt
$
105
60
57
820
2,460
6,731
$10,233
$ 74
50
486
47
39
—
$696
(1) We assumed all extensions that are solely at our option for purposes
of calculating maturity dates.
Timeshare Debt
Timeshare debt balances and associated interest rates as
of December 31, 2016 were as follows:
NOTE 13
DEFERRED REVENUES
Deferred revenues were as follows:
(in millions)
Timeshare Facility with a rate
of 1.96%, due 2019
Securitized Timeshare Debt with
an average rate of 1.97%, due 2026
Less: unamortized portion of deferred
financing costs
Less: current maturities of timeshare debt
December 31,
2016
2015
$450
$ 150
246
696
(2)
(73)
356
506
(4)
(110)
$ 621
$392
In August 2016, we amended the terms of the Timeshare
Facility to, among other things, increase the borrowing
capacity from $300 million to $450 million, allowing us to
borrow up to the maximum amount until August 2018 and
requiring all amounts borrowed to be repaid in August
2019. In December 2016, we borrowed $300 million under
the Timeshare Facility. The Timeshare Facility is secured
by certain of our timeshare financing receivables. See
Note 7: “Financing Receivables” for further information.
The Securitized Timeshare Debt is backed by a pledge
of assets, consisting primarily of a pool of timeshare
financing receivables secured by first mortgages or deeds
of trust on timeshare interests. The Securitized Timeshare
Debt is a non-recourse obligation and is payable solely
from the pool of timeshare financing receivables pledged
as collateral to the debt and related assets.
86
Hilton
(in millions)
Hilton Honors points sales(1)
Other
December 31,
2016
$29
35
$64
2015
$233
50
$283
(1) In 2013, we sold Hilton Honors points to issuers of Hilton Honors
co-branded credit cards and recorded deferred revenue upon receipt
of the cash. The deferred revenue balance is reduced and revenue is
recognized as the issuers use the points for promotions, rewards and
incentive programs and certain other activities.
NOTE 14
OTHER LIABILITIES
Other long-term liabilities were as follows:
(in millions)
Program surplus
Pension obligations
Other long-term tax liabilities
Deferred employee compensation
and benefits
Insurance reserves
Other
December 31,
2016
$ 446
215
482
117
131
118
2015
$ 420
183
295
173
87
124
$1,509
$1,282
Program surplus represents obligations to operate our
marketing, sales and brand programs on behalf of our
hotel owners. Guarantee liability is related to obligations
under our outstanding performance guarantees. Our
obligations related to the insurance claims are expected
to be satisfied, on average, over the next three years.
NOTE 15
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
During the years ended December 31, 2016, 2015 and 2014, derivatives were used to hedge the interest rate risk associated
with variable-rate debt as required by certain loan agreements, as well as foreign exchange risk associated with certain
foreign currency denominated cash balances.
During the year ended December 31, 2016, we dedesignated four interest rate swaps that were previously designated as
cash flow hedges as they no longer met the criteria for hedge accounting. These interest rate swaps, which swapped three-
month LIBOR on the 2013 Term Loans to a fixed rate of 1.87 percent, expire in October 2018 and, as of December 31, 2016,
had an aggregate notional amount of $1.45 billion.
As of December 31, 2016, we held 68 short-term foreign exchange forward contracts with an aggregate notional amount
of $326 million to offset exposure to fluctuations in our foreign currency denominated cash balances. We elected not to
designate these foreign exchange forward contracts as hedging instruments.
Fair Value of Derivative Instruments
The fair values of our derivative instruments in our consolidated balance sheets were as follows:
(in millions)
Balance Sheet Classification
Cash Flow Hedges:
Interest rate swaps
Non-designated Hedges:
Interest rate swaps
Forward contracts
Forward contracts
Other liabilities
Other liabilities
Other current assets
Accounts payable, accrued expenses and other
December 31
2016
N/A
$12
3
4
2015
$15
N/A
1
1
Earnings Effect of Derivative Instruments
The amounts of gain (loss) recognized in our consolidated statements of operations and consolidated statements
of comprehensive income before any effect for income taxes were as follows:
(in millions)
Cash Flow Hedges:
Interest rate swaps(1)
Non-designated Hedges:
Interest rate swaps
Interest rate swaps(2)
Forward contracts
Classification of Gain (Loss) Recognized
Other comprehensive loss
Other gain (loss), net
Interest expense
Gain (loss) on foreign currency transactions
2016
$(7)
4
4
7
Year Ended December 31,
2015
$(11)
N/A
N/A
11
2014
$(14)
N/A
N/A
1
(1) There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the years
ended December 31, 2016, 2015 and 2014.
(2) The amount recognized during the year ended December 31, 2016 is related to the dedesignation of these instruments as cash flow hedges and was
reclassified from accumulated other comprehensive loss as the underlying transactions occurred.
2016 Annual Report
87
NOTE 16
FAIR VALUE MEASUREMENTS
We did not elect the fair value measurement option for
any of our financial assets or liabilities. The fair value of
certain financial instruments and the hierarchy level we
used to estimate fair values are shown below:
(in millions)
Assets:
Cash equivalents
Restricted cash
equivalents
Timeshare financing
receivables(1)
Liabilities:
Long-term debt(2)(3)
Timeshare debt(3)
Interest rate swaps
(in millions)
Assets:
Cash equivalents
Restricted cash
equivalents
Timeshare financing
receivables(1)
Liabilities:
Long-term debt(2)(3)
Timeshare debt(3)
Interest rate swaps
December 31, 2016
Hierarchy Level
Carrying
Value
Level 1
Level 2
Level 3
$ 958 $
—
$958 $
—
11
1,031
9,843
694
12
—
—
2,886
—
—
11
—
—
1,153
—
—
12
7,152
696
—
December 31, 2015
Hierarchy Level
Carrying
Value
Level 1
Level 2
Level 3
$ 327 $
—
$327 $
—
18
976
—
—
9,673
502
15
1,619
—
—
18
—
—
1,080
—
—
15
8,267
506
—
(1) Carrying value includes allowance for loan loss.
(2) Excludes capital lease obligations with a carrying value of $242 million
and $245 million as of December 31, 2016 and December 31, 2015,
respectively, and debt of certain consolidated VIEs with a carrying value
of $33 million and $32 million, respectively.
(3) Carrying value includes unamortized deferred financing costs
and discounts.
The fair values of financial instruments not included in
this table are estimated to be equal to their carrying values
as of December 31, 2016 and December 31, 2015. Our esti-
mates of the fair values were determined using available
market information and appropriate valuation methods.
Considerable judgment is necessary to interpret market
data and develop the estimated fair values.
Cash equivalents and restricted cash equivalents
primarily consisted of short-term interest-bearing money
market funds with maturities of less than 90 days, time
deposits and commercial paper. The estimated fair values
were based on available market pricing information of
similar financial instruments.
The estimated fair values of our timeshare financing
receivables were based on the expected future cash flows
discounted at weighted-average interest rates of the
current portfolio, which reflect the risk of the underlying
notes, primarily determined by the creditworthiness of
the borrowers.
88
Hilton
The estimated fair values of our Level 1 long-term
debt were based on prices in active debt markets. The
estimated fair values of our Level 3 long-term debt were
based on: (i) indicative quotes received for similar issuances;
(ii) the expected future cash flows discounted at
risk-adjusted rates; or (iii) the carrying value, excluding
unamortized deferred financing costs, where the interest
rates approximated current market rates.
The estimated fair values of our timeshare debt were
based on the carrying values, excluding unamortized
deferred financing costs, as the interest rates
approximated current market rates.
We measure our interest rate swaps at fair value, which
were estimated using an income approach. The primary
inputs into our fair value estimate include interest rates
and yield curves based on observable market inputs
of similar instruments.
NOTE 17
LEASES
We lease hotel properties, land, equipment and corporate
office space under operating and capital leases. As of
December 31, 2016 and 2015, we leased 66 and 69 hotels,
respectively, under operating leases, and five hotels under
capital leases. As of December 31, 2016 and 2015, two of
these capital leases were liabilities of VIEs that we con-
solidated and were non-recourse to us. Our leases expire
at various dates from 2017 through 2196, with varying
renewal options, and the majority expire before 2026.
Our operating leases may require minimum rent payments,
contingent rent payments based on a percentage of
revenue or income or rent payments equal to the greater
of a minimum rent or contingent rent. In addition, we may
be required to pay some, or all, of the capital costs for
property and equipment in the hotel during the term of
the lease.
Amortization of assets recorded under capital leases is
recorded in depreciation and amortization in our consoli-
dated statements of operations and is recognized over
the lease term.
The future minimum rent payments under non-cancelable
leases, due in each of the next five years and thereafter as
of December 31, 2016, were as follows:
(in millions)
Year
2017
2018
2019
2020
2021
Thereafter
Total minimum rent
payments
Less: amount
representing interest
Present value of net
minimum rent payments
Operating
Leases
Capital
Leases
Non-Recourse
Capital
Leases
$ 210
191
177
171
161
1,081
$ 5
5
6
6
6
105
$ 14
23
23
24
24
174
$1,991
133
282
(82)
(91)
$ 51
$191
Rent expense for all operating leases was as follows:
(in millions)
Minimum rentals
Contingent rentals
Year Ended December 31,
2016
$268
120
$388
2015
$290
126
$ 416
2014
$293
146
$439
NOTE 18
INCOME TAXES
Our tax provision includes federal, state and foreign income
taxes payable. The domestic and foreign components of
income before income taxes were as follows:
(in millions)
Year Ended December 31,
2016
2015
2014
U.S. income before tax
Foreign income (loss) before tax
$1,582
(327)
$1,178
318
$ 937
210
Income before income taxes
$1,255
$1,496
$1,147
The components of our provision (benefit) for income
taxes were as follows:
(in millions)
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision
for income taxes
Year Ended December 31,
2016
2015
2014
$ 787
107
76
970
(123)
74
(30)
(79)
$ 446
45
68
559
(527)
(23)
71
(479)
$323
28
100
451
8
10
(4)
14
$ 891
$ 80
$465
Reconciliations of our tax provision at the U.S. statutory
rate to the provision (benefit) for income taxes were
as follows:
(in millions)
Statutory U.S. federal income
tax provision
State income taxes, net of
U.S. federal tax benefit
Foreign income tax expense
Foreign losses not subject
to U.S. tax
Nontaxable liquidation
of subsidiaries
U.S. benefit of foreign taxes
Corporate restructuring
Change in deferred tax asset
valuation allowance
Change in basis difference
in foreign subsidiaries
Provision (benefit) for
uncertain tax positions
Non-deductible transaction costs
Non-deductible share-based
compensation
Non-deductible goodwill
Other, net
Year Ended December 31,
2016
2015
2014
$ 439
$ 524
$402
47
127
—
—
(69)
513
(72)
20
(139)
27
—
—
(2)
53
119
—
(640)
(118)
—
15
8
18
—
23
77
1
35
56
(7)
—
(55)
—
14
10
5
—
11
—
(6)
Provision for income taxes
$ 891
$ 80
$465
During the year ended December 31, 2016, we effected
two corporate structuring transactions that included
(i) the organization of Hilton’s assets and subsidiaries in
preparation for the spin-offs, and (ii) a restructuring of
Hilton’s international assets and subsidiaries (the “inter-
national restructuring”). The international restructuring
involved a transfer of certain assets, including intellectual
property used in the international business, from U.S.
subsidiaries to foreign subsidiaries, and became effective
in December 2016. The transfer of the intellectual property
resulted in the recognition of tax expense representing
the estimated U.S. tax expected to be paid in future years
on income generated from the intellectual property
transferred to foreign jurisdictions. Further, our deferred
effective tax rate is determined based upon the
composition of applicable federal and state tax rates.
Due to the changes in the footprint of the Company and
the expected applicable tax rates at which our domestic
deferred tax assets and liabilities will reverse in future
periods as a result of the described structuring activities,
our estimated deferred effective tax rate has increased. In
total, these structuring transactions resulted in additional
income tax expense of $513 million during the three
months ended December 31, 2016.
After the 2016 international restructuring, based on our
consideration of all available positive and negative evi-
dence, we determined that it was more likely than not we
would be able to realize the benefit of various foreign
deferred tax assets. Accordingly, as of December 31, 2016,
we released valuation allowances of $32 million against
our foreign deferred tax assets.
During the year ended December 31, 2015, certain of our
U.S. subsidiary corporations were converted to limited lia-
bility companies and certain of our subsidiary controlled
foreign corporations elected to be disregarded for U.S.
Federal income tax purposes. These transactions were
treated as tax-free liquidations for federal tax purposes.
As a result of these liquidation transactions, $512 million
of deferred tax liabilities were derecognized. In addition,
we recognized $128 million of previously unrecognized
deferred tax assets associated with assets and liabilities
distributed from the liquidated controlled foreign
corporations, resulting in a total deferred tax benefit of
$640 million. These previously unrecognized deferred tax
assets were a component of our investment in foreign
subsidiaries deferred tax balances that were connected to
the liquidated controlled foreign corporations. Prior to
these liquidations, we did not believe that the benefit of
these deferred tax assets would be realized within the
foreseeable future; therefore, we did not recognize these
deferred tax assets.
2016 Annual Report
89
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 tax asset (liability) were as follows:
We classify reserves for tax uncertainties within current
income taxes payable and other long-term liabilities in
our consolidated balance sheets. Reconciliations of the
beginning and ending amount of unrecognized tax
benefits were as follows:
(in millions)
2016
2015
(in millions)
December 31,
Year Ended December 31,
2016
$ 407
2015
$401
2014
$435
Balance at beginning of year
Additions for tax positions
related to the prior year
Additions for tax positions
related to the current year
Reductions for tax positions
65
9
for prior years
(204)
Settlements
(21)
Lapse of statute of limitations
(3)
Currency translation adjustment —
12
8
(4)
(4)
(2)
(4)
25
10
(63)
(1)
(2)
(3)
Balance at end of year
$ 253
$407
$401
The changes to our unrecognized tax benefits during the
years ended December 31, 2016 and 2015 were primarily
the result of items identified, resolved and settled as part
of our ongoing U.S. federal audit. We recognize interest
and penalties accrued related to uncertain tax positions in
income tax expense. As of December 31, 2016 and 2015,
we had accrued approximately $31 million and $27 million,
respectively, for the payment of interest and penalties. We
accrued approximately $4 million, $5 million and $8 million
during the years ended December 31, 2016, 2015 and 2014,
respectively. Included in the balance of uncertain tax posi-
tions as of December 31, 2016 and 2015 were $217 million
and $377 million, respectively, associated with positions
that if favorably resolved would provide a benefit to our
effective tax rate. As a result of the expected resolution of
examination issues with federal, state, and foreign tax
authorities, we believe it is reasonably possible that during
the next 12 months the amount of unrecognized tax
benefits will decrease up to $8 million.
We file income tax returns, including returns for our
subsidiaries, with federal, state and foreign jurisdictions.
We are under regular and recurring audit by the Internal
Revenue Service (“IRS”) 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 state, local, federal
and foreign tax jurisdictions or from the resolution of
various proceedings between the U.S. and foreign tax
authorities. We are no longer subject to U.S. federal
income tax examination for years through 2004. As of
December 31, 2016, we remain subject to federal exam-
inations from 2005-2015, state examinations from
2003-2015 and foreign examinations of our income tax
returns for the years 1996 through 2015.
Deferred tax assets:
Net operating loss carryforwards
Compensation
Other reserves
Capital lease obligations
Insurance reserves
Program surplus
Other
Total gross deferred tax assets
Less: valuation allowance
Deferred tax assets
Deferred tax liabilities:
Property and equipment
Brands
Amortizable intangible assets
Investments
Investment in foreign subsidiaries
Deferred income
$ 410
228
72
92
36
84
83
1,005
(507)
498
(2,377)
(1,626)
(330)
(64)
(39)
(520)
$ 456
254
88
100
51
79
108
1,136
(491)
645
(2,198)
(1,889)
(520)
(11)
(35)
(544)
Deferred tax liabilities
Net deferred taxes
(4,956)
(5,197)
$(4,458)
$(4,552)
As of December 31, 2016, we had state and foreign net
operating loss carryforwards of $192 million and $1.6 billion,
respectively, which resulted in deferred tax assets of
$10 million for state jurisdictions and $400 million for
foreign jurisdictions. Approximately $17 million of our
deferred tax assets as of December 31, 2016 related to net
operating loss carryforwards that will expire between 2017
and 2036 with less than $1 million of that amount expiring
in 2017. Approximately $393 million of our deferred tax
assets as of December 31, 2016 resulted from net operating
loss carryforwards that are not subject to expiration. We
believe that it is more likely than not that the benefit from
certain state and foreign net operating loss carryforwards
will not be realized. In recognition of this assessment,
we provided a valuation allowance of $385 million as of
December 31, 2016 on the deferred tax assets relating to
these state and foreign net operating loss carryforwards.
Our total valuation allowance relating to these net operating
loss carryforwards and other deferred tax assets increased
$16 million during the year ended December 31, 2016.
90
Hilton
In April 2014, we received 30-day Letters from the IRS and
the Revenue Agents Report (“RAR”) for the 2006 and
October 2007 tax years. We disagreed with several of the
proposed adjustments in the RAR, filed a formal appeals
protest with the IRS and did not make any tax payments
related to this audit. The issues being protested in appeals
relate to assertions by the IRS that: (1) certain foreign
currency-denominated intercompany loans from our
foreign subsidiaries to certain U.S. subsidiaries should be
recharacterized as equity for U.S. federal income tax
purposes and constitute deemed dividends from such
foreign subsidiaries to our U.S. subsidiaries; (2) in calculating
the amount of U.S. taxable income resulting from our
Hilton Honors guest loyalty program, we should not
reduce gross income by the estimated costs of future
redemptions, but rather such costs would be deductible
at the time the points are redeemed; and (3) certain
foreign-currency denominated loans issued by one of our
Luxembourg subsidiaries whose functional currency is
USD, should instead be treated as issued by one of our
Belgian subsidiaries whose functional currency is the
euro, and thus foreign currency gains and losses with
respect to such loans should have been measured in
euros, instead of USD. Additionally, in January 2016, we
received a 30-day Letter from the IRS and the RAR for the
December 2007 through 2010 tax years. The RAR includes
the proposed adjustments for tax years December 2007
through 2010, which reflect the carryover effect of the
three protested issues from 2006 through October 2007.
These proposed adjustments will also be protested in
appeals, and formal appeals protests have been submit-
ted. In total, the proposed adjustments sought by the
IRS would result in additional U.S. federal tax owed of
approximately $874 million, excluding interest and
penalties and potential state income taxes. The portion
of this amount related to our Hilton Honors guest loyalty
program would result in a decrease to our future tax
liability when the points are redeemed. We disagree with
the IRS’s position on each of these assertions and intend
to vigorously contest them. However, as a result of recent
developments related to the appeals process discussion
that have taken place in 2016, we have determined based
on on-going discussions with the IRS, it is more likely than
not that we will not recognize the full benefit related to
certain of the issues being appealed. Accordingly, as of
December 31, 2016, we have recorded a $44 million
unrecognized tax benefit.
State income tax returns are generally subject to
examination for a period of three to five years after filing
the respective return; however, the state effect of any
federal tax return changes remains subject to examina-
tion by various states for a period generally of up to one
year after formal notification to the states. The statute of
limitations for the foreign jurisdictions generally ranges
from three to ten years after filing the respective
tax return.
NOTE 19
EMPLOYEE BENEFIT PLANS
We sponsor multiple domestic and international
employee benefit plans. Benefits are based upon years
of service and compensation.
We have a noncontributory retirement plan in the U.S.
(the “Domestic Plan”), which covers certain employees not
earning union benefits. This plan was frozen for partici-
pant 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.
As employees have not accrued additional benefits since
that time, we do not utilize salary or pension inflation
assumptions in calculating our benefit obligation for the
Domestic Plan. The annual measurement date for the
Domestic Plan is December 31.
We also have multiple employee benefit plans that cover
many of our international employees. These include (i) a
plan that covers workers in the United Kingdom (the
“U.K. Plan”), which was frozen to further service accruals
on November 30, 2013; and (ii) a number of smaller plans
that cover workers in various countries around the world
(the “International Plans”). The annual measurement date
for all of these 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 sheets and make corre-
sponding adjustments for changes in the value through
accumulated other comprehensive loss, net of tax.
2016 Annual Report
91
The following table presents the projected benefit obligation, the fair value of plan assets, the funded status and the
accumulated benefit obligation for the Domestic Plan, the U.K. Plan and the International Plans:
(in millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Settlements and curtailments
Effect of foreign exchange rates
Benefits paid
Benefit obligation at end of year
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets, net of expenses
Employer contributions
Effect of foreign exchange rates
Benefits paid
Settlements
Fair value of plan assets at end of year
Funded status at end of year (underfunded)
Domestic Plan
U.K. Plan
International Plans
2016
2015
2016
2015
2016
2015
$394
—
13
1
(2)
—
(25)
$381
$ 265
11
18
—
(25)
(2)
267
(114)
$425
—
16
(8)
(14)
—
(25)
$394
$ 283
(11)
32
—
(25)
(14)
265
(129)
$ 391
2
12
87
—
(74)
(14)
$404
$368
42
5
(65)
(14)
—
336
(68)
$404
$415
1
15
(5)
—
(19)
(16)
$391
$390
(1)
13
(18)
(16)
—
368
(23)
$391
$ 82
2
2
2
(1)
(1)
(5)
$ 81
$ 60
1
3
—
(5)
(1)
58
(23)
$ 81
$115
2
2
(1)
(4)
(4)
(28)
$ 82
$ 85
—
8
(1)
(28)
(4)
60
(22)
$ 82
Accumulated benefit obligation
$ 381
$ 394
Amounts recognized in the consolidated balance sheets consisted of:
(in millions)
Other non-current assets
Other liabilities
Net amount recognized
Domestic Plan
U.K. Plan
International Plans
2016
4
$
(118)
$(114)
2015
$
2
(131)
$(129)
2016
$ —
(68)
$ (68)
2015
$ —
(23)
$ (23)
2016
$ 6
(29)
$(23)
2015
$ 7
(29)
$(22)
Amounts recognized in accumulated other comprehensive loss consisted of:
(in millions)
Net actuarial loss
Prior service credit
Amortization of net gain
Net amount recognized
Domestic Plan
U.K. Plan
International Plans
2016
2015
2014
2016
2015
2014
2016
2015
2014
$ —
(3)
(3)
$ (6)
$15
(4)
(3)
$ 8
$42
(4)
(7)
$ 31
$ 41
—
(2)
$39
$16
—
(2)
$14
$33
—
(1)
$32
$3
—
(1)
$2
$ 1
—
(9)
$(8)
$10
—
(1)
$ 9
The estimated unrecognized net losses and prior service cost that will be amortized into net periodic pension cost over
the fiscal year following the indicated year were as follows:
(in millions)
2016
2015
2014
2016
2015
2014
Unrecognized net losses
Unrecognized prior service cost
Amount unrecognized
$2
4
$6
$2
4
$6
$3
4
$7
$4
—
$4
$2
—
$2
$2
—
$2
2016
$ —
—
$ —
2015
$ —
—
$ —
2014
$1
—
$1
Domestic Plan
U.K. Plan
International Plans
The net periodic pension cost (credit) was as follows:
Domestic Plan
U.K. Plan
International Plans
(in millions)
2016
2015
2014
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement losses
Net periodic pension cost (credit)
92
Hilton
$ 8
13
(19)
4
3
—
$ 9
$ 7
16
(19)
4
3
—
$ 7
17
(18)
4
1
5
2016
$ 2
12
(22)
—
2
—
2015
$ 2
15
(25)
—
2
—
$ 11
$ 16
$ (6)
$ (6)
2014
$ 1
17
(24)
—
1
—
$ (5)
2016
2015
2014
$ 3
2
(3)
—
—
—
$ 2
$ 3
2
(4)
—
—
10
$11
$ 2
4
(4)
—
1
1
$ 4
The weighted-average assumptions used to determine benefit obligations were as follows:
Discount rate
Salary inflation
Pension inflation
Domestic Plan
U.K. Plan
International Plans
2016
2015
2016
2015
2016
2015
4.0%
N/A
N/A
4.3%
N/A
N/A
2.8%
1.9
3.1
3.9%
1.7
2.8
3.1%
2.1
1.7
3.5%
2.1
1.6
The weighted-average assumptions used to determine net periodic pension cost (credit) were as follows:
Discount rate
Expected return on plan assets
Salary inflation
Pension inflation
Domestic Plan
U.K. Plan
International Plans
2016
2015
2014
2016
2015
2014
2016
2015
2014
4.2%
7.3
N/A
N/A
3.9%
7.5
N/A
N/A
4.7%
7.5
N/A
N/A
3.9%
6.5
1.7
2.8
3.8%
6.5
1.6
2.8
4.7%
6.5
1.9
3.0
3.5%
5.4
2.1
1.6
3.3%
5.1
2.2
1.8
4.3%
6.0
2.3
1.9
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 outside 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 debt and equity securities
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. The target asset allocation for the Domestic Plan as a percentage of total
plan assets, as of December 31, 2016 and 2015, was 65 percent and 60 percent, respectively, in funds that invest in equity
securities, and 35 percent and 40 percent, respectively, in funds that invest in debt securities. The target asset allocation
for the U.K. Plan and the International Plans was 65 percent in funds that invest in equity and debt securities and 3 5 percent
in bond funds as of December 31, 2016 and 2015, respectively.
The following tables present the fair value hierarchy of total plan assets measured at fair value by asset category. The fair
values of Level 2 assets were based on available market pricing information of similar financial instruments. There were no
Level 3 assets as of December 31, 2016 and 2015.
(in millions)
Cash and cash equivalents
Equity funds
Debt securities
Bond funds
Common collective trusts
Other
Total
(in millions)
Cash and cash equivalents
Equity funds
Debt securities
Bond funds
Common collective trusts
Total
Domestic Plan
U.K. Plan
International Plans
Level 1
Level 2
Level 1
Level 2
Level 1
Level 2
December 31, 2016
$ —
25
1
—
—
—
$ 26
$ —
—
62
—
139
40
$241
$ —
—
—
—
—
—
$ —
$ —
—
—
—
336
—
$336
$10
3
—
—
—
—
$13
$—
6
—
6
33
—
$45
Domestic Plan
December 31, 2015
U.K. Plan
International Plans
Level 1
Level 2
Level 1
Level 2
Level 1
Level 2
$ —
64
2
—
—
$ 66
$ —
—
71
—
128
$199
$ —
—
—
—
—
$ —
$ —
—
—
—
368
$368
$10
4
—
—
—
$14
$ —
7
—
7
32
$ 46
We expect to contribute approximately $21 million, $8 million and $4 million to the Domestic Plan, the U.K. Plan and the
International Plans, respectively, in 2017.
2016 Annual Report
93
As of December 31, 2016, the benefits expected to be paid
in the next five years and in the aggregate for the five
years thereafter were as follows:
(in millions)
Year
2017
2018
2019
2020
2021
2022-2026
Domestic
Plan
U.K.
Plan
International
Plans
$ 30
27
26
26
26
124
$259
$ 13
13
13
14
14
73
$140
$ 9
5
5
5
5
24
$53
As of January 1, 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, 2016, the multiple
employer plan had combined plan assets of $289 million
and a projected benefit obligation of $405 million.
We also have plans covering qualifying employees and
non-officer directors (the “Supplemental Plans”). Benefits
for the Supplemental Plans are based upon years of
service and compensation. Since December 31, 1996,
employees and non-officer directors have not accrued
additional benefits under the Supplemental Plans. These
plans are self-funded by us and, therefore, have no plan
assets isolated to pay benefits due to employees. As of
December 31, 2016 and 2015, these plans had benefit
obligations of $19 million and $17 million, respectively,
which were fully accrued in other liabilities in our con-
solidated balance sheets. Expense incurred under the
Supplemental Plans for the years ended December 31,
2016 was $3 million and for the years ended December 31,
2015 and 2014 was less than $1 million.
We have various employee defined contribution
investment plans whereby we contribute matching
percentages of employee contributions. The aggregate
expense under these plans totaled $23 million during
each of the years ended December 31, 2016, 2015 and 2014.
NOTE 20
SHARE-BASED COMPENSATION
We recorded share-based compensation expense of
$91 million, $162 million and $74 million during the years
ended December 31, 2016, 2015 and 2014, respectively,
which includes amounts reimbursed by hotel owners. The
total tax benefit recognized related to this compensation
expense was $35 million, $37 million and $34 million for
the years ended December 31, 2016, 2015 and 2014,
respectively. Share-based compensation expense for
the years ended December 31, 2015 and 2014 included
compensation expense that was recognized when certain
remaining awards granted in connection with our initial
public offering vested during 2015 and 2014. Additionally,
we terminated a cash-based, long-term incentive plan and
reversed the associated accruals resulting in a reduction
of compensation expense for the year ended December 31,
2014. As of December 31, 2016 and 2015, we accrued
$16 million and $7 million, respectively, in accounts
payable, accrued expenses and other in our consolidated
balance sheets for certain awards settled in cash.
As of December 31, 2016, unrecognized compensation
expense for unvested awards was approximately
$99 million, which is expected to be recognized over a
weighted-average period of 1.7 years on a straight-line
basis. There were 21,823,633 shares of common stock
available for future issuance under the Stock Plan as of
December 31, 2016.
All share and share-related information have been
adjusted to reflect the Reverse Stock Split. See Note 1:
“Organization” for further discussion.
RSUs
The following table provides information about our RSU
grants for the last three fiscal years:
Number of shares granted
Weighted average
grant date fair value
per share
Fair value of shares
vested (in millions)(1)
Year Ended December 31,
2016
2015
2014
1,169,238
679,546 1,883,454
$59.73
$82.38
$64.59
$ 40
$ 90
$ —
(1) The fair value of shares vested during the year ended December 31, 2014
was less than $1 million.
The following table summarizes the activity of our RSUs
during the year ended December 31, 2016:
Number
of Shares
Outstanding as of December 31, 2015 1,246,084
Granted
1,169,238
Vested
(683,262)
Forfeited
(107,519)
Outstanding as of December 31, 2016 1,624,541
Weighted
Average
Grant Date
Fair Value
per Share
$73.44
59.73
70.50
66.90
65.24
94
Hilton
Options
The following table provides information about our option
grants for the last three fiscal years:
Number of options granted
Weighted average
Year Ended December 31,
2016
2015
2014
503,150
309,528
334,530
exercise price per share
$58.83
$82.38
$64.59
Weighted average grant date
fair value per share
$16.41
$25.17
$22.74
The grant date fair value of each of these option grants
was determined using the Black-Scholes-Merton
option-pricing model with the following assumptions:
Expected volatility(1)
Dividend yield(2)
Risk-free rate(3)
Expected term (in years)(4)
Year Ended December 31,
2016
2015
2014
32.00%
1.43%
1.36%
6.0
28.00%
—%
1.67%
6.0
33.00%
—%
1.85%
6.0
(1) Due to limited trading history for our common stock, we did not have
sufficient information available on which to base a reasonable and
supportable estimate of the expected volatility of our share price. As a
result, we used an average historical volatility of our peer group over
a time period consistent with our expected term assumption. Our peer
group was determined based upon companies in our industry with similar
business models and is consistent with those used to benchmark our
executive compensation.
(2) Estimated based on the expected annualized dividend payment at
the date of grant. For the 2014 and 2015 options, we had no plans to pay
dividends during the expected term at the time of grant.
(3) Based on the yields of U.S. Department of Treasury instruments with
similar expected lives.
(4) Estimated using the average of the vesting periods and the contractual
term of the options.
The following table summarizes the activity of our options
during the year ended December 31, 2016:
Outstanding as of
December 31, 2015
Granted
Exercised
Forfeited, canceled
or expired
Outstanding as of
December 31, 2016
Exercisable as of
December 31, 2016
Number
of Shares
Weighted Average
Exercise Price
per Share
616,832
503,150
(5,724)
(38,227)
1,076,031
293,517
$73.47
58.83
64.59
69.03
66.83
70.57
The weighted average remaining contractual term for
options outstanding as of December 31, 2016 was 8.2 years.
Performance Shares
In November 2016, we modified our performance shares
whereby we will convert the performance shares granted
in 2015 and 2016 to RSUs based on a 100 percent achieve-
ment percentage with the same vesting periods as the
original awards contingent upon the occurrence of the
spin-offs, which was determined to be 100 percent
probable. We recognized $0.3 million of incremental
expense related to the modification of these grants during
the year ended December 31, 2016. We will recognize
additional expense of $6.5 million from the modification
over the remaining terms of the awards.
The following table provides information about our
performance share grants for the last three fiscal years:
Relative Shareholder Return:
Number of shares granted
Weighted average grant date
Year Ended December 31,
2016
2015
2014
300,784
204,523
176,661
fair value per share
$ 62.43
$98.94
$70.68
Fair value of shares vested
(in millions)
$
16
$
—
$
—
EBITDA CAGR:
Number of shares granted
Weighted average grant date
300,784
204,523
176,661
fair value per share
$ 58.83
$82.38
$64.59
Fair value of shares vested
(in millions)
$
12
$
—
$
—
The grant date fair value of each of the performance
shares based on relative shareholder return was
determined using a Monte Carlo simulation valuation
model with the following assumptions:
Expected volatility(1)
Dividend yield(2)
Risk-free rate(3)
Expected term (in years)(4)
Year Ended December 31,
2016
2015
2014
31.00%
—%
0.92%
2.8
24.00%
—%
1.04%
2.8
30.00%
—%
0.70%
2.8
(1) Due to limited trading history for our common stock, we did not have
sufficient information available on which to base a reasonable and sup-
portable estimate of the expected volatility of our share price. As a result,
we used an average historical volatility of our peer group over a time
period consistent with our expected term assumption. Our peer group
was determined based upon companies in our industry with similar
business models and is consistent with those used to benchmark our
executive compensation.
(2) As dividends are assumed to be reinvested in shares of common stock
and dividends will not be paid to the participants of the performance
shares unless the shares vest, we utilized a dividend yield of zero percent.
(3) Based on the yields of U.S. Department of Treasury instruments with
similar expected lives.
(4) Midpoint of the 30-calendar day period preceding the end of the
performance period.
2016 Annual Report
95
The following table summarizes the activity of
our performance shares during the year ended
December 31, 2016:
Relative
Shareholder Return
EBITDA CAGR
Weighted
Weighted
Average
Average
Grant Date
Grant Date
Fair Value
Fair Value Number
per share of Shares per Share
Number
of Shares
366,361
300,784
(152,835)
$86.37
62.43
70.68
366,361
300,784
(152,835)
$74.49
58.83
64.59
Outstanding as of
December 31, 2015
Granted
Vested
Forfeited
or canceled
(178,508)
77.58
(178,508)
68.61
Outstanding as of
December 31, 2016 335,802
76.74
335,802
68.09
DSUs
During the years ended December 31, 2016 and 2015,
we issued to our independent directors 11,393 and
6,179 DSUs, respectively, with grant date fair values of
$66.12 and $84.96, respectively.
NOTE 21
EARNINGS PER SHARE
The following table presents the calculation of basic and
diluted earnings per share (“EPS”). All share and per share
amounts have been adjusted to reflect the Reverse Stock
Split. See Note 1: “Organization” for further discussion.
(in millions, except per share amounts)
2016
2015
2014
Year Ended December 31,
Basic EPS:
Numerator:
Net income attributable to
Hilton stockholders
$348
$1,404
$ 673
Denominator:
Weighted average
shares outstanding
Basic EPS
Diluted EPS:
Numerator:
Net income attributable
to Hilton stockholders
Denominator:
Weighted average
shares outstanding
Diluted EPS
329
329
328
$1.06
$ 4.27
$2.05
$348
$1,404
$ 673
330
330
329
$1.05
$ 4.26
$2.05
Approximately 1 million share-based compensation
awards were excluded from the weighted average shares
outstanding in the computation of diluted EPS for the
year ended December 31, 2016, and less than 1 million
awards were excluded for the years ended December 31,
2015 and 2014 because their effect would have been
anti-dilutive under the treasury stock method.
NOTE 22
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, net of taxes, were as follows:
(in millions)
Balance as of December 31, 2013
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Equity contribution to consolidated variable interest entities
Balance as of December 31, 2014
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Balance as of December 31, 2015
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Currency
Translation
Adjustment(1)
$ (136)
(299)
(5)
Pension
Liability
Adjustment
$(134)
(49)
4
(304)
(6)
(446)
(150)
16
(134)
(580)
(157)
(1)
(158)
(45)
—
(179)
(21)
6
(15)
(194)
(63)
6
(57)
Cash Flow
Hedge
Adjustment
$ 6
(9)
—
(9)
—
(3)
(7)
—
(7)
(10)
(5)
3
(2)
Total
$ (264)
(357)
(1)
(358)
(6)
(628)
(178)
22
(156)
(784)
(225)
8
(217)
Balance as of December 31, 2016
$(738)
$(251)
$(12)
$(1,001)
(1) Includes net investment hedges and intra-entity foreign currency transactions that are of a long-term investment nature.
96
Hilton
The following table presents additional information about
reclassifications out of accumulated other comprehensive
loss (amounts in parentheses indicate a loss in our
consolidated statement of operations):
(in millions)
2016
2015
2014
December 31,
Currency translation adjustment:
Sale and liquidation
of foreign assets(1)
Gains on net
investment hedges(2)
Tax benefit(3)(4)
Total currency translation
adjustment reclassifications
for the period, net of tax
Pension liability adjustment:
Amortization of prior
service cost(5)
Amortization of net loss(5)
Tax expense(3)
Total pension liability
adjustment reclassifications
for the period, net of tax
Cash flow hedge adjustment:
Dedesignation of interest
rate swaps(6)
Tax benefit(3)
Total cash flow hedge
adjustment reclassifications
for the period, net of tax
Total reclassifications
for the period, net of tax
$ —
$(25)
$ 3
1
—
—
9
2
—
1
(16)
5
(4)
(5)
3
(4)
(5)
3
(4)
(3)
3
(6)
(6)
(4)
(4)
1
(3)
—
—
—
—
—
—
$(8)
$(22)
$ 1
(1) Reclassified out of accumulated other comprehensive loss to gain on
sales of assets, net for the year ended December 31, 2015 and other gain
(loss), net for the year ended December 31, 2014 in our consolidated
statements of operations.
(2) Reclassified out of accumulated other comprehensive loss to gain (loss)
on foreign currency transactions in our consolidated statements of
operations.
(3) Reclassified out of accumulated other comprehensive loss to income tax
expense in our consolidated statements of operations.
(4) The tax benefit was less than $1 million for the years ended December 31,
2016 and 2014.
(5) Reclassified out of accumulated other comprehensive loss to general,
administrative and other in our consolidated statements of operations.
These amounts were included in the computation of net periodic pension
cost. See Note 19: “Employee Benefit Plans” for additional information.
(6) Reclassified out of accumulated other comprehensive loss to interest
expense in our consolidated statements of operations.
NOTE 23
BUSINESS SEGMENTS
During the periods presented, our operations were
organized in three distinct operating segments: owner-
ship; management and franchise; and timeshare. Each
segment was managed separately because of its distinct
economic characteristics.
As of December 31, 2016, the ownership segment
included 141 properties totaling 57,716 rooms, comprising
120 hotels that we wholly owned or leased, one hotel
owned by a consolidated non-wholly owned entity, five
hotels owned or leased by consolidated VIEs and 15 hotels
that were owned or leased by unconsolidated affiliates.
While equity in earnings (losses) from unconsolidated
affiliates were not included in our measure of segment
revenues, we managed these investments in our ownership
segment and the results were included in our measure of
segment profits.
The management and franchise segment includes all
of the hotels we manage for third-party owners, as well as
all franchised hotels operated or managed by someone
other than us. As of December 31, 2016, this segment
included 559 managed hotels and 4,175 franchised hotels
totaling 4,734 hotels consisting of 738,724 rooms. This
segment also earns fees for managing properties in our
ownership and timeshare segments.
The timeshare segment includes the development of
vacation ownership clubs and resorts, marketing and sell-
ing of timeshare intervals, resort operations and providing
timeshare customer financing for the timeshare interests.
This segment also provides assistance to third-party
developers in selling their timeshare inventory. As of
December 31, 2016, this segment included 47 timeshare
properties totaling 7,657 units.
Corporate and other represents revenues and related
operating expenses generated by the incidental support
of hotel operations for owned, leased, managed and
franchised hotels and other rental income, as well as
corporate assets and related expenditures.
The performance of our operating segments is evaluated
primarily based on Adjusted EBITDA. We define Adjusted
EBITDA as EBITDA, further adjusted to exclude certain
items, including gains, losses and expenses in connection
with: (i) asset dispositions for both consolidated and uncon-
solidated investments; (ii) foreign currency transactions;
(iii) debt restructurings/retirements; (iv) non-cash
impairment losses; (v) furniture, fixtures and equipment
(“FF&E”) replacement reserves required under certain
lease agreements; (vi) reorganization costs; (vii) share-based
compensation expense; (viii) severance, relocation and
other expenses; and (ix) other items.
2016 Annual Report
97
The following table presents revenues for our reportable
segments, reconciled to consolidated amounts:
The following table provides a reconciliation of segment
Adjusted EBITDA to consolidated net income:
(in millions)
Revenues:
Ownership
Management and franchise
Timeshare
Segment revenues
Other revenues from
managed and
franchised properties
Other revenues
Intersegment fees
elimination(1)
Year Ended December 31,
2016
2015
2014
$ 4,157
1,786
1,390
$ 4,262 $ 4,271
1,468
1,171
1,691
1,308
7,333
7,261
6,910
4,446
102
4,130
91
3,691
99
(218)
(210)
(198)
Total revenues
$11,663
$11,272 $10,502
(1) Includes the following intercompany charges that were eliminated in our
consolidated financial statements:
Year Ended December 31,
(in millions)
Rental and other fees(a)
Management, royalty and
intellectual property fees(b)
Licensing fee(c)
Laundry services(d)
Other(e)
2016
$ 27
135
45
7
4
2015
$ 25
2014
$ 28
131
43
7
4
113
44
9
4
Intersegment fees elimination
$218
$210
$198
(a) Represents fees charged to our timeshare segment by our
ownership segment.
(b) Represents fees charged to our ownership segment by our management
and franchise segment.
(c) Represents fees charged to our timeshare segment by the management
and franchise segment.
(d) Represents charges to our ownership segment for services provided by
our wholly owned laundry business. Revenues from our laundry business
are included in other revenues. The laundry business was owned by Park
effective January 3, 2017 upon completion of the spin-offs.
(e) Represents other intercompany charges, which are a benefit to our
ownership segment and a cost to corporate and other.
(in millions)
Ownership(1)(2)
Management and franchise(2)
Timeshare(2)
Segment Adjusted EBITDA
Corporate and other(2)
Interest expense
Income tax expense
Depreciation and amortization
Interest expense, income tax,
depreciation and amortization
and impairment loss included
in equity in earnings from
unconsolidated affiliates
Gain on sales of assets, net
Gain (loss) on foreign
currency transactions
FF&E replacement reserve
Share-based
compensation expense
Impairment loss
Other gain (loss), net
Other adjustment items(3)
Year Ended December 31,
2016
$1,029
1,786
381
3,196
(221)
(587)
(891)
(686)
2015
2014
$1,064
1,691
352
$1,000
1,468
337
3,107
(228)
(575)
(80)
(692)
2,805
(255)
(618)
(465)
(628)
(47)
9
(13)
(56)
(91)
(15)
(26)
(208)
(32)
306
(41)
(48)
(162)
(9)
(1)
(129)
(37)
—
26
(46)
(74)
—
37
(63)
Net income
$ 364
$ 1,416
$ 682
(1) Includes unconsolidated affiliate Adjusted EBITDA.
(2) Our measures of Adjusted EBITDA included intercompany charges
that were eliminated in our consolidated financial statements.
Refer to the footnote to the segment revenues table for detail of the
intercompany charges.
(3) Includes $22 million and $95 million of severance costs related to the
sale of the Waldorf Astoria New York for the years ended December 31,
2016 and 2015, respectively. Also includes $137 million of costs related
to the spin-offs for the year ended December 31, 2016.
The following table presents total assets for our
reportable segments, reconciled to consolidated amounts:
(in millions)
Ownership
Management and franchise
Timeshare
Corporate and other
December 31,
2016
2015
$10,979
10,224
2,391
2,617
$ 11,269
10,392
1,935
2,026
$ 26,211
$25,622
The following table presents capital expenditures for
property and equipment for our reportable segments,
reconciled to consolidated amounts:
(in millions)
Ownership
Timeshare
Corporate and other
Year Ended December 31,
2016
$270
28
19
2015
$277
17
16
$ 317
$ 310
2014
$245
14
9
$268
98
Hilton
As of December 31, 2016, we had outstanding
commitments under third-party contracts of approxi-
mately $43 million for capital expenditures at certain
owned and leased properties. Our contracts contain clauses
that allow us to cancel all or some portion of the work. If
cancellation of a contract occurs, our commitment would
be any costs incurred up to the cancellation date, in
addition to any costs associated with the discharge of
the contract.
We have entered into an agreement with an affiliate of
the owner of a hotel whereby we have agreed to provide
a $60 million junior mezzanine loan to finance the con-
struction of a new hotel that we will manage. The junior
mezzanine loan will be subordinated to a senior mortgage
loan and senior mezzanine loan provided by third parties
unaffiliated with us and will be funded on a pro rata basis
with these loans as the construction costs are incurred.
During the years ended December 31, 2016 and 2015, we
funded $34 million and $17 million, respectively, of this
commitment, and we expect to fund our remaining
commitment of $9 million in 2017.
We have entered into certain arrangements with
developers whereby we have committed to purchase
timeshare units at a future date to be marketed and sold
under our Hilton Grand Vacations brand. As of December 31,
2016, we are committed to purchase approximately
$193 million of inventory over a period of three years.
The ultimate amount and timing of the acquisitions is
subject to change pursuant to the terms of the respective
arrangements, which could also allow for cancellation
in certain circumstances. During the years ended
December 31, 2016, 2015 and 2014, we purchased
$18 million, $17 million and $29 million, respectively, of
timeshare inventory as required under our commitments.
As of December 31, 2016, our remaining obligation
pursuant to these arrangements was expected to be
incurred as follows: $8 million in 2017, $56 million in 2018
and $129 million in 2019.
We are involved in other litigation arising in the normal
course of business, some of which includes 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 pe0nding or threatened
claims and litigation as of December 31, 2016 will not
have a material effect on our consolidated results of
operations, financial position or cash flows.
Total revenues by country were as follows:
(in millions)
U.S.
All other
Year Ended December 31,
2016
2015
2014
$ 9,382
2,281
$ 8,844
2,428
$ 7,927
2,575
$11,663
$11,272
$10,502
Other than the U.S., there were no countries that
individually represented more than 10 percent of total
revenues for the years ended December 31, 2016, 2015
and 2014.
Property and equipment, net by country was as follows:
(in millions)
U.S.
All other
December 31,
2016
2015
$8,438
492
$8,612
507
$8,930
$ 9,119
Other than the U.S., there were no countries that
individually represented more than 10 percent of total
property and equipment, net as of December 31, 2016
and 2015.
NOTE 24
COMMITMENTS AND CONTINGENCIES
As of December 31, 2016, we had an outstanding guarantee
of $5 million, with a remaining term of seven years, for
debt and other obligations of a third party. We have one
letter of credit for $25 million that has been pledged as
collateral for the guarantee. Although we believe it is
unlikely that material payments will be required under the
guarantee or letter of credit, there can be no assurance
that this will be the case.
We have also provided performance guarantees to certain
owners of hotels that we operate under management
contracts. Most of these guarantees allow us to terminate
the contract, rather than fund shortfalls, if specified
performance levels are not achieved. However, in limited
cases, we are obligated to fund performance shortfalls. As
of December 31, 2016, we had seven contracts containing
performance guarantees, with expirations ranging from
2019 to 2030, and possible cash outlays totaling approxi-
mately $69 million. Our obligations in future periods
depend on the operating performance levels of these
hotels over the remaining terms of the performance
guarantees. We do not have any letters of credit pledged
as collateral against these guarantees. As of December 31,
2016 and 2015, we recorded approximately $11 million and
$8 million, respectively, in accounts payable, accrued
expenses and other and approximately $17 million
and $25 million, respectively, in other liabilities in our
consolidated balance sheets for an outstanding
performance guarantee that is related to a VIE for
which we are not the primary beneficiary.
2016 Annual Report
99
NOTE 25
RELATED PARTY TRANSACTIONS
Investment in Affiliates
We hold investments in affiliates that own or lease
properties that we manage. See Note 8: “Investments in
Affiliates” for additional information. The following tables
summarize amounts included in our consolidated financial
statements related to these management agreements:
(in millions)
Balance Sheets
Assets:
Accounts receivable, net
Management and franchise
contracts, net
Liabilities:
December 31,
2016
2015
$19
20
$23
20
The following tables summarize amounts included in our
consolidated financial statements related to these
management and franchise agreements:
(in millions)
Balance Sheets
Assets:
Accounts receivable, net
Management and franchise contracts, net
Liabilities:
Accounts payable, accrued expenses
December 31,
2016
2015
$18
13
$21
16
and other
8
9
(in millions)
Statements of Operations
Revenues:
Management and franchise fees
Year Ended December 31,
2016
2015
2014
Accounts payable, accrued expenses
and other
$ 42
$ 48
$ 60
and other
11
10
Other revenues from managed
and franchised properties
144
160
293
Year Ended December 31,
2016
2015
2014
Expenses:
Depreciation and amortization
Other expenses from managed
1
—
—
and franchised properties
144
160
293
(in millions)
Statements of Operations
Revenues:
Management and franchise
fees and other
$ 28
$ 24
$ 25
Other revenues from managed
and franchised properties
166
166
167
Expenses:
Other expenses from managed
and franchised properties
166
166
167
Non-operating income
and expenses:
Interest income
Statements of Cash Flows
Investing Activities:
—
—
1
Contract acquisition costs
—
4
—
The Blackstone Group
Blackstone directly and indirectly owns or controls hotels
that we manage or franchise and for which we receive
fees in connection with the underlying management and
franchise agreements. Our maximum exposure to loss
related to these hotels is limited to the amounts discussed
below; therefore, our involvement with these hotels does
not expose us to additional variability or risk of loss.
100
Hilton
Statements of Cash Flows
Investing Activities:
Contract acquisition costs
—
—
7
As of December 31, 2016, entities affiliated with Blackstone
held $75 million of the 6.125% Senior Notes due 2024.
During the year ended December 31, 2015, we acquired,
as part of a tax deferred exchange of real property, certain
properties from sellers affiliated with Blackstone for a
total purchase price of $1.76 billion.
In 2014, we completed the sale of certain land and
easement rights at one of our hotels to an affiliate of
Blackstone in connection with a timeshare project. The
total consideration received for this transaction was
approximately $37 million. As a result of this transaction,
we entered into a sales and marketing agreement with
the affiliate of Blackstone to sell and market these time-
share intervals for which we earned commissions and
other fees of $177 million, $154 million and $30 million for
the years ended December 31, 2016, 2015 and 2014,
respectively, included in our consolidated statements of
operations, and had accounts receivable of $20 million
and $5 million as of December 31, 2016 and 2015,
respectively, in our consolidated balance sheets.
We also purchase products and services from entities
affiliated with or owned by Blackstone. The fees paid for
these products and services were $9 million, $32 million
and $31 million during the years ended December 31, 2016,
2015 and 2014, respectively.
NOTE 26
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Interest paid during the years ended December 31, 2016,
2015 and 2014, was $478 million, $485 million and
$514 million, respectively.
Income taxes, net of refunds, paid during the years ended
December 31, 2016, 2015 and 2014 were $677 million,
$475 million and $429 million, respectively.
The following non-cash investing and financing activities
were excluded from the consolidated statements of
cash flows:
In 2016, we transferred $116 million of property and
equipment to timeshare inventory for conversion into
timeshare units.
In 2015, we assumed the $450 million Bonnet Creek Loan
as a result of an acquisition.
In 2015, one of our consolidated VIEs modified the terms
of its capital lease resulting in a reduction in long-term
debt of $24 million.
In 2014, we transferred $45 million of property and
equipment to timeshare inventory as part of a conversion
of certain floors at one of our owned properties into
timeshare units.
In 2014, we completed an equity investments exchange
with a joint venture partner where we acquired
$144 million of property and equipment, $1 million
of other intangible assets and assumed $64 million of
long-term debt. We also disposed of $59 million in
equity method investments.
In 2014, we restructured a capital lease in conjunction
with a rent arbitration ruling, for which we recorded an
additional capital lease asset and obligation of $11 million.
NOTE 27
CONDENSED CONSOLIDATING GUARANTOR
FINANCIAL INFORMATION
In October 2013, Hilton Worldwide Finance LLC and
Hilton Worldwide Finance Corp. (the “2013 Issuers”), entities
formed in August 2013 that are 100 percent owned by the
Parent, issued the Senior Notes due 2021. In September
2016, Hilton Domestic Operating Company Inc. (together
with the 2013 Issuers, the “Subsidiary Issuers”), an entity
formed in August 2016 that is 100 percent owned by Hilton
Worldwide Finance LLC and a guarantor of the Senior
Notes due 2021, assumed the 4.25% Senior Notes due 2024
that were issued in August 2016 by escrow issuers. The
Senior Notes due 2021 and the 4.25% Senior Notes due
2024 are referred to as the Hilton Senior Notes.
The obligations of the Subsidiary Issuers are guaranteed
jointly and severally on a senior unsecured basis by the
Parent and certain of the Parent’s 100 percent owned
domestic restricted subsidiaries that are themselves not
issuers of the applicable series of Hilton Senior Notes
(together, the “Guarantors”). The indentures that govern the
Hilton Senior Notes provide that any subsidiary of the
Company that provides a guarantee of the 2013 Senior
Secured Credit Facility will guarantee the Hilton Senior Notes.
In connection with the spin-offs, certain entities that were
previously guarantors of the Hilton Senior Notes were
released and as of December 31, 2016 no longer guarantee
the Hilton Senior Notes. As of December 31, 2016, none
of our foreign subsidiaries or U.S. subsidiaries owned by
foreign subsidiaries or conducting foreign operations; our
non-wholly owned subsidiaries; or our subsidiaries that have
been designated for spin-off to Park and HGV guarantee
the Hilton Senior Notes (collectively, the “Non-Guarantors”).
The condensed consolidating financial information was
retrospectively adjusted to present the financial information
as of December 31, 2016 and 2015, and for the years ended
December 31, 2016, 2015 and 2014 based on the composition
the Guarantors and Non-Guarantors at December 31, 2016.
The guarantees are full and unconditional, subject to certain
customary release provisions. The indentures that govern
the Hilton Senior Notes provide that any Guarantor may be
released from its guarantee so long as: (i) the subsidiary is
sold or sells all of its assets; (ii) the subsidiary is released
from its guaranty under the 2013 Senior Secured Credit
Facility; (iii) the subsidiary is declared “unrestricted” for cove-
nant purposes; (iv) the subsidiary is merged with or into the
applicable Subsidiary Issuers or another Guarantor or the
Guarantor liquidates after transferring all of its assets to
the applicable Subsidiary Issuers or another Guarantor;
or (v) the requirements for legal defeasance or covenant
defeasance or to discharge the indenture have been
satisfied, in each case in compliance with applicable
provisions of the indentures.
2016 Annual Report
101
The following schedules present the condensed consolidating financial information as of December 31, 2016 and 2015, and
for the years ended December 31, 2016, 2015 and 2014, for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
(in millions)
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable, net
Intercompany receivables
Inventories
Current portion of financing receivables, net
Prepaid expenses
Income taxes receivable
Other
Total current assets
Property, Intangibles and Other Assets:
Property and equipment, net
Financing receivables, net
Investments in affiliates
Investments in subsidiaries
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Deferred income tax assets
Other
Total property, intangibles and other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other
Intercompany payables
Current maturities of long-term debt
Current maturities of timeshare debt
Income taxes payable
Total current liabilities
Long-term debt
Timeshare debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Total liabilities
Equity:
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
Parent
Subsidiary
Issuers
December 31, 2016
Non-
Guarantors Guarantors
Eliminations
Total
$
—
—
—
—
—
—
—
—
—
—
—
—
—
5,889
—
—
—
—
10
—
5,899
$
—
—
—
—
—
—
—
—
—
—
—
—
—
11,300
—
—
—
—
2
12
11,314
$
25
96
491
—
4
1
27
30
1
675
74
64
18
6,993
3,824
4,404
716
297
—
163
$ 1,393
170
514
42
537
137
137
—
38
2,968
8,856
899
96
—
1,998
444
303
210
117
159
$
—
—
—
(42)
—
—
(27)
(17)
—
(86)
$ 1,418
266
1,005
—
541
138
137
13
39
3,557
—
—
—
(24,182)
—
—
—
—
(12)
—
8,930
963
114
—
5,822
4,848
1,019
507
117
334
16,553
13,082
(24,194)
22,654
$5,899
$11,314
$17,228
$16,050
$(24,280)
$26,211
$ —
—
—
—
—
$
$
26
—
26
—
—
$ 1,461
42
—
—
—
—
—
—
—
—
—
—
—
5,899
—
5,899
52
5,361
—
—
—
—
12
5,425
5,889
—
5,889
1,503
981
—
42
1,742
889
771
5,928
11,300
—
11,300
993
—
72
73
77
1,215
3,678
621
22
2,845
—
726
9,107
$
(27)
(42)
—
—
(17)
(86)
—
—
—
(12)
—
—
(98)
$ 2,453
—
98
73
60
2,684
10,020
621
64
4,575
889
1,509
20,362
6,993
(50)
6,943
(24,182)
—
(24,182)
5,899
(50)
5,849
TOTAL LIABILITIES AND EQUITY
$5,899
$11,314
$17,228
$16,050
$(24,280)
$26,211
102
Hilton
(in millions)
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable, net
Inventories
Current portion of financing receivables, net
Prepaid expenses
Income taxes receivable
Other
Total current assets
Property, Intangibles and Other Assets:
Property and equipment, net
Financing receivables, net
Investments in affiliates
Investments in subsidiaries
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Deferred income tax assets
Other
Total property, intangibles and other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities:
Parent
Subsidiary
Issuers
December 31, 2015
Non-
Guarantors Guarantors
Eliminations
Total
$
—
—
—
—
—
—
—
—
—
—
—
—
6,166
—
—
—
—
24
—
6,190
$
—
—
—
—
—
—
—
—
—
—
—
—
11,854
—
—
—
—
3
9
11,866
$
18
91
406
1
1
36
120
1
674
73
32
49
6,457
3,824
4,405
818
334
—
147
$
591
156
470
441
128
140
—
37
1,963
9,046
855
89
—
2,063
514
331
252
78
118
$
—
—
—
—
—
(29)
(23)
—
(52)
—
—
—
(24,477)
—
—
—
—
(27)
—
$
609
247
876
442
129
147
97
38
2,585
9,119
887
138
—
5,887
4,919
1,149
586
78
274
16,139
13,346
(24,504)
23,037
$6,190
$11,866
$16,813
$15,309
$(24,556)
$25,622
Accounts payable, accrued expenses and other
Current maturities of long-term debt
Current maturities of timeshare debt
$
Income taxes payable
Total current liabilities
Long-term debt
Timeshare debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Total liabilities
Equity:
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
—
—
—
—
—
—
—
—
—
—
205
205
5,985
—
5,985
$
$
39
(12)
—
—
$ 1,239
—
—
—
27
5,659
—
—
—
—
14
5,700
6,166
—
6,166
1,239
54
—
252
1,819
784
811
4,959
11,854
—
11,854
957
106
110
56
1,229
4,144
392
31
2,838
—
252
8,886
$
(29)
—
—
(23)
(52)
—
—
—
(27)
—
—
(79)
$ 2,206
94
110
33
2,443
9,857
392
283
4,630
784
1,282
19,671
6,457
(34)
6,423
(24,477)
—
(24,477)
5,985
(34)
5,951
TOTAL LIABILITIES AND EQUITY
$6,190
$11,866
$16,813
$15,309
$(24,556)
$25,622
2016 Annual Report
103
December 31, 2016
Non-
Guarantors Guarantors
Eliminations
Total
$
—
1,398
—
1,398
4,894
6,292
—
—
273
—
452
725
4,894
5,619
1
674
8
(84)
2
(139)
—
461
(295)
166
149
315
—
$ 4,129
446
1,390
5,965
637
6,602
3,187
993
413
15
178
4,786
637
5,423
8
1,187
4
(242)
6
126
(27)
1,054
(889)
165
—
165
(16)
$
(3)
(143)
—
(146)
(1,085)
(1,231)
(87)
(45)
—
—
(14)
(146)
(1,085)
(1,231)
—
—
—
—
—
—
—
—
—
—
(619)
(619)
—
$ 4,126
1,701
1,390
7,217
4,446
11,663
3,100
948
686
15
616
5,365
4,446
9,811
9
1,861
12
(587)
8
(13)
(26)
1,255
(891)
364
—
364
(16)
$ 315
$ 149
$ (619)
$ 249
$
15
$ (402)
$
$
348
146
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
193
193
155
348
—
$348
$131
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(261)
—
—
1
(260)
100
(160)
315
155
—
$ 155
$ 153
—
—
—
(15)
—
(15)
$131
$ 153
$ 249
$
—
$ (402)
$
131
(in millions)
Revenues
Owned and leased hotels
Management and franchise fees and other
Timeshare
Parent
$ —
—
—
Subsidiary
Issuers
$ —
—
—
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Timeshare
Depreciation and amortization
Impairment loss
General, administrative and other
Other expenses from managed
and franchised properties
Total expenses
Gain on sales of assets, net
Operating income
Interest income
Interest expense
Equity in earnings from unconsolidated affiliates
Gain (loss) on foreign currency transactions
Other gain (loss), net
Income (loss) before income taxes and equity
in earnings from subsidiaries
Income tax benefit (expense)
Income (loss) before equity in earnings
from subsidiaries
Equity in earnings from subsidiaries
Net income
Net income attributable to noncontrolling interests
Net income attributable to Hilton stockholders
Comprehensive income
Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable
to Hilton stockholders
104
Hilton
(in millions)
Revenues
Owned and leased hotels
Management and franchise fees and other
Timeshare
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Timeshare
Depreciation and amortization
Impairment losses
General, administrative and other
Other expenses from managed
and franchised properties
Total expenses
Gain on sales of assets, net
Operating income
Interest income
Interest expense
Equity in earnings from unconsolidated affiliates
Gain (loss) on foreign currency transactions
Other gain (loss), net
Income (loss) before income taxes and equity
in earnings from subsidiaries
Income tax benefit (expense)
Income (loss) before equity in earnings
from subsidiaries
Equity in earnings from subsidiaries
Net income
Net income attributable to noncontrolling interests
Net income attributable to Hilton stockholders
Comprehensive income
Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable
to Hilton stockholders
Parent
$
—
—
—
—
Subsidiary
Issuers
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
(281)
—
—
—
(281)
108
(7)
1,411
1,404
—
$1,404
$1,248
(173)
1,584
1,411
—
$ 1,411
$1,404
December 31, 2015
Non-
Guarantors Guarantors
Eliminations
Total
$
—
1,331
—
1,331
4,568
5,899
—
—
288
—
473
761
4,568
5,329
—
570
16
(55)
2
77
(2)
608
150
758
826
1,584
—
$1,584
$1,546
$4,236
410
1,308
5,954
620
6,574
3,253
940
404
9
153
4,759
620
5,379
306
1,501
3
(239)
21
(118)
1
1,169
(331)
838
—
838
(12)
$
(3)
(140)
—
(143)
(1,058)
(1,201)
$4,233
1,601
1,308
7,142
4,130
11,272
(85)
(43)
—
—
(15)
(143)
(1,058)
(1,201)
—
—
—
—
—
—
—
—
—
—
(3,821)
(3,821)
—
3,168
897
692
9
611
5,377
4,130
9,507
306
2,071
19
(575)
23
(41)
(1)
1,496
(80)
1,416
—
1,416
(12)
$ 826
$ 727
$(3,821)
$1,404
$(3,665)
$1,260
—
—
—
(12)
—
(12)
$1,248
$1,404
$1,546
$ 715
$(3,665)
$1,248
2016 Annual Report
105
(in millions)
Revenues
Parent
Subsidiary
Issuers
December 31, 2014
Non-
Guarantors Guarantors
Eliminations
Total
Owned and leased hotels
Management and franchise fees and other
Timeshare
$ —
—
—
$ —
—
—
$
—
1,135
—
1,135
4,081
5,216
—
—
263
357
620
$4,242
368
1,171
5,781
$
(3)
(102)
—
(105)
$ 4,239
1,401
1,171
6,811
571
(961)
6,352
(1,066)
3,691
10,502
3,321
790
365
147
4,623
(69)
(23)
—
(13)
(105)
4,081
4,701
571
(961)
5,194
(1,066)
515
7
(59)
5
443
2
913
(340)
573
311
884
—
1,158
3
(225)
14
(417)
35
568
(248)
320
—
320
(9)
—
—
—
—
—
—
—
—
—
(1,873)
(1,873)
—
3,252
767
628
491
5,138
3,691
8,829
1,673
10
(618)
19
26
37
1,147
(465)
682
—
682
(9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5)
(5)
678
673
—
$673
$315
—
—
—
—
—
—
—
—
—
—
—
—
(334)
—
—
—
(334)
128
(206)
884
678
—
$678
$669
$ 884
$ 813
$ 311
$ (1,873)
$
47
$ (1,515)
$
$
673
329
—
—
—
(14)
—
(14)
$315
$669
$ 813
$
33
$ (1,515)
$
315
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Timeshare
Depreciation and amortization
General, administrative and other
Other expenses from managed
and franchised properties
Total expenses
Operating income
Interest income
Interest expense
Equity in earnings from unconsolidated affiliates
Gain (loss) on foreign currency transactions
Other gain, net
Income (loss) before income taxes and equity
in earnings from subsidiaries
Income tax benefit (expense)
Income (loss) before equity in earnings
from subsidiaries
Equity in earnings from subsidiaries
Net income
Net income attributable to noncontrolling interests
Net income attributable to Hilton stockholders
Comprehensive income
Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable
to Hilton stockholders
.
106
Hilton
(in millions)
Operating Activities:
Net cash provided by (used in) operating activities
Investing Activities:
Capital expenditures for property and equipment
Issuance of intercompany receivables
Payments received on intercompany receivables
Proceeds from asset dispositions
Contract acquisition costs
Capitalized software costs
Other
Net cash used in investing activities
Financing Activities:
Borrowings
Repayment of debt
Intercompany borrowings
Debt issuance costs
Repayment of intercompany borrowings
Intercompany transfers
Dividends paid
Intercompany dividends
Distributions to noncontrolling interests
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash,
restricted cash and cash equivalents
Net increase in cash, restricted cash
and cash equivalents
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash equivalents,
end of period
Parent
Subsidiary
Issuers
Year Ended December 31, 2016
Non-
Guarantors Guarantors
Eliminations
Total
$ —
$ (37)
$ 897
$ 1,095
$(605)
$ 1,350
—
—
—
—
—
—
—
—
—
—
—
—
—
277
(277)
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(6)
—
(266)
—
(17)
—
326
—
—
—
43
—
—
—
(9)
(192)
192
—
(46)
(73)
(35)
(163)
1,000
—
42
(20)
—
(1,744)
—
—
—
(722)
—
12
109
(308)
(42)
—
11
(9)
(8)
5
(351)
3,715
(4,093)
192
(39)
(192)
1,141
—
(605)
(32)
87
(15)
816
747
—
234
(192)
—
—
—
—
42
—
—
(234)
—
192
—
—
605
—
563
—
—
—
(317)
—
—
11
(55)
(81)
(36)
(478)
4,715
(4,359)
—
(76)
—
—
(277)
—
(32)
(29)
(15)
828
856
$ —
$ —
$
121
$ 1,563
$ —
$ 1,684
2016 Annual Report
107
(in millions)
Operating Activities:
Net cash provided by operating activities
Parent
Subsidiary
Issuers
Year Ended December 31, 2015
Non-
Guarantors Guarantors
Eliminations
Total
$
—
$ 184
$ 936
$ 723
$(436)
$ 1,407
Investing Activities:
Capital expenditures for property and equipment
Acquisitions, net of cash acquired
Proceeds from asset dispositions
Contract acquisition costs
Software capitalization costs
Other
Net cash provided by (used in) investing activities
—
—
—
—
—
—
—
Financing Activities:
Borrowings
Repayment of debt
Dividends paid
Intercompany transfers
—
—
138
(138)
—
Distributions to noncontrolling interests
—
Excess tax benefits from share-based compensation —
Net cash used in financing activities
—
Intercompany dividends
Effect of exchange rate changes on cash,
restricted cash and cash equivalents
Net increase (decrease) in cash, restricted cash
and cash equivalents
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash equivalents,
end of period
(in millions)
Operating Activities:
Net cash provided by operating activities
Investing Activities:
Capital expenditures for property and equipment
Proceeds from asset dispositions
Contract acquisition costs
Software capitalization costs
Other
Net cash used in investing activities
Financing Activities:
Borrowings
Repayment of debt
Debt issuance costs
Capital contribution
Intercompany transfers
Intercompany dividends
Distributions to noncontrolling interests
Net cash used in financing activities
Effect of exchange rate changes on cash,
restricted cash and cash equivalents
Net decrease in cash, restricted cash
and cash equivalents
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash equivalents,
end of period
108
Hilton
—
—
—
—
—
—
—
—
(775)
591
—
—
—
—
(184)
—
—
—
(11)
—
—
(23)
(57)
13
(78)
—
—
(693)
—
(184)
—
8
(869)
(299)
(1,402)
2,205
(14)
(5)
7
492
48
(849)
(36)
—
(252)
(8)
—
(1,097)
—
(19)
(11)
99
120
648
—
—
—
—
—
—
—
—
—
—
—
436
—
—
436
—
—
—
(310)
(1,402)
2,205
(37)
(62)
20
414
48
(1,624)
—
(138)
—
(8)
8
(1,714)
(19)
88
768
—
—
—
$
—
$
—
$ 109
$ 747
$
—
$ 856
Parent
Subsidiary
Issuers
December 31, 2014
Non-
Guarantors Guarantors
Eliminations
Total
$
—
$
—
$ 1,085
$ 522
$(300)
$ 1,307
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,000)
(6)
—
1,006
—
—
—
—
—
—
(5)
4
(19)
(64)
11
(73)
—
—
—
—
(1,094)
—
—
(1,094)
—
(82)
(263)
40
(46)
(5)
37
(237)
350
(424)
(3)
22
88
(309)
(5)
(281)
(14)
(10)
202
658
—
—
—
—
—
—
—
—
—
(9)
—
309
—
300
—
—
—
(268)
44
(65)
(69)
48
(310)
350
(1,424)
(9)
13
—
—
(5)
(1,075)
(14)
(92)
860
$
—
$
—
$ 120
$ 648
$
—
$ 768
NOTE 28
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The information
for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in
our opinion, reflects all adjustments necessary to present fairly our financial results. Operating results for previous periods
do not necessarily indicate results that may be achieved in any future period.
(in millions, except per share data)
Revenues
Operating income
Net income (loss)
Net income (loss) attributable to Hilton stockholders
Basic earnings (loss) per share(1)
Diluted earnings (loss) per share(1)
(in millions, except per share data)
Revenues
Operating income
Net income
Net income attributable to Hilton stockholders
Basic earnings per share(1)
Diluted earnings per share(1)
First
Quarter
$2,750
409
310
309
$ 0.94
$ 0.94
First
Quarter
$2,599
490
150
150
$ 0.46
$ 0.46
Second
Quarter
$3,051
553
244
239
$ 0.73
$ 0.72
Second
Quarter
$2,922
427
167
161
$ 0.49
$ 0.49
2016
Third
Quarter
$2,942
493
192
187
$ 0.57
$ 0.57
2015
Third
Quarter
$2,895
663
283
279
$ 0.85
$ 0.85
Fourth
Quarter
$2,920
406
(382)
(387)
$ (1.18)
$ (1.17)
Fourth
Quarter
$2,856
491
816
814
$ 2.47
$ 2.47
Year
$11,663
1,861
364
348
$ 1.06
$ 1.05
Year
$11,272
2,071
1,416
1,404
$ 4.27
$ 4.26
(1) The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted
average shares outstanding in interim periods. All per share amounts have been adjusted to reflect the Reverse Stock Split. See Note 1: “Organization” for
further discussion.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
NOTE 29
SUBSEQUENT EVENTS
Spin-offs
On January 3, 2017, we completed the previously
announced spin-offs of a portfolio of hotels and resorts,
as well as our timeshare business, into two independent,
publicly traded companies: Park Hotels & Resorts Inc. and
Hilton Grand Vacations Inc., respectively. The spin-offs
were completed via a distribution to each of Hilton’s
stockholders of record, as of close of business on
December 15, 2016, of 100 percent of the outstanding
common stock of Park and HGV. Each Hilton stockholder
received one share of Park common stock for every five
shares of Hilton common stock and one share of HGV
common stock for every 10 shares of Hilton common
stock. Both Park and HGV have their common stock listed
on the New York Stock Exchange under the symbols “PK”
and “HGV,” respectively.
Following the spin-offs, Hilton did not retain any
ownership interest in Park or HGV; however, we entered
into certain agreements that provide a framework for our
relationship with them, including a Transition Services
Agreement, an Employee Matters Agreement and a Tax
Matters Agreement with Park and HGV, as well as
Management and Franchise Agreements with Park and
a License Agreement with HGV. Beginning in the first
quarter of 2017, commensurate with the completion of
the spin-offs, the historical financial results of Park and
HGV will be reflected in our condensed consolidated
financial statements as discontinued operations.
2016 Annual Report
109
Management’s Annual Report on Internal Control
Over Financial Reporting
We have set forth management’s report on internal
control over financial reporting and the attestation report
of our independent registered public accounting firm on
the effectiveness of our internal control over financial
reporting in Item 8 of this Annual Report on Form 10-K.
Management’s report on internal control over financial
reporting is incorporated in this Item 9A by reference.
Changes in Internal Control
There has been no change in the Company’s internal
control over financial reporting during the Company’s
most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and
procedures as that term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, that are designed to
ensure that information required to be disclosed by the
Company in reports that it files or submits under the
Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in SEC rules
and forms, and that such information is accumulated and
communicated to the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosures. The design of any disclosure controls and
procedures is based in part upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Any
controls and procedures, no matter how well designed
and operated, can provide only reasonable, not absolute,
assurance of achieving the desired control objectives.
In accordance with Rule 13a-15(b) of the Exchange Act, as
of the end of the period covered by this annual report, an
evaluation was carried out under the supervision and with
the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, of
the effectiveness of its disclosure controls and procedures.
Based on that evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures, as of the
end of the period covered by this annual report, were
effective to provide reasonable assurance that information
required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, pro-
cessed, summarized and reported within the time periods
specified in SEC rules and forms and is accumulated and
communicated to the Company’s management, including
the Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding
required disclosure.
110
Hilton
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to our definitive proxy statement for the
2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our definitive proxy statement for the
2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to our definitive proxy statement for the
2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our definitive proxy statement for the
2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to our definitive proxy statement for the
2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016.
2016 Annual Report
111
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report.
(a) Financial Statements
We include this portion of Item 15 under Item 8 of this Annual Report on Form 10-K.
(b)Financial Statement Schedules
All schedules are omitted as the required information is either not present, not present in material amounts
or presented within the consolidated financial statements or related notes.
(c)
Exhibits:
Exhibit
Number
Exhibit Description
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Distribution Agreement, dated January 2, 2017, among Hilton Worldwide Holdings Inc., Hilton Domestic
Operating Company Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. (incorporated by reference
to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-36243) filed on January 4, 2017).
Certificate of Incorporation of Hilton Worldwide Holdings Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K (File No. 001-36243) filed on December 17, 2013).
Bylaws of Hilton Worldwide Holdings Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current
Report on Form 8-K (File No. 001-36243) filed on December 17, 2013).
Certificate of Amendment to Certificate of Incorporation of Hilton Worldwide Holdings Inc. effective
as of January 3, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
(File No. 001-36243) filed on January 4, 2017).
Indenture for the 5.625% Senior Notes due 2021 (the “2021 Notes”), dated as of October 4, 2013, among Hilton
Worldwide Finance LLC and Hilton Worldwide Finance Corp. as issuers, Hilton Worldwide Holdings Inc., as
guarantor and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to
the Company’s Registration Statement on Form S-1 (No. 333-191110)).
First Supplemental Indenture with respect to the 2021 Notes, dated as of October 25, 2013, among the
subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by
reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (No. 333-191110)).
Second Supplemental Indenture with respect to the 2021 Notes, dated as of September 8, 2014, between
Hilton International Holding Corporation and Wilmington Trust, National Association, as trustee (incorporated
by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-4 (No. 333-198693)).
Third Supplemental Indenture with respect to the 2021 Notes, dated as of March 3, 2015, among Embassy
Suites Management LLC, HLT Existing Franchise Holding LLC and Wilmington Trust, National Association,
as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q
(File No. 001-36243) for the quarter ended March 31, 2015).
Form of 5.625% Senior Note due 2021 (included in Exhibit 4.1).
Indenture for the 4.250% Senior Notes due 2024 (the “2024 Notes”), dated as of August 18, 2016, by and among
Hilton Domestic Operating Company Inc., Hilton Worldwide Holdings Inc., Hilton Worldwide Finance LLC,
the guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-36243)
filed on August 18, 2016).
Form of 4.250% Senior Note due 2024 (included in Exhibit 4.6).
Fourth Supplemental Indenture with respect to the 2021 Notes, dated as of August 19, 2016, between Hilton
Domestic Operating Company Inc. and Wilmington Trust, National Association, as trustee (incorporated by
reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter
ended September 30, 2016).
Fifth Supplemental Indenture with respect to the 2021 Notes, dated as of September 22, 2016, among Hilton
Worldwide Parent LLC, Hilton Worldwide Finance LLC, Hilton Worldwide Finance Corp., and Wilmington Trust,
National Association, as trustee (incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report
on Form 10-Q (File No. 001-36243) for the quarter ended September 30, 2016).
4.10
Sixth Supplemental Indenture with respect to the 2021 Notes, dated as of October 20, 2016, among the
subsidiary guarantors listed therein and Wilmington Trust, National Association, as trustee.
112
Hilton
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Seventh Supplemental Indenture with respect to the 2021 Notes, dated as of December 12, 2016, among the
subsidiary guarantors listed therein and Wilmington Trust, National Association, as trustee.
First Supplemental Indenture with respect to the 2024 Notes, dated as of September 22, 2016, among Hilton
Escrow Issuer LLC, Hilton Escrow Issuer Corp., Hilton Domestic Operating Company Inc., Hilton Worldwide
Holdings Inc., Hilton Worldwide Finance LLC, the subsidiary guarantors party thereto, and Wilmington Trust,
National Association, as trustee (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report
on Form 10-Q (File No. 001-36243) for the quarter ended September 30, 2016).
Second Supplemental Indenture with respect to the 2024 Notes, dated as of September 22, 2016, among
Hilton Domestic Operating Company Inc., Hilton Worldwide Parent LLC, and Wilmington Trust, National
Association (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q
(File No. 001-36243) for the quarter ended September 30, 2016).
Third Supplemental Indenture with respect to the 2024 Notes, dated as of October 20, 2016, among the
subsidiary guarantors listed therein and Wilmington Trust, National Association, as trustee.
Fourth Supplemental Indenture with respect to the 2024 Notes, dated as of December 12, 2016, among the
subsidiary guarantors listed therein and Wilmington Trust, National Association, as trustee.
Credit Agreement, dated as of October 25, 2013, among Hilton Worldwide Holdings Inc., as parent, Hilton
Worldwide Finance LLC, as borrower, the other guarantors from time to time party thereto, Deutsche Bank
AG New York Branch, as administrative agent, collateral agent, swing line lender and L/C issuer, and the
other lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Registration Statement on Form S-1 (No. 333-191110)).
Security Agreement, dated as of October 25, 2013, among the grantors identified therein and Deutsche
Bank AG New York Branch, as collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-1 (No. 333-191110)).
Loan Agreement, dated as of October 25, 2013, among the subsidiaries party thereto, collectively, as
borrower and JPMorgan Chase Bank, National Association, German American Capital Corporation, Bank
of America, N.A., GS Commercial Real Estate LP and Morgan Stanley Mortgage Capital Holdings LLC,
collectively, as lender (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement
on Form S-1 (No. 333-191110)).
Guaranty Agreement, dated as of October 25, 2013, among the guarantors named therein and JPMorgan
Chase Bank, National Association, German American Capital Corporation, Bank of America, N.A.,
GS Commercial Real Estate LP and Morgan Stanley Mortgage Capital Holdings LLC, collectively, as lender
(incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1
(No. 333-191110)).
Registration Rights Agreement regarding the 2024 Notes, dated as of August 18, 2016, by and among
Hilton Escrow Issuer LLC, Hilton Escrow Issuer Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
on behalf of the initial purchasers (incorporated by reference to Exhibit 4.3 to the Company’s Current Report
on Form 8-K (File No. 001-36243) filed on August 18, 2016).
Stockholders Agreement, dated as of December 17, 2013, by and among Hilton Worldwide Holdings Inc.
and certain of its stockholders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K (File No. 001-36243) filed on December 17, 2013).
Registration Rights Agreement, dated as of December 17, 2013, among Hilton Worldwide Holdings Inc.
and certain of its stockholders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K (File No. 001-36243) filed on December 17, 2013).
2013 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company’s Registration
Statement on Form S-1 (No. 333-191110)).*
Form of Restricted Stock Grant and Acknowledgment (incorporated by reference to Exhibit 10.16 to the
Company’s Registration Statement on Form S-1 (No. 333-191110)).*
Severance Plan (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on
Form S-1 (No. 333-191110)).*
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.19 to the
Company’s Registration Statement on Form S-1 (No. 333-191110)).*
2005 Executive Deferred Compensation Plan (as Amended and Restated Effective as of January 1, 2005)
(incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K (File No. 001-36243)
for the year ended December 31, 2013).*
Form of 2014 Performance Share Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2014).*
Form of 2014 Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2014).*
2016 Annual Report
113
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Form of 2014 Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2014).*
Form of 2015 Performance Share Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2015).*
Form of 2015 Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2015).*
Form of 2015 Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2015).*
Form of Deferred Share Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended June 30, 2015.*
Form of 2016 Performance Share Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2016.*
Form of 2016 Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2016).*
Amendment No. 1, dated as of August 18, 2016, to the Credit Agreement, dated as of October 25, 2013, by and
among Hilton Worldwide Holdings Inc., Hilton Worldwide Finance LLC, the other guarantors party thereto
from time to time, Deutsche Bank AG New York Branch as administrative agent, collateral agent, swing line
lender and L/C issuer and the other lenders party thereto from time to time (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36243) filed on August 18, 2016.
Amendment No. 2, dated as of November 21, 2016, to the Credit Agreement, dated as of October 25, 2013
(as amended), by and among Hilton Worldwide Holdings Inc., Hilton Worldwide Finance LLC, the other
guarantors party thereto from time to time, Deutsche Bank AG New York Branch as administrative agent,
collateral agent, swing line lender and L/C issuer and the other lenders party thereto from time to time
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36243)
filed on November 23, 2016).
Escrow Agreement, dated as of August 18, 2016, by and among Hilton Escrow Issuer LLC, Hilton Escrow Issuer
Corp., Wilmington Trust, National Association, as Trustee under the Indenture and Wilmington Trust, National
Association, as escrow agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K (File No. 001-36243) filed on August 18, 2016).
Letter Agreement relating to certain tax matters, dated as of October 24, 2016, by and among Hilton
Worldwide Holdings Inc., Park Hotels & Resorts Inc., and certain of Hilton Worldwide Holdings Inc.’s
stockholders (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
(File No. 001-36243) filed on October 24, 2016).
Letter Agreement relating to tax stockholders agreement, dated as of October 24, 2016, by and among
Hilton Worldwide Holdings Inc., Hilton Grand Vacations Inc. and certain of Hilton Worldwide Holdings Inc.’s
stockholders (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
(File No. 001-36243) filed on October 24, 2016).
Stockholders Agreement, dated as of October 24, 2016, by and among Hilton Worldwide Holdings Inc.,
HNA Tourism Group Co., Ltd. and, solely for purposes of Section 4.3 thereof, HNA Group Co., Ltd.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36243)
filed on October 24, 2016).
First Amendment to Stockholders Agreement, dated as of October 24, 2016, by and among Hilton Worldwide
Holdings Inc. and certain of its stockholders (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K (File No. 001-36243) filed on October 24, 2016).
Registration Rights Agreement, dated as of October 24, 2016, by and between Hilton Worldwide Holdings Inc.
and HNA Tourism Group Co., Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K (File No. 001-36243) filed on October 24, 2016).
Amended and Restated Registration Rights Agreement, dated as of October 24, 2016, by and among
Hilton Worldwide Holdings Inc. and certain of its stockholders (incorporated by reference to Exhibit 10.4 to
the Company’s Current Report on Form 8-K (File No. 001-36243) filed on October 24, 2016).
Employee Matters Agreement, dated January 2, 2017, among Hilton Worldwide Holdings Inc.,
Hilton Domestic Operating Company Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36243)
filed on January 4, 2017).
114
Hilton
10.32
10.33
10.34
10.35
12
21.1
23.1
31.1
31.2
32.1
32.2
Tax Matters Agreement, dated January 2, 2017, among Hilton Worldwide Holdings Inc., Hilton Domestic
Operating Company Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36243) filed on
January 4, 2017).
Transition Services Agreement, dated January 2, 2017, among Hilton Worldwide Holdings Inc., Park Hotels
& Resorts Inc. and Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K (File No. 001-36243) filed on January 4, 2017).
License Agreement, dated January 2, 2017, by and between Hilton Worldwide Holdings Inc. and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
(File No. 001-36243) filed on January 4, 2017).
Tax Stockholders Agreement, dated January 2, 2017, among Hilton Worldwide Holdings Inc., Hilton Grand
Vacations Inc. and the other parties thereto (incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K (File No. 001-36243) filed on January 4, 2017).
Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of the Registrant.
Consent of Ernst & Young LLP.
Certificate of Christopher J. Nassetta, President and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certificate of Kevin J. Jacobs, Executive Vice President and Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Certificate of Christopher J. Nassetta, President and Chief Executive Officer, pursuant to Section 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
Certificate of Kevin J. Jacobs, Executive Vice President and Chief Financial Officer, pursuant to
Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
99.1
Section 13(r) Disclosure.
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
*This document has been identified as a management contract or compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or
other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should
not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or
other documents were made solely within the specific context of the relevant agreement or document and may not
describe the actual state of affairs as of the date they were made or at any other time.
ITEM 16. FORM 10-K SUMMARY
None.
2016 Annual Report
115
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in McLean, Virginia, on the
15th day of February 2017.
HILTON WORLDWIDE HOLDINGS INC.
/s/ Christopher J. Nassetta
By:
Name: Christopher J. Nassetta
Title:
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the
capacities indicated on the 15th day of February 2017.
Signature
Title
/s/ Christopher J. Nassetta
Christopher J. Nassetta
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Jonathan D. Gray
Chairman of the Board of Directors
Jonathan D. Gray
/s/ Jon M. Huntsman, Jr.
Jon M. Huntsman, Jr.
/s/ Judith A. McHale
Judith A. McHale
/s/ John G. Schreiber
John G. Schreiber
/s/ Elizabeth A. Smith
Elizabeth A. Smith
/s/ Douglas M. Steenland
Douglas M. Steenland
/s/ William J. Stein
William J. Stein
/s/ Kevin J. Jacobs
Kevin. J. Jacobs
Director
Director
Director
Director
Director
Director
Executive Vice President and Chief Financial Officer
(principal financial officer)
/s/ Michael W. Duffy
Michael W. Duffy
Senior Vice President and Chief Accounting Officer
(principal accounting officer)
116
Hilton
The New
THE BEST-PERFORMING PORTFOLIO OF BRANDS IN THE BUSINESS
A MARKET-LEADING, RESILIENT, FEE-BASED BUSINESS
LOWER
VOLATILITY
90%
ADJUSTED EBITDA
FROM FEES
MAJORITY
FRANCHISE FEES
70%
TOTAL FEES
FRANCHISE DRIVEN
CAPITAL
EFFICIENT GROWTH
6.6%
MANAGED & FRANCHISED
NET UNIT GROWTH
A RECORD PIPELINE GENERATING SUBSTANTIAL RETURNS ON MINIMAL
CAPITAL INVESTMENT
PIPELINE
ROOMS
ROOMS UNDER
CONSTRUCTION
THIRD-PARTY
INVESTMENT
HILTON
INVESTMENT
STABILIZED
ADJUSTED EBITDA
310K
157K
$50B
$144M
$660M
SUPPORTED BY STRONG FUNDAMENTALS
GROWING BASE OF CUSTOMERS
WHO CAN AND WANT TO TRAVEL
GLOBAL
MIDDLE CLASS
2X LAST 20 YEARS, EXPECTED TO
DOUBLE AGAIN NEXT 20 YEARS
GLOBAL
TOURIST ARRIVALS
+1B
INCREMENTAL ANNUAL TRIPS
EXPECTED NEXT 20 YEARS
HOTEL UNDER-PENETRATION
IN HIGH-GROWTH MARKETS
15.8
1.1
1.5
0.2
INDIA
BRAZIL
CHINA
UNITED STATES
HOTEL ROOMS PER CAPITA
GENERATING SIGNIFICANT FREE CASH FLOW
$3.0 - 4.5B OF POTENTIAL CAPITAL RETURN
2017E TO 2019E
Executive Committee
CHRISTOPHER J. NASSETTA*
President & Chief Executive Officer
KATIE B. FALLON
Global Head of Corporate Affairs
JOE BERGER
Executive Vice President
& President, Americas
KRISTIN CAMPBELL*
Executive Vice President
& General Counsel
IAN R. CARTER*
President,
Global Development,
Architecture, Design
& Construction
JAMES E. HOLTHOUSER*
Executive Vice President,
Global Brands
KEVIN J. JACOBS*
Executive Vice President
& Chief Financial Officer
MATT RICHARDSON
Head of Architecture,
Design & Construction
MARTIN RINCK
Executive Vice President
& President, Asia Pacific
Board of Directors
MATTHEW W. SCHUYLER*
Executive Vice President
& Chief Human Resources Officer
CHRIS SILCOCK*
Executive Vice President
& Chief Commercial Officer
SIMON VINCENT
Executive Vice President
& President, Europe, Middle East
& Africa
* Executive officer as defined under the
Securities Exchange Act of 1934.
CHRISTOPHER J. NASSETTA
President & Chief Executive Officer,
Hilton
JUDITH A. McHALE
President & Chief Executive Officer,
Cane Investments
JONATHAN D. GRAY
Chairman of the Board of Directors,
Hilton
Global Head of Real Estate,
Blackstone
JOHN G. SCHREIBER
President of Centaur Capital
Partners, Retired Partner
& Co-Founder, Blackstone Real
Estate Advisors
JON M. HUNTSMAN, JR.
Chairman, Atlantic Council
Former Governor, State of Utah
Former U.S. Ambassador to
China & Singapore
ELIZABETH A. SMITH
Chairman of the Board of Directors
& Chief Executive Officer,
Bloomin’ Brands
DOUGLAS M. STEENLAND
Chairman of the Board of
Directors, American International
Group, Travelport Worldwide
& Performance Food Group
WILLIAM J. STEIN
Senior Managing Director
and Co-Head, Global Asset
Management, Real Estate,
Blackstone
Stockholder Information
STOCK MARKET INFORMATION
Ticker Symbol: HLT
Market Listed and Traded: NYSE
INVESTOR RELATIONS
7930 Jones Branch Drive
McLean, Virginia 22102
CORPORATE OFFICE
Hilton
7930 Jones Branch Drive
McLean, Virginia 22102
+1 703 883 1000
hilton.com/corporate
+1 703 883 5476
ir.hilton.com
ir@hilton.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
8484 Westpark Drive
McLean, Virginia 22102
+1 703 747 1000
ey.com
TRANSFER AGENT
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
+1 800 468 9716
General Inquiries:
www.wellsfargo.com/
shareownerservices
Account Information:
www.shareowneronline.com
ANNUAL MEETING
OF STOCKHOLDERS
May 24, 2017
Waldorf Astoria Chicago
Chicago, IL
Front cover properties: Hilton Garden Inn Bali Ngurah Rai Airport and Gran Hotel Montesol Ibiza, Curio Collection by Hilton. Back cover properties: Waldorf Astoria
Hutong Villa; Conrad Makkah; Canopy by Hilton Reykjavik City Centre; Hilton Edinburgh Carlton; Hotel La Jolla, Curio Collection by Hilton; Grand Naniloa Hotel Hilo – a
DoubleTree by Hilton; Embassy Suites by Hilton McAllen Convention Center; Hilton Garden Inn Bali Ngurah Rai Airport; Hampton Inn Houston I-10 East; Homewood
Suites by Hilton Cape Canaveral – Cocoa Beach; Home 2 Suites by Hilton Minneapolis Bloomington and Hilton Vilamoura Vacation Club.
This report is printed on FSC® certified paper. © 2017 Hilton
Designed and produced by Corporate Reports Inc./Atlanta. www.cricommunications.com.
2016 ANNUAL REPORT
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