2017 ANNUAL REPORT
HILTON
We Are
We Are
HOSPITALITY
H
I
L
T
O
N
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
ir.hilton.com
Stockholder Information
Stock Market Information
Ticker Symbol: HLT
Market Listed and Traded:
NYSE
Corporate Office
Hilton
7930 Jones Branch Drive
McLean, Virginia 22102
+1 703 883 1000
www.hilton.com/corporate
Investor Relations
7930 Jones Branch Drive
McLean, Virginia 22102
+1 703 883 5476
ir.hilton.com
ir@hilton.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
1775 Tysons Boulevard
Tysons, Virginia 221022
+1 703 747 1000
ey.com
Transfer Agent
EQ Shareowner Services
P.O. Box 64874
St. Paul, Minnesota 55164-0874
+1 800 468 9716
www.shareowneronline.com
Annual Meeting
of Stockholders
May 10, 2018
McLean, Virginia 22102
Fellow Shareholders
Nearly a century ago,
a young entrepreneur
named Conrad Hilton
purchased, almost on
impulse, the Mobley
Hotel in Cisco, Texas.
Soon the inventor
of the modern
hospitality industry
found himself setting
an even grander goal:
“To fill the earth with
the light and warmth
of hospitality.” Almost one hundred years later our
world continues to benefit from Conrad’s vision.
I have said for some time that we have entered a
Golden Age of Travel, and 2017 brought an important
milestone with international tourism arrivals reaching
a staggering 1.3 billion1 — an all-time high. Trends
indicate this record will continue to be broken as
the middle class grows in places like China and India,
and the next generations of travelers seek unique
adventures and genuine hospitality.
This golden age is a golden opportunity for our
industry. Travel and tourism can emerge as a powerful
remedy to the world’s challenges. We are a principal
contributor to global economic growth, providing
10 percent of global GDP. We are also the world’s
largest employer, hiring one out of every nine people.1
Travel is an engine for understanding, connecting
diverse peoples, ideas, and cultures. We are in
the business of creating travel opportunities
and environments that enhance those human
connections, creating a positive ripple effect
through communities all over the world.
This golden age is also a golden opportunity for
Hilton. Our guests come from around the globe
and arrive at our nearly 5,300 properties carrying
the excitement, joy, and stress of their days.
Waiting to greet them are 380,0002 Hilton Team
Members with a simple mission: To make each
and every guest feel like part of our family, feel at
home, and to enrich their lives with unforgettable
travel experiences.
Travel is an engine for
understanding, connecting
diverse peoples, ideas,
and cultures.
2017 was a pivotal year for Hilton. We successfully
completed the spin-offs of Park Hotels & Resorts
and Hilton Grand Vacations to create a new
simplified, resilient, fee-based business model.
We celebrated our 5,000th property milestone,
launched our 14th brand — Tapestry Collection by
Hilton, rolled out new technologies, and returned
nearly $1.1 billion to shareholders, all of which
enhance the guest experience, strengthen our
loyalty base, and drive performance.
Hilton continued to expand travel opportunities
for millions of ambitious new travelers. We opened
nearly 400 new properties, a rate of more than
one hotel per day, and 51,600 net new rooms.
This marked our third consecutive year of record
net unit growth — 6.5 percent — allowing us to
welcome guests in 105 countries and territories.
With a pipeline of nearly 2,300 properties and
345,000 rooms, we continue to lead the industry
in net unit growth. And our 21 percent share of
rooms under construction accounts for more than
four times our current market share, more than
any other hospitality company.
1 Source: WTTC https://www.wttc.org/-/media/files/reports/economic-impact-research/regions-2017/world2017.pdf
2 Team Members include employees at Hilton corporate offices and its owned and managed properties, and employees of franchisees who work
on-property at independently owned and operated franchise properties in the Hilton portfolio.
© 2018 Hilton
Designed and produced by Corporate Reports Inc./Atlanta. www.cricommunications.com.
We expanded our geographic reach as well. We now
have more than 200 properties in Asia Pacific, more
than 100 of which are in Greater China. Our growth
in Latin America continues at a rapid pace with
more than 100 hotels in the region and more than
70 in the pipeline. And, through our Hilton Africa
Growth Initiative, we expect to add 100 properties
to our Sub-Saharan African portfolio over the next
five years.
To deliver exceptional experiences for every guest,
every hotel, every time, we pursue technological
advances that create customizable experiences.
We scaled our Digital Key technology to 350,000
rooms at more than 2,500 properties worldwide.
To allow our guests to control their stay from the
palm of their hand we introduced Connected Room,
providing guests the freedom to control lighting,
temperature, and entertainment all from the Hilton
Honors app.
And we create unparalleled value for our guests
through our Hilton Honors loyalty program, which
continues to grow with 71 million members and
counting. In 2018, we are adding new benefits and
introducing a suite of American Express co-branded
credit cards — all of which empower members to
achieve their travel goals.
As always, our hospitality mission extends beyond
our hotels and into our communities. Our Travel
with Purpose corporate responsibility strategy
guides how we use our footprint to empower
communities and contribute lasting, positive change.
We consistently review and build on our robust
commitments to youth opportunity, environmental
stewardship, and community resiliency, and in 2017
this approach earned Hilton a spot on the Dow Jones
Sustainability Index for the first time. This year we
reached a cumulative $1 billion in savings through
our industry-leading sustainability practices.
Additionally, to date, we have dedicated more than
$3 million to disaster relief efforts and $1 million to
action grant projects that support our mission.
At Hilton, we have a century-long commitment
to infuse the “light and warmth of hospitality” in
the connections we make with the 160 million or
so guests we welcome with purpose every year.
As we expand our hospitality to new countries in
2018, we will strive to enable our guests to travel
with purpose by giving them more opportunities
to make meaningful connections with the people
and communities around them.
On behalf of our entire team, thank you for your
continued partnership during this historically
important time for our industry.
We are Hilton. We are hospitality.
Sincerely,
Christopher J. Nassetta
President & Chief Executive Officer
2017 ANNUAL REPORT | 1
HILTON
At - A -Glance
In 2017, Hilton achieved record-setting
growth, introduced our 14th brand, and
unveiled industry-leading innovations, all
while remaining purpose-driven in making
Hilton a Great Place to Work.
Our Team Members extended our spirit of
hospitality to approximately 160 million guests
worldwide, contributed to their communities
through our Travel With Purpose initiatives,
and created space for inspiration, creativity,
and meaningful connections.
WELCOMED
GUESTS
WORLDWIDE
160
million
DEDICATED
SUPPORT TO
DISASTER RELIEF
$3
million+1
HILTON HONORS
LOYALTY PROGRAM
GREW
MEMBERSHIP TO
71
million+
14%
GLOBAL REVPAR
PREMIUM
Digital Key scaled
to 350,000
rooms worldwide
Introduced
Connected Room
More than $1 billion cumulative
savings from sustainability
projects since 2009
LISTED ON
THE DOW JONES
SUSTAINABILITY INDEX
FOR THE FIRST TIME
EXPANDED
Operation: Opportunity Commitment
to hire 20,000 additional U.S. veterans,
spouses and dependents by 2020
To date, connected, prepared
or employed nearly 800,000
young people through our
Open Doors Pledge
Created 23,000 new hotel jobs
Opened more than one hotel a day
NAMED A TOP 10 BEST WORKPLACE
BY GREAT PLACE TO WORK
LAUNCHED THRIVE@HILTON INITIATIVE
1Amount to date
2 | HILTON
Expanded global footprint to 105 countries & territories
105,000 rooms trading
in Europe, Middle East
and Africa
Opened 100th
hotel in Greater
China
Opened 200th hotel
in Asia Pacific
Opened 100th
hotel in Latin
America
HIGHLIGHTS
Opened 5,000th property
Opened 399 properties
Record net unit growth,
approvals and global pipeline
AMERICAS*
EMEA*
ASIA PACIFIC*
SUPPLY
675,000 Rooms
PIPELINE
181,000 Rooms
UNDER
CONSTRUCTION
66,000 Rooms
*Does not include timeshare
SUPPLY
105,000 Rooms
PIPELINE
65,000 Rooms
UNDER
CONSTRUCTION
42,000 Rooms
SUPPLY
68,000 Rooms
PIPELINE
99,000 Rooms
UNDER
CONSTRUCTION
66,000 Rooms
2017 ANNUAL REPORT | 3
Executive Committee
CHRISTOPHER NASSETTA*
President & Chief Executive
Officer
KATIE BEIRNE FALLON
Global Head of Corporate
Affairs
JOE BERGER
President, Americas
KEVIN JACOBS*
Chief Financial Officer
CHRIS SILCOCK*
Chief Commercial Officer
SIMON VINCENT
President, Europe, Middle
East & Africa
KRISTIN CAMPBELL*
General Counsel
ALAN WATTS
President, Asia Pacific
JONATHAN WITTER*
Chief Customer Officer
IAN CARTER*
President, Global
Development, Architecture,
Design & Construction
MATTHEW SCHUYLER*
Chief Human Resources
Officer
*Executive officer as defined under the Securities Exchange Act of 1934.
Board of Directors
ELIZABETH SMITH
Chairman of the Board of
Directors & Chief Executive
Officer, Bloomin’ Brands
DOUGLAS STEENLAND
Chairman of the Board
of Directors, American
International Group, Travelport
Worldwide & Performance
Food Group
CHARLENE BEGLEY
Former Senior Vice President
and Chief Information Officer,
General Electric, and Former
President and Chief Executive
Officer of Home and Business
Solutions, General Electric
MELANIE HEALEY
Former Group President,
The Procter & Gamble Company
RAYMOND MABUS, JR.
United States Secretary of
the Navy 2009-2017, Former
Governor of Mississippi,
Former U.S. Ambassador to the
Kingdom of Saudi Arabia
ZHANG LING
CEO (Duty) of HNA Group and
Executive Vice Chairman of
HNA Group (International)
Co., Ltd
CHRISTOPHER NASSETTA
President & Chief Executive
Officer
JONATHAN GRAY
Chairman of the Board of
Directors, Hilton, President
& Chief Operating Officer,
Blackstone
JUDITH McHALE
President & Chief Executive
Officer, Cane Investments
and Former President &
Chief Executive Officer,
Discovery Communications
JOHN SCHREIBER
President of Centaur Capital
Partners, Retired Partner
& Co-Founder, Blackstone
Real Estate Advisors
4 | HILTON
2017
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, 2017
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
Non-accelerated filer £ (Do not check if a smaller reporting company)
Accelerated filer £
Smaller reporting company £
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
As of June 30, 2017, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $12,628 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 7, 2018 was 316,118,115.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant’s definitive proxy statement relating to its
2018 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
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.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
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
PAGE NO.
4
4
5
13
29
29
32
32
32
34
34
34
50
99
100
100
100
100
100
101
101
101
105
106
2017 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 and
other non-historical statements. In some cases, you can
identify these forward-looking statements by the use of
words such as “outlook,” “believes,” “expects,” “potential,”
“continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,”
“predicts,” “intends,” “plans,” “estimates,” “anticipates” or
the negative version of these words or other comparable
words. Such forward-looking statements are subject to
various risks and uncertainties, including, among others,
risks inherent to the hospitality industry, macroeconomic
factors beyond our control, competition for hotel guests
and management and franchise contracts, risks related to
doing business with third-party hotel owners, performance
of our information technology systems, growth of reserva-
tion channels outside of our system, risks of doing business
outside of the United States of America (“U.S.”) and our
indebtedness. Accordingly, there are or will be important
factors that could cause actual outcomes or results to
differ materially from those indicated in these statements.
We believe these factors include but are not limited to those
described under “Part I—Item 1A. Risk Factors.” 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 and Basis of Presentation
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 properties, a portion are
directly owned or leased by us or joint ventures in which we
have an interest, and the remaining properties are owned
by third-party owners.
On January 3, 2017, we completed the spin-offs of a portfolio
of hotels and resorts, as well as our timeshare business,
into two independent, publicly traded companies: Park
Hotels & Resorts Inc. (“Park”) and Hilton Grand Vacations
Inc. (“HGV”), respectively, (the “spin-offs”). 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 each
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. Hilton did not
retain any interest in Park or HGV. 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” included else-
where in this Annual Report on Form 10-K for additional
information. This Annual Report on Form 10-K presents
our business and results of operations as of and for the
periods indicated, giving effect to the spin-offs, with the
combined historical financial results of Park and HGV
reflected as discontinued operations.
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
remained 3,000,000,000. All share and share-related infor-
mation presented in this Annual Report on Form 10-K
for periods prior to the Reverse Stock Split have been
retrospectively adjusted to reflect the decreased number
of shares resulting from the Reverse Stock Split.
HNA Tourism Group Co., Ltd. and certain of its affiliates
are referred to herein as “HNA,” and the Blackstone Group
L.P. and certain of its affiliates 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. References to
“Adjusted EBITDA” means earnings before interest expense,
a provision for income taxes and depreciation and amorti-
zation, 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 additional information on these financial metrics.
4 | HILTON
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 development
pipeline. During the year ended December 31, 2017, nearly
108,000 new rooms were approved for development, and
we opened 399 hotels consisting of over 59,000 rooms.
As of December 31, 2017, we had a total of 2,257 hotels in
our development pipeline, representing approximately
345,000 rooms under construction or approved for devel-
opment throughout 107 countries and territories, including
39 countries and territories where we do not currently have
any open hotels. All of the rooms in the pipeline are within
our management and franchise segment. Over 182,000
rooms in the pipeline, or more than half, are located outside
the U.S. Additionally, over 174,000 rooms in the pipeline, or
more than half, are under construction. We do not consider
any individual development project to be material to us.
Overall, we believe that our experience in the hotel industry,
which spans nearly a century of highly focused customer
service and entrepreneurship, evolving for the needs of our
customers; our strong, well-defined brands that operate
throughout the lodging industry chain scales; and our com-
mercial service offerings will continue to drive customer
loyalty, including participation in our Hilton Honors guest
loyalty program. We believe that satisfied customers will
continue to provide strong overall hotel performance for
our hotel owners and us and encourage further develop-
ment 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, puts us in a
strong position to further improve our business and serve
our customers in the future.
ITEM 1.
BUSINESS
Overview
Hilton is one of the largest and fastest growing hospitality
companies in the world, with 5,284 properties comprising
856,115 rooms in 105 countries and territories as of
December 31, 2017. 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,
Tapestry Collection 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; and our timeshare
brand, Hilton Grand Vacations. As of December 31, 2017,
we had approximately 71 million members in our award-
winning guest loyalty program, Hilton Honors.
We operate our business through two operating segments:
(i) management and franchise; and (ii) ownership. Each
segment is managed separately because of its distinct
economic characteristics. The management and franchise
segment includes all of the hotels we manage for third-
party owners, as well as all franchised hotels operated or
managed by someone other than us. As of December 31,
2017, this segment included 656 managed hotels, 4,507
franchised hotels and 48 timeshare resorts totaling 5,211
properties consisting of 833,909 rooms. Within this total
are the 67 hotels with 35,406 rooms that were previously
owned or leased by Hilton or unconsolidated affiliates of
Hilton and, upon completion of the spin-offs, were owned
or leased by Park or unconsolidated affiliates of Park.
The management and franchise segment generates its
revenue from: (i) management and franchise fees charged
to third-party hotel owners; (ii) license fees for the exclusive
right to use certain Hilton marks and intellectual property;
and (iii) affiliate fees charged to owned and leased hotels.
As of December 31, 2017, the ownership segment included
73 properties totaling 22,206 rooms, comprising 64 hotels
that we wholly owned or leased, one hotel owned by a
consolidated non-wholly owned entity, two hotels leased
by consolidated variable interest entities (“VIEs”) and six
hotels owned or leased by unconsolidated affiliates.
2017 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
Countries/
Territories
Properties
Rooms
Percentage
of Total
Rooms
December 31, 2017
Luxury
Luxury
Upper
Upscale
Upper
Upscale
Upper
Upscale
Upscale
Upscale
Upper
Upscale
Upscale
Upper
Midscale
Midscale
Upscale
Upper
Midscale
Timeshare
12
24
2
88
15
41
1
6
37
21
1
3
2
3
27
34
2
9,579
1.1%
10,709
1.3%
287
—%
578
211,423
24.7%
48
10,548
1.2%
520
123,773
14.5%
4
467
0.1%
245
57,216
6.7%
771
111,438
13.0%
2,338
237,334
27.7%
9
911
0.1%
451
51,305
6.0%
204
21,015
2.5%
48
8,101
0.9%
Selected Competitors (2)
Four Seasons, Mandarin
Oriental, Peninsula, Ritz
Carlton, St. Regis
Fairmont, Intercontinental,
JW Marriott, Park Hyatt,
Sofitel
Hyatt Centric, Joie De Vivre,
Kimpton, Le Méridien
Hyatt Regency, Marriott,
Renaissance, Sheraton,
Sofitel, Westin
Autograph Collection,
The Unbound Collection
Crowne Plaza, Delta,
Holiday Inn, Hyatt, Radisson,
Renaissance, Sheraton
Ascend Collection,
Tribute Portfolio
Courtyard, Hyatt Regency,
Marriott, Renaissance,
Sheraton
Aloft, Courtyard, Four
Points, Holiday Inn, Hyatt
Place, Springhill Suites
Comfort Suites, Courtyard,
Fairfield Inn, Holiday Inn
Express, Springhill Suites
Best Western, Comfort Inn
& Suites, La Quinta,
Quality Inn, Sleep Inn
Element, Hyatt House,
Residence Inn,
Staybridge Suites
Candlewood Suites,
Hawthorn Suites,
TownePlace Suites,
WoodSpring Suites
Hyatt Residence,
Marriott Vacation Club,
Vistana Signature
Experiences, Wyndham
Vacations Resorts
(1) The table above excludes five unbranded properties with 2,009 rooms, representing approximately 0.2 percent of total rooms. HGV has
the 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.
Waldorf Astoria Hotels & Resorts: What began as an iconic hotel in New York City is today a portfolio of 27 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 unforgettable 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.
6 | HILTON
Conrad Hotels & Resorts: Conrad is a global luxury brand
of 34 hotels and resorts offering guests personalized expe-
riences 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 comfortable
spaces. Each property is designed as a natural extension
of its neighborhood, with local design, food and drink and
culture. As of December 31, 2017, Canopy had two properties
open and 30 properties in the pipeline.
Hilton Hotels & Resorts: Hilton is our global flagship brand
and one of the most globally recognized hotel brands, with
578 hotels and resorts in 88 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 banquet facilities and special event services;
restaurants and lounges; food and beverage services; swim-
ming pools; gift shops; retail facilities; and other services.
Additionally, Hilton Hotels & Resorts was voted the favorite
hotel chain in the 2018 Globe Travel Awards.
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 collection 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 December 31, 2017, Curio had 48 properties open and
59 properties in the pipeline.
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 520 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 recognizable 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 guest loyalty program. In May 2017,
the first Tapestry Collection by Hilton opened in Syracuse,
New York, just four months after the brand’s launch. As of
December 31, 2017, Tapestry Collection by Hilton had four
properties open and 24 properties in the pipeline.
Embassy Suites by Hilton: Embassy Suites by Hilton
comprises 245 upper upscale, all-suite hotels that feature
two-room guest suites with a separate living room and
dining or 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 771 hotels worldwide. At Hilton Garden
Inn, guests find an open, inviting atmosphere with warm,
glowing service and simple, thoughtful touches that allow
them to relax and recharge. As a recognized leader in food
and beverage services, Hilton Garden Inn caters to guests’
dining needs by serving cooked-to-order breakfast and
offering handcrafted cocktails, shareable small plates and
full meals at its on-site restaurants and bars. Flexible meet-
ing space, free Wi-Fi, wireless printing and fitness centers
are offered to help guests stay polished and productive.
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 2,300 Hamptons 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.
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 efficiently designed bed-
rooms. In May 2017, the first Tru by Hilton property opened
in Oklahoma City. As of December 31, 2017, Tru had nine
properties open and 284 properties in the pipeline.
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 451 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
204 open hotels offer complimentary continental break-
fast, integrated laundry and exercise facility, recycling
and sustainability initiatives and a pet-friendly policy. As
of December 31, 2017, 387 properties were in the pipeline.
2017 ANNUAL REPORT | 7
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
48 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.
Our Guest Loyalty Program
Hilton Honors is our award-winning guest loyalty program
that supports our portfolio of brands and our owned,
leased, managed and franchised hotels and resorts. The
program generates significant repeat business by reward-
ing guests with points for each stay at any of our nearly
5,300 properties worldwide, which are then redeemable for
free nights and other goods and services. Members can
also use points earned to transact with nearly 130 partners,
including airlines, rail and car rental companies, credit
card providers, Amazon.com and others. The program
provides targeted marketing, promotions and customized
guest experiences to approximately 71 million members,
a 20 percent increase from December 31, 2016. Our Hilton
Honors members represented approximately 57 percent
of our system-wide occupancy and contributed hotel-level
revenues to us and our hotel owners of over $19 billion
during the year ended December 31, 2017. Affiliation with
our loyalty programs encourages members to allocate
more of their travel spending to our hotels. The percent-
age 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 and resorts in our system. These funds are
applied to reimburse hotels and partners for Hilton Honors
points redemptions by loyalty members and to pay for pro-
gram administrative expenses and marketing initiatives
that support the program.
Our Business
As of December 31, 2017, 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
U.S.
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
Asia Pacific
8 | HILTON
1
—
2
—
—
—
—
—
1
1
—
—
—
1
55
5
7
—
—
—
—
—
215
—
463
—
—
—
—
—
614
164
—
—
—
405
14,935
1,998
3,412
—
—
—
—
—
12
5,451
1
4
3
3
4
2
4
3
15
—
—
65
25
54
44
84
4
—
2
1
2
142
898
703
723
1,287
402
1,155
1,076
4,630
—
—
48,048
9,235
16,359
13,427
30,955
1,981
—
189
201
448
—
1
—
—
—
1
1
—
—
2
1
1
—
984
—
—
—
319
294
—
—
768
175
112
13
2
6
3
3
5
3
4
4
18
1
1
5,666
1,126
1,361
703
723
1,606
696
1,155
1,690
5,562
175
112
179
54,319
244
102,367
17
33
2
7
26
7
6
—
—
5,469
9,430
605
2,826
5,694
1,271
764
—
—
43
142
51
98
30
7
8
1
2
15,109
40,724
16,030
37,193
7,675
1,271
953
201
448
DoubleTree by Hilton
U.S.
Americas (excluding U.S.)
Europe
Middle East and Africa
Asia Pacific
Tapestry Collection by Hilton
U.S.
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
Tru by Hilton
U.S.
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
Owned / Leased (1)
Managed
Franchised
Total
Properties Rooms
Properties Rooms
Properties Rooms
Properties Rooms
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73
—
73
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37
4
11
10
49
—
44
3
4
8
21
7
23
47
13
15
—
—
21
3
—
—
4
12,241
301
71,450
338
83,691
809
2,915
2,350
14,220
—
11,568
667
430
1,084
3,870
1,574
4,917
5,806
1,677
2,439
—
—
2,241
358
—
—
1,759
21
81
4
2
4
4,351
13,984
488
965
467
25
92
14
51
5,160
16,899
2,838
15,185
4
467
193
43,659
237
55,227
5
1,322
8
1,989
634
87,739
638
88,169
36
38
—
—
5,594
6,230
—
—
44
59
7
23
6,678
10,100
1,574
4,917
2,097
204,936
2,144
210,742
89
52
25
10,651
8,016
3,809
102
67
25
12,328
10,455
3,809
9
911
9
911
410
17
46,786
1,920
431
20
49,027
2,278
201
20,698
201
20,698
3
1
317
250
3
5
317
2,009
22,206
656
208,235
4,507
617,573
5,236
848,014
—
—
—
48
8,101
48
8,101
22,206
656
208,235
4,555
625,674
5,284
856,115
(1)
Includes properties owned or leased by entities in which we own a noncontrolling interest.
We operate our business under a management and
franchise segment and an ownership segment. 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 19: “Business
Segments” in “Part II—Item 8. Financial Statements and
Supplementary Data.”
MANAGEMENT AND FRANCHISE
Through our management and franchise segment, we
manage hotels and license our brands. This segment
generates its revenue primarily from fees charged to hotel
owners. We grow our management and franchise business
by attracting owners to become a part of our system and
participate in our 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 Management
Our core management services consist of operating hotels
under management contracts for the benefit of third parties
who either own or lease the hotels and the associated
personal property. Terms of our management contracts
vary, but our fees generally consist of a base management
fee, which is based on a percentage of the hotel’s gross
revenue, and, when applicable, an incentive management
fee, which is typically based on a percentage of hotel oper-
ating profits. In general, the owner pays all operating and
other expenses and reimburses our out-of-pocket expenses.
2017 ANNUAL REPORT | 9
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 hotel’s gross room
revenue, or other usage fees, which covers the costs of
advertising and marketing programs; the costs of internet,
technology and reservation systems; and quality assurance
program expenses. Owners are also responsible for various
other fees and charges, including payments for participation
in our Hilton Honors guest loyalty program, training, con-
sultation and procurement of certain goods and services.
As of December 31, 2017, we managed 656 hotels with
208,235 rooms, excluding our owned, leased and joint
venture hotels.
The initial terms of our management contracts for full
service hotels are typically 20 to 30 years. In certain cases,
when we have entered into a franchise contract in addition
to a management contract, we classify these hotels as
managed hotels in our portfolio. Extension options for
our management contracts are negotiated and vary, but
typically are more prevalent in full service hotels. Typically,
these contracts contain one or two extension options that
are for either five 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 contracts with Park, assuming
we exercise all renewal periods, the total term of the man-
agement contracts will range from 30 to 70 years.
Some of our management contracts 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.
Franchising
We license our brand names, trademarks and service marks
and operating systems to hotel owners under franchise
contracts. We do not own, manage or operate franchised
hotels and do not employ the individuals working at these
locations. We conduct periodic inspections to ensure that
brand standards are maintained. For new franchised hotels
(both new construction and conversions of existing hotels
from other brands), we approve the location, as well as
the plans for the facilities to ensure the hotels meet our
brand standards. For existing franchised hotels, we provide
franchisees with product improvement plans that must
be completed to keep the hotels in compliance with our
brand standards so they can remain in our hotel system.
Occasionally, we may have a franchise contract and a
management contract in place at the same property, in
which case we are both the franchisor and the manager
of that property. We also earn license fees from a license
agreement with HGV and co-brand credit card arrange-
ments for the use of certain Hilton marks and intellectual
property. As of December 31, 2017, we franchised 4,555
properties with 625,674 rooms.
10 | HILTON
Each franchisee pays us a franchise application fee in
conjunction with the inception of a franchise contract.
Franchisees also pay a royalty fee, generally based on
a percentage of the hotel’s gross room revenue and, in
some cases, a percentage of food and beverage revenue.
Additionally, the franchisees pay a monthly program fee
based on a percentage of the hotel’s gross room revenue
that covers the costs of certain advertising and marketing
programs, internet, technology and reservation systems,
and quality assurance programs (among other things) that
benefit the brand. Franchisees also are responsible for
various other fees and charges, including payments for
participation in our Hilton Honors guest loyalty program,
training, consultation and procurement of certain goods
and services.
Our franchise contracts for new construction hotels and
our franchise contracts with Park typically have initial terms
of approximately 20 years. Our franchise contracts for
converted hotels have initial terms of approximately 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, for an additional term ranging from 10 to
15 years. Our franchise contracts with Park cannot be
extended without our consent. We have the right to termi-
nate a franchise contract upon specified events of default,
including nonpayment of fees or noncompliance with brand
standards. If a franchise contract is terminated by us because
of a franchisee’s default, the franchisee is contractually
required to pay us liquidated damages.
OWNERSHIP
As of December 31, 2017, our ownership segment consisted
of 73 hotels with 22,206 rooms that we owned or leased
or that are owned or leased by entities in which we own
a noncontrolling interest. As a hotel owner, we focus on
maximizing the cost efficiency and profitability of the
portfolio by, among other things, maximizing hotel revenues,
implementing new labor management practices and
systems and reducing fixed costs. Through our disciplined
approach to asset management, we develop and execute
on strategic plans for each of our hotels to enhance their
market position and, at many of our hotels, we invest in
renovating guest rooms and public spaces and adding or
enhancing meeting and retail space to improve profitability.
Competition
We encounter active and robust competition as a hotel,
residential and resort 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; ameni-
ties; 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 and owner of hotels
with an associated system-wide guest loyalty platform
helps us succeed as one of the largest and most geo-
graphically 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 competi-
tors are firms such as Accor S.A., Carlson Rezidor Group,
Choice Hotels International, Hongkong and Shanghai
Hotels, Hyatt Hotels Corporation, Intercontinental Hotel
Group, Marriott International and Wyndham Worldwide
Corporation.
Seasonality
The hospitality industry is seasonal in nature. The periods
during which our hotels and resorts experience higher
revenues vary from property to property, depending
principally upon their 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 the
development and supply of and demand for hotel rooms,
occupancy levels and 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 volatility 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 of
such fixed costs, in a negative economic environment, the
rate of decline in earnings can be higher than the rate of
decline in revenues.
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 trademarks, service marks,
trade names, logos and patents, which we believe have
become synonymous in the hospitality industry with a rep-
utation 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
contracts and require that certain materials be registered
before franchises can be offered or sold in a particular
jurisdiction.
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 employees, minimum wage require-
ments, 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 compli-
ance 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.
Finally, as an international owner, manager and franchisor
of properties in 105 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 pro-
vide that our foreign earnings are subject to withholding
requirements or other restrictions, unexpected 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
United Kingdom’s (“U.K.”) Bribery Act 2010, which contains
significant prohibitions on bribery and other corrupt busi-
ness 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 regulations
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 sub-
stances, 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
2017 ANNUAL REPORT | 11
other claims by third parties concerning environmental
compliance or contamination. 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 his-
torically 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 waste that we generate, including at locations
where such waste has 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 contracts, 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 mainte-
nance plan at each of our owned and managed 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 position, results of opera-
tions 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. Foreign managed and franchised
hotels are required to participate in certain of our insur-
ance programs. In addition, our management and franchise
contracts 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 and other risks
with respect to our business for all of our owned and leased
hotels, and we maintain workers’ compensation coverage
for all of our team members. In addition, through our captive
insurance subsidiary, we participate in a reinsurance
arrangement that provides coverage for a certain portion
12 | HILTON
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.
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. Our strategy was
developed by mapping social and environmental issues
that are impacted by our business and will continue to be
critical to our long-term success. We ranked the issues
based on our influence and the relative importance to
our business operations and stakeholder groups. We also
engaged with both internal and external stakeholders to
identify interests and concerns that should be taken into
consideration as we continue to grow. We revisited our
materiality results in 2015 and based on these results, we
have identified the priority issue areas for our corporate
responsibility efforts and forthcoming goals and targets.
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, Inclusive Economies: 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 hospitality to our
communities. We are committed to having a positive
economic and social impact on the millions of commu-
nities and lives we touch.
• Preserving environment—Climate Changes, Energy,
Carbon, Water, Waste, Responsible Sourcing: as envi-
ronmental stewards for the wellbeing of people and
ecosystems in our communities, we protect the envi-
ronment through efficient and responsible operations
and sourcing. Hilton has achieved a company-wide
certification to ISO 14001 (Environmental Management)
and ISO 50001 (Energy Management) standards.
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. This year, for the first time, Hilton was named to
the Dow Jones Sustainability Index North America as
an industry leader across economic, social and environ-
mental criteria.
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.
• 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;
Employees
As of December 31, 2017, more than 163,000 people were
employed at our managed, owned and leased properties
and at our corporate locations.
As of December 31, 2017, approximately 31 percent of our
employees globally (or 35 percent of our employees in the
U.S.) were covered by various collective bargaining agree-
ments 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 U.S. Securities
and Exchange Commission (“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 avail-
able on our website at newsroom.hilton.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 newsroom.hilton.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 consid-
ered 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 employee
compensation and benefits, energy, insurance
and food;
• increases in costs due to inflation or other factors
that may not be fully offset by price and fee increases
in our business;
• 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 quality of services provided by franchisees;
• the availability and cost of capital necessary for us and
third-party hotel owners to fund investments, capital
expenditures and service debt obligations;
• delays in or cancellations of planned or future
development or refurbishment projects;
• 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 contracts;
• 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 telecon-
ferencing 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
2017 ANNUAL REPORT | 13
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 and policies, including
potential barriers to travel, trade and immigration;
• war, political instability 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;
• the financial and general business condition of the
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), H1N1 (swine flu) and Middle East Respiratory
Syndrome (MERS);
• cyber-attacks;
• climate change or availability of natural resources;
• natural or man-made disasters, such as earthquakes,
tsunamis, tornadoes, hurricanes (e.g., hurricanes Harvey,
Irma and Maria in 2017), typhoons, floods, wildfires,
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
14 | HILTON
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 proper-
ties. 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.
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
principally 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 high-
est. 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 recognition and reputation,
as well as location, room rates, property size and availability
of rooms and conference space, quality of the accommo-
dations, 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 contracts
We compete to enter into management and franchise
contracts. Our ability to compete effectively is based
primarily on the value and quality of our management
services, 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 contracts and the economic
advantages to the property owner of retaining our manage-
ment 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
contracts 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 obso-
lete or consumers view them as unfashionable 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 confidence 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.
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 contracts, 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 contracts. Although our man-
agement and franchise contracts are typically long-term
arrangements, hotel owners may be able to terminate the
contracts under certain circumstances, including the failure
to meet specified financial or performance 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 contracts or enter into new
contracts 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 contracts, costs
of construction and anticipated room rate structure, if
not managed effectively by our third-party owners could
adversely affect the growth of our management and fran-
chise 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 refinance
maturing indebtedness on favorable terms or at all, their
lenders could declare a default, accelerate the related debt
and repossess the property. While we maintain certain
contractual protections, repossession could result in the
termination of our management or franchise contract 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 contracts,
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 standards 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 accor-
dance with our standards, guest preference for our brands
2017 ANNUAL REPORT | 15
could diminish. In addition, if third-party property owners
fail to observe standards or meet their contractual require-
ments, 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.
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 contracts require us and
our hotel owners to comply with operational and perfor-
mance 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 contracts even
where the contracts do not expressly provide for termina-
tion. 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, 2017, we had a total of 2,257 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 contracts are subject to numerous
conditions, and the eventual development and construc-
tion of our pipeline not currently under construction 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.
Since 2011, we have opened hotels under five new brands:
Home2 Suites by Hilton; Curio—A Collection by Hilton;
Canopy by Hilton; Tru by Hilton; and, most recently, Tapestry
Collection by Hilton. 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 over the past
several years. We may continue to expand existing brands
into new international markets. New hotel products or con-
cepts or brand expansions may not be accepted by hotel
owners, franchisees or customers and we cannot guaran-
tee the level of acceptance any new brand will have in the
development and consumer marketplaces. If new branded
16 | HILTON
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.
Our investments in owned and leased real property subject
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;
• fluctuations in real estate values or potential impairments
in the value of our assets;
• increased potential civil liability for accidents or other
occurrences on owned or leased properties;
• the ongoing need for capital improvements and
expenditures funded by us to maintain or upgrade prop-
erties and contractual requirements 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;
• 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.
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 renovation are delayed
in opening as scheduled, or if renovation investments
adversely affect or fail to improve performance, our opera-
tions 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. 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 invest-
ment 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 addi-
tion, 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 obligations may
cause losses to us in excess of the capital we initially may
have invested or committed.
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 distrib-
ute capital to us, our failure to receive distributions from
our joint venture partners could reduce our cash flow return
on these investments.
Failures in, material damage to, or interruptions in our
information technology systems, software or websites
and difficulties in updating our existing software or devel-
oping 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 other-
wise contract for sophisticated technology and systems
for property management, procurement, reservations and
the operation of the Hilton Honors guest loyalty program.
Such systems are subject to, among other things, damage
or interruption from power outages, computer and tele-
communications failures, computer viruses and natural
and man-made disasters. Although we have a cold disaster
recovery site in a separate 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 while simultaneously
building and operating new applications and services with
those 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 infor-
mation 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 sys-
tems 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
2017 ANNUAL REPORT | 17
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 experi-
ence a loss or disruption in the provision of any of these
functions or services, or they are not performed in a satis-
factory 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 pro-
grams 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 malware, 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 our third-party service providers
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 accord-
ingly 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 or other 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 web-
sites, mobile applications, point of sale systems and other
18 | HILTON
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.
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 sensi-
tive 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 infor-
mation. For example, the European Union’s General Data
Protection Regulation (“GDPR”), which becomes effective
in May 2018 and replaces the current data protection laws
of each EU member state, requires companies to meet new
and more stringent requirements regarding the handling
of personal data, and failure to meet the GDPR requirements
could result in penalties of up to 4 percent of worldwide
revenue. 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 pro-
motion 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 consumers
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 busi-
ness, operating results and financial condition could be
adversely affected.
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 sys-
tems, operation of our guest loyalty programs, distribution
of hotel resources to current and future customers and
guest amenities. These technologies may require refine-
ments 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 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 third-party
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.
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 obligations, 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 busi-
ness operations, which could harm our business.
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 GDPR, that govern these
activities could adversely affect current or planned mar-
keting 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 cus-
tomers 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 other-
wise 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
contracts with many hospitality intermediaries limit
transaction fees for hotels, there can be no assurance that
we will be able to renegotiate these contracts 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, which increases costs to hotels in our system.
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 leisure consum-
ers or “transient” business rather than “group” business for
meetings and events, in recent years they have expanded
their business to include marketing to group business
and also to corporate transient business. If that growth
continues, it could both divert group and corporate tran-
sient business away from our hotels and also increase our
cost of sales for group and corporate transient business.
Consolidation of internet travel intermediaries, or 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.
2017 ANNUAL REPORT | 19
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,
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 program for
the Hilton brands. Program members accumulate 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 contracts. System hotels
(including, without limitation, third-party hotels under
management and franchise arrangements) contribute a
percentage of the loyalty member’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 parties, such as airlines,
other transportation services, online vendors, retailers and
credit card companies, to sell Honors points for the use of
their customers and/or to allow Honors members to use
or exchange points for products or services. 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.
Because we derive a portion of our revenues from operations
outside the United States, the risks of doing business inter-
nationally 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 105 countries and territories around the world.
Our operations outside the United States represented
approximately 23 percent, 28 percent and 31 percent of
our revenues for the years ended December 31, 2017, 2016
and 2015, respectively. We expect that revenues from our
international operations will continue to account for a
material 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 or 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;
20 | HILTON
• 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 the 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 antici-
pated military or political conflicts or any other change
resulting from the U.K.’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.
These factors may adversely affect the revenues earned
from and the market value of properties that we own or
lease located in international markets. While these factors
and the effect of these factors 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 pro-
hibitions 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 manage-
ment, franchising and ownership rights. In addition, in
certain circumstances, the actions of parties affiliated
with us (including our owners, joint venture partners,
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.
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 disclo-
sure 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, activi-
ties 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 an affiliate
of HNA or HNA’s affiliates or Blackstone or Blackstone’s
affiliates. Other affiliates of HNA or Blackstone have in the
past or may in the future be required to make disclosures
pursuant to ITRSHRA. Disclosure of such activities, even
if such activities are permissible under applicable law, 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 hospitality 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
31 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 demonstrations. A number of our
collective bargaining agreements, representing approxi-
mately 15 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 employ-
ees 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 negoti-
ation 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 163,000 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 staff and manage
the hotels that we manage, own and lease could be impaired,
which could reduce customer satisfaction. In addition, the
2017 ANNUAL REPORT | 21
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 short-
age of skilled labor could also require higher wages that
would increase labor costs, which could 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 nearly 5,900 trademark registra-
tions 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 trademarks 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 trade-
marks 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 business 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 trade-
marks, 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
22 | HILTON
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 contracts 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 contracts 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 translated 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 transaction
costs, credit requirements and counterparty risk.
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 exists, and the occasional
incidence of such an event could cause substantial dam-
age to us, our owners or the surrounding area. We carry,
and/or 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 such
as those natural disasters that occurred in 2017. We antici-
pate increased costs of property insurance across the
portfolio in 2018 due to the significant losses that insurers
suffered globally in 2017. 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 insurance 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 terror-
ism 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 possibility
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 coverage for
losses related to terrorist attacks, particularly for prop-
erties 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 determina-
tions 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 valuation 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
2017 ANNUAL REPORT | 23
existing tax law and could adversely affect our financial
condition or results of operations.
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,
2005 through December 31, 2013 are under audit by the
Internal Revenue Service (“IRS”), and the IRS has proposed
adjustments to increase our taxable income based on sev-
eral assertions involving intercompany loans, our Hilton
Honors guest loyalty 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. See
Note 14: “Income Taxes” in our audited consolidated finan-
cial 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 reported 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 reported financial condition and results of operations.
See Note 2: “Basis of Presentation and Summary of Signif-
icant 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 our 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
24 | HILTON
underlying asset, asset group or reporting unit exceeds its
estimated 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 governmen-
tal 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, sanita-
tion, 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 con-
sidered 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 require-
ments 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 condi-
tions 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 our rights in any such
property, or could otherwise harm our business or reputa-
tion. 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 addi-
tional 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 outside 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 require-
ments 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 noncom-
pliance. 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 contract and
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 obliga-
tions 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 facil-
ities 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 revocation
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 regulations regarding
workplace and employment matters, consumer protection
claims and other commercial matters. A number of these
lawsuits have resulted in the payment of substantial dam-
ages 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.
Risks Related to Our 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 has
provided 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 spin-
ning off the ownership business may be reduced or may
be unavailable to us, our stockholders and stockholders
of Park. If we do not realize the intended benefits of the
spin-offs, 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
2017 ANNUAL REPORT | 25
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 pre-
vents a distributing corporation or a spun-off corporation
from electing REIT status for a 10-year period following
a tax-free spin-off. Under an 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
26 | HILTON
agreement. Certain of these agreements provide 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 possi-
ble 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 opera-
tions and/or cash flows.
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 temporarily 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, 2017, our total indebtedness, excluding
unamortized deferred financing costs and discounts,
was approximately $6.7 billion, and our contractual debt
maturities of our long-term debt for the years ending
December 31, 2018, 2019 and 2020, respectively, were
$54 million, $55 million and $57 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;
• increasing our vulnerability to adverse economic,
industry or competitive developments;
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;
• exposing us to increased interest expense, as our
• merge or consolidate;
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 develop-
ment, satisfaction of debt service requirements, acqui-
sitions 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 busi-
ness 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.
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
• 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, the aggregate 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 per-
cent 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 borrow-
ings, our results of operations and financial condition
could be adversely affected.
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, regulatory 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
2017 ANNUAL REPORT | 27
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 trans-
actions, 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 qualifications 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.
Risks Related to Ownership
of Our Common Stock
The interests of certain of our stockholders may conflict
with ours or yours in the future.
HNA, which purchased 25 percent of our common stock
from Blackstone in March 2017, beneficially owned approxi-
mately 26.0 percent of our common stock as of December 31,
2017 as a result of our share repurchases lowering our total
number of shares outstanding. Blackstone and its affiliates
beneficially owned approximately 5.4 percent of our com-
mon stock as of December 31, 2017. Moreover, under our
by-laws and each stockholders’ agreement with HNA and
Blackstone, for so long as HNA or Blackstone, as applicable,
retains specified levels of ownership of us, we have agreed
to nominate to our board individuals designated by them.
Thus, for so long as HNA and Blackstone 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 HNA and
Blackstone may have influence with respect to our man-
agement, business plans and policies, including the
appointment and removal of our officers. For example, for
so long as HNA or Blackstone continues to own a significant
percentage of our stock, HNA or Blackstone 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 HNA and Blackstone 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 HNA and Blackstone and
their respective affiliates may engage in activities where
their interests conflict with ours or those of our stockholders.
For example, HNA acquired Carlson Hotels in December
2016 and owns an interest in NH Hotel Group. Blackstone
owns interests in La Quinta Holdings Inc. and certain other
investments in the hospitality industry and may pursue
ventures that compete directly or indirectly with us. In
addition, affiliates of HNA and Blackstone directly and indi-
rectly 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 our stock-
holders agreement with HNA, we 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. HNA or
Blackstone 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, HNA or Blackstone 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 condi-
tion, operating results, current and anticipated cash needs,
limitations imposed by our indebtedness, legal requirements
and other factors that our board of directors deems relevant.
28 | HILTON
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.
Blackstone owned approximately 5.4 percent and HNA
owned approximately 26.0 percent of our outstanding
common stock as of December 31, 2017. 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 also may be sold pursuant 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. HNA is subject to specified
transfer restrictions pursuant to the terms of a stockhold-
ers agreement with us. Those restrictions are subject to
specified exceptions, including in connection with margin
loan arrangements and any proposed transfers that a
majority of the disinterested members of our board of
directors may approve. Each of HNA and Blackstone has
pledged substantially all of the shares of our common
stock held by it pursuant to margin loan arrangements and
any foreclosure upon those shares could result in sales of
a substantial number of shares of our common stock in the
public market. 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 market price of our common stock.
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 by-laws 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 issuance
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 unless such action is recommended by all
directors then in office;
• 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 by-laws
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 transaction involv-
ing a change in control of our company, including actions
that our stockholders may deem advantageous, or nega-
tively 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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Hotel Properties
OWNED OR CONTROLLED HOTELS
As of December 31, 2017, we owned 100 percent or
a controlling interest in the following four properties,
representing 929 rooms.
Property
Location
Rooms
Hilton Hotels & Resorts
Hilton Paris Orly Airport
Paris, France
Hilton Nairobi (1)
Hilton Odawara
Resort & Spa
Hilton Belfast
Nairobi, Kenya
Odawara City,
Japan
340
287
173
Templepatrick
Templepatrick, Golf
& Country Club
Templepatrick,
United Kingdom
129
(1) We own a controlling interest, but less than a 100 percent
interest, in the entity that owns this property.
2017 ANNUAL REPORT | 29
JOINT VENTURE HOTELS
As of December 31, 2017, we had a minority or noncontrolling financial interest in and operated the following six properties,
representing 2,457 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
Location
Ownership
Rooms
Waldorf Astoria Hotels & Resorts
Waldorf Astoria Chicago
Conrad Hotels & Resorts
Conrad Cairo
Hilton Hotels & Resorts
Hilton Tokyo Bay
Hilton Nagoya
Hilton Mauritius Resort & Spa
Hilton Imperial Dubrovnik
Chicago, IL, USA
Cairo, Egypt
Urayasu-shi, Japan
Nagoya, Japan
Flic-en-Flac, Mauritius
Dubrovnik, Croatia
12%
10%
24%
24%
20%
18%
215
614
828
460
193
147
LEASED HOTELS
As of December 31, 2017, we leased the following 63 hotels, representing 18,820 rooms.
Property
Location
Rooms
Waldorf Astoria Hotels & Resorts
Rome Cavalieri, Waldorf Astoria Hotels & Resorts
Rome, Italy
Waldorf Astoria Amsterdam
Amsterdam, Netherlands
Conrad Hotels & Resorts
Conrad Osaka
Hilton Hotels & Resorts
Hilton Tokyo(1)
Ramses Hilton
Osaka, Japan
(Shinjuku-ku) Tokyo, Japan
Cairo, Egypt
Hilton London Kensington
London, United Kingdom
Hilton Vienna
Hilton Tel Aviv
Hilton Osaka(1)
Hilton Istanbul Bosphorus
Hilton Munich Park
Hilton Munich City
London Hilton on Park Lane
Hilton Diagonal Mar Barcelona
Hilton Mainz
Vienna, Austria
Tel Aviv, Israel
Osaka, Japan
Istanbul, Turkey
Munich, Germany
Munich, Germany
London, United Kingdom
Barcelona, Spain
Mainz, Germany
Hilton Trinidad & Conference Centre
Port of Spain, Trinidad
Hilton London Heathrow Airport
London, United Kingdom
Hilton Izmir
Hilton Addis Ababa
Hilton Vienna Danube Waterfront
Hilton Frankfurt
Hilton Brighton Metropole
Hilton Sandton
Hilton Milan
Hilton Brisbane
Hilton Glasgow
Ankara Hilton
Izmir, Turkey
Addis Ababa, Ethiopia
Vienna, Austria
Frankfurt, Germany
Brighton, United Kingdom
Sandton, South Africa
Milan, Italy
Brisbane, Australia
Glasgow, United Kingdom
Ankara, Turkey
The Waldorf Hilton, London
London, United Kingdom
30 | HILTON
370
93
164
821
817
601
579
560
527
500
484
480
453
433
431
405
398
380
372
367
342
340
329
320
319
319
309
298
Property
Hilton Cologne
Adana Hilton
Hilton Stockholm Slussen
Hilton Madrid Airport
Parmelia Hilton Perth
Hilton London Canary Wharf
Hilton Amsterdam
Location
Cologne, Germany
Adana, Turkey
Stockholm, Sweden
Madrid, Spain
Parmelia Perth, Australia
London, United Kingdom
Amsterdam, Netherlands
Hilton Newcastle Gateshead
Newcastle Upon Tyne, United Kingdom
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
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
Hilton Warwick/Stratford-upon-Avon
Warwick, United Kingdom
Hilton Leicester
Hilton Innsbruck
Hilton Nottingham
Leicester, United Kingdom
Innsbruck, Austria
Nottingham, United Kingdom
Hilton St. Anne’s Manor, Bracknell
Wokingham, United Kingdom
Hilton London Croydon
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
Croydon, 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
Hilton Puckrup Hall, Tewkesbury
Tewkesbury, United Kingdom
Hilton Glasgow Grosvenor
Glasgow, United Kingdom
(1) We own a majority or controlling financial interest, but less than a 100 percent interest, in entities that lease these properties.
Rooms
296
295
289
284
284
282
271
254
254
252
248
230
215
210
210
208
200
186
181
179
176
176
170
168
158
153
152
146
140
139
136
131
127
112
97
Corporate Headquarters and Regional Offices
Our corporate headquarters are located at 7930 Jones Branch Drive, McLean, Virginia 22102. These offices consist of
approximately 223,000 rentable 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), Singapore (Asia Pacific), Tokyo (Japan) and Shanghai (China). Additionally,
to support our operations, we have our Hilton Honors and other commercial services office in Addison, Texas. Other
non-operating real estate holdings include centralized operations centers located in Memphis, Tennessee and Glasgow,
U.K., 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 operations, we believe that suitable space will be available on commercially
reasonable terms.
2017 ANNUAL REPORT | 31
ITEM 3.
LEGAL PROCEEDINGS
PART II
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. We recognize
a liability when we believe the loss is probable and can be
reasonably estimated. Most occurrences involving liability,
claims of negligence and employees are covered by insur-
ance with solvent insurance carriers. The ultimate results
of claims and litigation cannot be predicted with certainty.
We believe we have adequate reserves against such matters.
We currently believe that the ultimate outcome of such
lawsuits and proceedings will not, individually or in the
aggregate, have a material adverse effect on our consoli-
dated financial position, results of operations or cash
flows. However, depending on the amount and timing,
an unfavorable resolution of some or all of these matters
could materially affect our future results of operations
in a particular period.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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, 2017, there were approximately
35 holders of record of our common stock. This stock-
holder figure does not include a substantially greater
number of holders whose shares are held of record
by banks, brokers and other financial institutions. On
January 3, 2017, we completed a 1-for-3 reverse stock
split of our outstanding common stock.
We currently pay regular quarterly cash dividends 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 condi-
tion, 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 common stock as reported by the
NYSE and the cash dividends we declared for the last two
fiscal years:
Stock Price
High
Low
Dividends
Declared
per Share
Fiscal Year Ended
December 31, 2017:
First Quarter
$ 60.49
$ 55.00
$ 0.15
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended
December 31, 2016:
67.79
55.91
69.74
60.54
80.94
68.60
0.15
0.15
0.15
First Quarter
$ 68.67
$ 48.48
$ 0.21
Second Quarter
Third Quarter
Fourth Quarter
70.80
73.29
83.85
60.75
66.51
65.40
0.21
0.21
0.21
32 | HILTON
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, including
the effect of the spin-offs, were reinvested. The comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, future performance of our common stock.
$250.0
$200.0
$150.0
$100.0
$ 50.0
12/12/13
12/31/13
Hilton
S&P 500
S&P Hotel
12/31/14
12/31/15
12/31/16
12/31/17
•HILTON •S&P 500 •S&P HOTEL
12/12/2013 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
$ 100.00
$ 103.49
$ 121.35
$ 99.53
$ 129.97
$ 187.58
100.00
100.00
104.10
109.17
115.96
132.84
115.12
135.47
126.10
142.45
150.58
208.58
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of our common stock during the three months
ended December 31, 2017:
October 1, 2017 to October 31, 2017
November 1, 2017 to November 30, 2017
December 1, 2017 to December 31, 2017
Total
Total Number
of Shares
Purchased (1)
Average
Price Paid per
Share (2)
986,175
1,068,841
1,499,608
3,554,624
$ 69.11
74.59
78.38
74.67
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (3)
986,175
1,068,841
1,499,608
3,554,624
Maximum
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program (3)
(in millions)
$ 307
1,227
1,109
(1) The total number of shares purchased also includes 75,710 shares of common stock acquired during the three months ended December 31,
2017 for a total cost of approximately $6 million that were not part of any publicly announced share repurchase program. These shares
were retained to cover withholding taxes incurred in connection with the vesting of restricted stock awards granted under our incentive
compensation plans.
(2) This price includes per share commissions paid for all share repurchases made under the Company’s share repurchase program.
(3)
In February 2017, our board of directors authorized a stock repurchase program of up to $1.0 billion of the Company’s common stock and,
in November 2017, an additional $1.0 billion was authorized. Under this publicly announced repurchase program, the Company is authorized
to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable
federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The repurchase program
does not have an expiration date and may be suspended or discontinued at any time.
2017 ANNUAL REPORT | 33
ITEM 6.
SELECTED FINANCIAL DATA
We derived the selected statement of operations data for the years ended December 31, 2017, 2016 and 2015 and the
selected balance sheet data as of December 31, 2017 and 2016 from our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. All periods presented have been restated to reflect the combined results of
operations and financial position of Park and HGV as discontinued operations as a result of the spin-offs of these businesses
in January 2017. The selected statement of operations data for the year ended December 31, 2014 and the selected balance
sheet data as of December 31, 2015 were derived from audited consolidated financial statements that are not included in
this Annual Report on Form 10-K. The selected statement of operations data for the year ended December 31, 2013 and the
selected balance sheet data as of December 31, 2014 and 2013 were derived from unaudited consolidated financial statements,
adjusted to reflect the spin-offs, that are not included in this Annual Report on Form 10-K.
The selected 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. Our historical results are not necessarily indicative of the results
expected for any future period.
As of and for the year ended December 31,
2017
2016
2015
2014
2013
(in millions, except per share data)
Selected Statement of Operations Data:
Total revenues
Operating income
Income (loss) from continuing operations, net of taxes
Net income (loss) from continuing operations per share(1)
Basic
Diluted
$ 9,140
$ 7,382
$ 7,133
$ 6,688
$ 6,210
1,372
1,264
952
(8)
900
881
703
179
298
(2)
$ 3.88
$
(0.05)
$ 2.67
$ 0.53
$
(0.14)
3.85
(0.05)
2.66
0.53
(0.14)
Cash dividends declared per share(1)
$ 0.60
$ 0.84
$ 0.42
$ —
$ —
Selected Balance Sheet Data:
Total assets
Long-term debt(2)
$ 14,308
$ 26,211
$ 25,622
$ 26,001
$ 26,410
6,602
6,616
5,894
6,696
7,723
(1) Weighted average shares outstanding used in the computation of basic and diluted net income (loss) from continuing operations
per share and cash dividends declared per share for periods prior to January 3, 2017 was adjusted to reflect the Reverse Stock Split.
See Note 1: “Organization” in our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K
for additional information.
(2)
Includes current maturities and is net of unamortized deferred financing costs and discount. Also includes capital lease obligations
and debt of VIEs.
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.
Overview
OUR BUSINESS
Hilton is one of the largest and fastest growing hospitality
companies in the world, with 5,284 properties comprising
856,115 rooms in 105 countries and territories as of
December 31, 2017. 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, Tapestry
Collection 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; and our timeshare brand, Hilton
Grand Vacations. As of December 31, 2017, we had approxi-
mately 71 million members in our award-winning guest
loyalty program, Hilton Honors, a 20 percent increase
from December 31, 2016.
RECENT EVENTS
On January 3, 2017, we completed the spin-offs of Park
and HGV. The historical financial results of Park and HGV
are reflected in our consolidated financial statements
as discontinued operations. See Note 3: “Discontinued
Operations” in our consolidated financial statements for
additional information.
34 | HILTON
On January 3, 2017, we completed a 1-for-3 reverse stock
split of Hilton’s outstanding common stock. See Note 1:
“Organization” in our consolidated financial statements
for additional information.
SEGMENTS AND REGIONS
Management analyzes our operations and business by
both operating segments and geographic regions. Our
operations consist of two reportable segments that are
based on similar products or services: (i) management
and franchise; and (ii) ownership. The management and
franchise segment provides services, including hotel
management and licensing of our brands. This segment
generates its revenue from: (i) management and franchise
fees charged to third-party hotel owners; (ii) license fees
for the exclusive right to use certain Hilton marks and
intellectual property; and (iii) affiliate fees charged to owned
and leased hotels. As a manager of hotels, we typically are
responsible for supervising or operating the property in
exchange for management fees. As a franchisor of hotels,
we charge franchise fees in exchange for the use of one
of our brand names and related commercial services,
such as our reservation system, marketing and information
technology services. The ownership segment primarily
derives earnings from providing hotel room rentals, food
and beverage sales and other services at our owned and
leased hotels.
Geographically, management conducts business through
three distinct geographic regions: (i) the Americas; (ii) Europe,
Middle East and Africa (“EMEA”); and (iii) Asia Pacific. The
Americas region includes North America, South America
and Central America, including all Caribbean nations.
Although the U.S. is included in the Americas, it repre-
sented 74 percent of our system-wide hotel rooms as of
December 31, 2017; therefore, the U.S. is often analyzed
separately and apart from the Americas geographic region
overall and, as such, it is presented separately within the
analysis herein. The EMEA region includes Europe, which
represents the western-most peninsula of Eurasia stretch-
ing from Iceland in the west to Russia in the east, and the
Middle East and Africa (“MEA”), which represents the Middle
East region and all African nations, including the Indian
Ocean island nations. Europe and MEA are often analyzed
separately and, as such, are presented separately within
the analysis herein. The Asia Pacific region includes the
eastern and southeastern nations of Asia, as well as India,
Australia, New Zealand and the Pacific island nations.
SYSTEM GROWTH AND PIPELINE
Our strategic objectives include the continued expansion
of 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, since the capital required to
build and maintain hotels is typically provided by the third-
party owner of the hotel with whom we contract to provide
management or franchise services. Additionally, prior to
approving the addition of new properties to our manage-
ment and franchise development pipeline, we evaluate the
economic viability of the property based on its geographic
location, the credit quality of the third-party owner and
other factors. By increasing the number of management
and franchise contracts with third-party owners, we expect
to increase overall return on invested capital and cash
available for return to stockholders.
As of December 31, 2017, we had a total of 2,257 hotels in
our development pipeline, representing approximately
345,000 rooms under construction or approved for devel-
opment throughout 107 countries and territories, including
39 countries and territories where we do not currently have
any open hotels. All of the rooms in the pipeline are within
our management and franchise segment. Over 182,000 of
the rooms in the pipeline, or more than half, were located
outside the U.S. Additionally, over 174,000 rooms in the
pipeline, or more than half, were under construction. We
do not consider any individual development project to be
material to us.
Principal Components and Factors Affecting
our Results of Operations
REVENUES
Principal Components
We primarily derive our revenues from the following sources:
• Franchise fees. Represents fees received in connection
with the licensing of our brands. Under our franchise
contracts, franchisees typically pay us franchise fees
that include: (i) application, initiation and other fees
for when new hotels enter the system, when there is
a change of ownership or a contract is extended; and
(ii) monthly royalty fees, generally calculated as a per-
centage of gross room revenue, and, for our full service
brands, a percentage of gross food and beverage
revenues and other revenues, as applicable. We also
earn license fees from a license agreement with HGV
and co-brand credit card arrangements for the use
of certain Hilton marks and intellectual property.
• Base and incentive management fees. Represents
fees received in connection with the management of
hotels. Terms of our management contracts vary, but
our fees generally consist of a base fee, which is typically
a percentage of the hotel’s gross revenue and, in some
cases, an incentive fee, which is based on hotel operating
profits and may be subject to a stated return threshold
to the owner, normally measured over a one-calendar
year period. 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 measure, or because our two-
tier fee structure is more heavily weighted toward the
incentive fee than the base fee.
• 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 accom-
modations, 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
2017 ANNUAL REPORT | 35
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.
• Other revenues. Represents revenue generated by the
incidental support of hotel operations for owned, leased,
managed and franchised properties, including our supply
management business, and other operating income.
• Other revenues from managed and franchised properties.
These revenues represent contractual reimbursements
to us by property owners for the payroll and related costs
of 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. We have no legal responsibility
for employees at franchised properties. Hotel franchisees
and property owners of hotels we manage also pay a
monthly fee based on a percentage of the hotel’s gross
room revenue, or other usage fees, which covers the
costs of advertising and marketing programs; the costs
of internet, technology and reservation systems; and
quality assurance program expenses. The corresponding
expenses incurred by us are presented as other expenses
from managed and franchised properties in our consoli-
dated statements of operations, resulting in no effect
on operating income (loss) or net income (loss).
Factors Affecting our Revenues
The following factors affect the revenues we derive from
our operations:
• 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 con-
sumer confidence and adverse political conditions can
lower the amount of management and franchise fee
revenues we are able to generate from our managed
and franchised properties and the revenues and profit-
ability of our owned and leased operations. 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. 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.
• Contracts with third-party owners and franchisees
and relationships with developers. We depend on our
long-term management and franchise contracts 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 contracts and
maintain good relationships with third-party owners and
franchisees. Our relationships with these third parties
36 | HILTON
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, mainte-
nance 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.
EXPENSES
Principal Components
We primarily incur the following expenses:
• 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 housekeeping, laundry and
front desk staff, as well as 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.
• Depreciation and amortization. These are non-cash
expenses that primarily consist of amortization of our
management and franchise intangibles and capitalized
software, as well as depreciation of fixed assets, such
as buildings and furniture and equipment that are used
in corporate operations or at our consolidated owned
and leased hotels.
• General and administrative. Consists primarily of
compensation expense for our corporate staff and
personnel supporting our business segments (includ-
ing divisional offices that support our management
and franchise segment), professional fees (including
consulting, audit and legal fees), travel and entertainment
expenses, bad debt expenses for uncollected manage-
ment, franchise and other fees, contractual performance
obligations and administrative and related expenses.
• Other expenses. Consists of expenses incurred by our
supply management and other ancillary businesses,
along with other operating expenses of the business.
• Other expenses from managed and franchised properties.
These expenses represent certain costs and expenses
that are contractually reimbursed to us by property
owners for payroll and related costs for properties that
we manage where the property employees are legally
our responsibility, or paid from fees collected in advance
from properties for certain other operating costs of
the managed and franchised properties’ operations,
marketing expenses and other expenses associated
with our brands and shared services. 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 (loss) or net income (loss).
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 and leasing hotels 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
franchise segment due to the high fixed costs associated
with operating an owned or leased hotel. The effective-
ness 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 fully 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, while continuing to optimize the
overall customer experience or the value of our hotels
or brands.
• Changes in depreciation and amortization expense.
We capitalize costs associated with certain software
development projects and, as those projects are com-
pleted and placed into service, amortization expense
will increase. We also capitalize cash consideration paid
to incentivize hotel owners as contract acquisition costs
and the costs incurred to obtain certain management
and franchise contracts as development commissions.
As we enter into new management and franchise con-
tracts for which these costs are incurred and capitalized,
amortization expense will also increase. Additionally,
changes in depreciation expense may be driven by
renovations of existing hotels, acquisition or develop-
ment 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.
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
periods, 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.
We hedge foreign exchange-based cash flow variability in
certain of our foreign currency denominated management
and franchise fees using forward contracts.
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 competitive
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.
Key Business and Financial Metrics Used
by Management
COMPARABLE HOTELS
We define our comparable hotels as those that: (i) were
active and operating in our system for at least one full
calendar year as of the end of the current period, and open
January 1st of the previous year; (ii) have not undergone
a change in brand or ownership type during the current
or comparable periods reported, excluding the hotels
distributed in the spin-offs; and (iii) have not sustained
substantial property damage, business interruption, under-
gone large-scale capital projects or for which comparable
results are not available. Of the 5,236 hotels in our system
as of December 31, 2017, 3,909 hotels have been classified
as comparable hotels. Our 1,327 non-comparable hotels
included 284 hotels, or approximately five 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.
OCCUPANCY
Occupancy represents the total number of room nights
sold divided by the total number of room nights available
at a hotel or group of hotels for a given period. Occupancy
measures the utilization of our hotels’ available capacity.
Management uses occupancy to gauge demand at a spe-
cific hotel or group of hotels in a given period. Occupancy
levels also help us determine achievable average daily rate
levels as demand for hotel rooms increases or decreases.
AVERAGE DAILY RATE (“ADR”)
ADR represents hotel room revenue divided by total number
of room nights sold for a given period. ADR measures aver-
age 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
2017 ANNUAL REPORT | 37
incremental profitability than changes in occupancy,
as described above.
REVENUE PER AVAILABLE ROOM (“REVPAR”)
RevPAR is calculated by dividing hotel room revenue by
total number of room nights available to guests for a given
period. We consider RevPAR to be a meaningful indicator
of our performance as it provides a metric correlated to
two primary and key drivers of operations at a hotel or group
of hotels: occupancy and ADR. RevPAR is also a useful
indicator in measuring performance over comparable
periods for comparable hotels.
References to RevPAR, ADR and occupancy are presented
on a comparable basis and references to RevPAR and ADR
are presented on a currency neutral basis, unless otherwise
noted. As such, comparisons of these hotel operating sta-
tistics for the years ended December 31, 2017 and 2016 use
the exchange rates for the year ended December 31, 2017,
and comparisons for the years ended December 31, 2016
and 2015 use the exchange rates for the year ended
December 31, 2016.
EBITDA AND ADJUSTED EBITDA
EBITDA reflects income (loss) from continuing operations,
net of taxes, excluding interest expense, a provision for
income taxes and depreciation and amortization.
Adjusted EBITDA is calculated as EBITDA, as previously
defined, further adjusted to exclude certain items, includ-
ing gains, losses and expenses in connection with: (i) asset
dispositions for both consolidated and unconsolidated
investments; (ii) foreign currency transactions; (iii) debt
restructurings and retirements; (iv) furniture, fixtures
and equipment (“FF&E”) replacement reserves required
under certain lease agreements; (v) reorganization costs;
(vi) share-based compensation expense; (vii) non-cash
impairment losses; (viii) severance, relocation and other
expenses; and (ix) other items.
We believe that EBITDA and Adjusted EBITDA provide
useful information to investors about us and our financial
condition and results of operations for the following reasons:
(i) these measures are among the measures used by our
management team to evaluate our operating performance
and make day-to-day operating decisions; and (ii) these
measures are frequently used by securities analysts, inves-
tors and other interested parties as a common performance
measure to compare results or estimate valuations across
companies in our industry. Additionally, these measures
exclude certain items that can vary widely across different
industries and among competitors within our industry. For
instance, interest expense and the provision for income
taxes are dependent on company specifics, including, among
other things, our capital structure and operating jurisdic-
tions, 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) FF&E replacement reserve
to be consistent with the treatment of FF&E for owned and
leased hotels where it is capitalized and depreciated over
the life of the FF&E; and (iii) other items that are not core to
our operations and are not reflective of our performance.
EBITDA and Adjusted EBITDA are not recognized terms
under U.S. generally accepted accounting principles (“GAAP”)
and should not be considered as alternatives to net income
(loss) or other measures of financial performance or liquidity
derived in accordance with GAAP. EBITDA and Adjusted
EBITDA have limitations as analytical tools and should not
be considered as alternatives, either in isolation or as a
substitute, for net income (loss), cash flow or other methods
of analyzing our results as reported under GAAP. Some of
these limitations are:
• EBITDA and Adjusted EBITDA do not reflect changes in,
or cash requirements for, our working capital needs;
• EBITDA and Adjusted EBITDA do not reflect our interest
expense, or the cash requirements necessary to service
interest or principal payments, on our indebtedness;
• EBITDA and Adjusted EBITDA do not reflect a provision
for income taxes 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 usefulness
as comparative measures.
Because of these limitations, EBITDA and Adjusted EBITDA
should not be considered as discretionary cash available to
us to reinvest in the growth of our business or as measures
of cash that will be available to us to meet our obligations.
38 | HILTON
Results of Operations
The hotel operating statistics by region for our system-wide
comparable hotels for the year ended December 31, 2017
compared to the year ended December 31, 2016 were
as follows:
The hotel operating statistics by region for our system-wide
comparable hotels for the year ended December 31, 2016
compared to the year ended December 31, 2015 were
as follows:
Year Ended
December 31, 2017
Variance
2017 vs. 2016
Year Ended
December 31, 2016
Variance
2016 vs. 2015
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
System-wide
Occupancy
ADR
RevPAR
76.3%
$ 146.78
$ 111.93
71.5%
$ 124.47
$ 89.04
75.3%
$ 141.20
$ 106.37
67.1%
$ 145.16
$ 97.42
72.9%
$ 140.36
$ 102.39
75.5%
$ 144.78
$ 109.27
U.S.
0.4% pts.
Occupancy
1.0%
1.5%
ADR
RevPAR
Americas (excluding U.S.)
2.1% pts.
Occupancy
2.1%
5.3%
ADR
RevPAR
Europe
3.2% pts.
Occupancy
2.1%
6.6%
ADR
RevPAR
MEA
5.5% pts.
Occupancy
(5.0)%
3.6%
ADR
RevPAR
Asia Pacific
4.9% pts.
Occupancy
0.1%
7.3%
ADR
RevPAR
System-wide
1.2% pts.
Occupancy
0.9%
2.5%
ADR
RevPAR
75.9%
$ 143.75
$ 109.14
72.3%
$ 122.05
$ 88.22
73.9%
$ 146.04
$ 107.95
63.1%
$ 166.26
$ 104.94
71.5%
$ 145.75
$ 104.26
75.0%
$ 143.63
$ 107.65
(0.1)% pts.
2.0%
1.8%
—% pts.
4.2%
4.2%
(0.7)% pts.
2.0%
1.1%
(3.3)% pts.
3.6%
(1.5)%
3.8% pts.
(2.1)%
3.5%
—% pts.
1.9%
1.8%
The U.S., Americas and Europe all experienced RevPAR
growth as a result of ADR growth, with Americas (excluding
U.S.) 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
geopolitical and terrorism concerns, resulting in a decrease
in occupancy.
For the year ended December 31, 2017, we experienced
RevPAR growth across all regions, particularly in Asia Pacific,
Europe and the Americas (excluding U.S.). Continued
growth in Asia Pacific was primarily driven by high demand
in China and Japan attributable to new hotels stabilizing
in the system, resulting in increased occupancy. Strong
performance in Europe was a result of both increases in
occupancy and ADR, largely driven by continued recovery
from the geopolitical and economic turmoil in 2016, partic-
ularly in Turkey. The RevPAR increase in the Americas
(excluding U.S.) was driven by strong performance in Canada
and Puerto Rico, which was a result of strong transient and
group demand and steady demand resulting from the
hurricanes, respectively. MEA experienced RevPAR growth
due to increased occupancy, despite declines in ADR due
to travel sanctions and increased geopolitical pressures.
RevPAR growth in the U.S. was driven by increased demand
in certain markets as a result of hurricane relief efforts.
2017 ANNUAL REPORT | 39
The table below provides a reconciliation of income (loss) from continuing operations, net of taxes, to EBITDA and
Adjusted EBITDA:
Year Ended December 31,
(in millions)
Income (loss) from continuing operations, net of taxes
Interest expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Gain on sales of assets, net
Loss (gain) on foreign currency transactions
Loss on debt extinguishment
FF&E replacement reserve
Share-based compensation expense
Other adjustment items(1)
Adjusted EBITDA
2017
2016
2015
$ 1,264
408
(334)
347
1,685
—
(3)
60
55
121
47
$ 1,965
$
(8)
$ 881
394
564
364
1,314
(8)
16
—
55
81
85
377
(348)
385
1,295
(163)
41
—
46
147
109
$ 1,543
$ 1,475
(1)
Includes adjustments for severance, impairment loss and other items. The year ended December 31, 2017 also includes transaction costs.
Transaction costs for the years ended December 31, 2016 and 2015 are included in discontinued operations and, therefore, are excluded
from the presentation above.
REVENUES
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Franchise fees
Base and other management fees
Incentive management fees
Total management fees
(in millions)
$ 1,154
$ 242
142
$ 384
$ 1,382
$ 336
222
$ 558
$ 1,087
$ 230
138
$ 368
19.8
38.8
56.3
45.3
6.2
5.2
2.9
4.3
The increases in management and franchise fees for all periods were driven by the addition of new managed and franchised
properties to our portfolio and the increases in RevPAR at our comparable managed and franchised hotels.
Including new development and ownership type transfers, we added 744 managed and franchised properties from January 1,
2016 to December 31, 2017 and 600 managed and franchised properties from January 1, 2015 to December 31, 2016 on a net
basis, providing an additional 133,921 rooms and 89,410 rooms, respectively, to our management and franchise segment.
The increase from January 1, 2016 to December 31, 2017 included 67 properties that upon completion of the spin-offs were
owned by Park and managed or franchised by Hilton. As new hotels stabilize in our system, we expect the fees received from
such hotels to increase as they are part of our system for full periods. Franchise fees also increased during the year ended
December 31, 2017 as a result of a net increase in licensing and other fees of $148 million, which includes the effect of the
license fees earned from HGV after the spin-offs.
On a comparable basis, our management fees increased during the years ended December 31, 2017 and 2016 compared
to the years ended December 31, 2016 and 2015, respectively, as a result of increases in RevPAR at our managed hotels
of 3.4 percent and 1.7 percent, respectively, primarily due to increased occupancy of 2.4 percentage points for the year
ended December 31, 2017 and increased ADR of 1.6 percent for the year ended December 31, 2016. On a comparable basis,
our franchise fees increased as a result of increases in RevPAR at our franchised hotels of 2.0 percent and 2.1 percent,
respectively, primarily due to increases in ADR of 0.9 percent and 2.0 percent, respectively, as well as increased occupancy
of 0.8 percentage points for the year ended December 31, 2017.
Owned and leased hotels
$ 1,450
$ 1,452
$ 1,596
(0.1)
(9.0)
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
40 | HILTON
Owned and leased hotel revenues decreased during the year ended December 31, 2017 compared to the year ended
December 31, 2016, as a result of unfavorable foreign currency changes, which decreased revenues by $41 million, offset
by an increase in revenues on a currency neutral basis of $39 million. On a currency neutral basis, owned and leased hotel
revenues increased primarily as a result of an increase at our comparable hotels of $41 million due to an increase in RevPAR
of 4.8 percent, attributable to increases in ADR and occupancy of 3.2 percent and 1.2 percentage points, respectively. This
increase was partially offset by a decrease in revenues of $5 million due to a net disposal of properties between January 1,
2016 and December 31, 2017.
Owned and leased hotel revenues decreased during the year ended December 31, 2016 compared to the year ended
December 31, 2015, primarily as a result of the effect of foreign currency changes and property disposals. Foreign currency
changes accounted for $62 million of the decrease. On a currency neutral basis, revenues decreased $82 million, which was
attributable to a net decrease in revenues of $85 million from properties disposed between January 1, 2015 and December 31,
2016. Excluding foreign currency changes and property disposals, revenues increased at our comparable owned and leased
hotels due to an increase in RevPAR of 2.1 percent, primarily attributable to an increase in ADR of 2.9 percent.
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
Other revenues
$ 105
$ 82
$ 71
28.0
15.5
The increases in other revenues during the years ended December 31, 2017 and 2016 compared to the years ended
December 31, 2016 and 2015, respectively, were primarily the result of recoveries of $28 million and $9 million, respectively,
from the settlement of a claim by Hilton to a third party relating to our defined benefit plans.
OPERATING EXPENSES
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
Owned and leased hotels
$ 1,286
$ 1,295
$ 1,414
(0.7)
(8.4)
Owned and leased hotel expenses decreased during the year ended December 31, 2017 compared to the year ended
December 31, 2016 primarily as a result of the effect of foreign currency changes of $40 million. On a currency neutral basis,
owned and leased hotel expenses increased $31 million as a result of an increase of $39 million at our comparable hotels,
due to increased variable operating costs driven by increased occupancy. This increase in owned and leased hotel expenses
was partially offset by a decrease at our non-comparable hotels, primarily attributable to a decrease of $10 million in
expenses due to a net disposal of properties between January 1, 2016 and December 31, 2017.
Owned and leased hotel expenses decreased during the year ended December 31, 2016 compared to the year ended
December 31, 2015 primarily as a result of the effect of foreign currency changes and property disposals. Foreign currency
changes accounted for $65 million of the decrease. On a currency neutral basis, owned and leased hotel expenses decreased
$54 million, primarily as a result of the decrease in expenses of $66 million from properties disposed between January 1,
2015 and December 31, 2016.
Depreciation and amortization
General and administrative
Other expenses
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
$ 364
403
66
$ 347
434
56
$ 385
537
49
(4.7)
7.7
(15.2)
(5.5)
(25.0)
34.7
The decrease in depreciation and amortization expenses during the year ended December 31, 2017 compared to the year
ended December 31, 2016 was primarily a result of a decrease in amortization expense due to certain capitalized software costs
being fully amortized between December 31, 2016 and December 31, 2017. The decrease in depreciation and amortization
expenses during the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily a result of
the recognition of $13 million in accelerated amortization in 2015 on a management contract intangible asset for a property
that was managed by us prior to our acquisition of it and its transfer of ownership to Park upon completion of the spin-offs.
The increase in general and administrative expenses during the year ended December 31, 2017 compared to the year ended
December 31, 2016 was primarily the result of increased share-based compensation expense of $29 million mainly due to an
increase in retirement eligible participants, resulting in the acceleration of expense recognition, as well as additional expense
recognized from a special equity grant to certain participants in connection with the spin-offs. Additionally, $18 million in
2017 ANNUAL REPORT | 41
costs associated with the spin-offs were incurred during the year ended December 31, 2017, while similar costs incurred
during the year ended December 31, 2016 are included in discontinued operations. These increases were partially offset by
a decrease of $10 million in severance costs related to the 2015 sale and continued management of the Waldorf Astoria
New York (the “Waldorf Astoria New York sale”).
The decrease in general and administrative expenses for the year ended December 31, 2016 compared to the year ended
December 31, 2015 was primarily a result of a decrease of $73 million in severance costs related to the Waldorf Astoria New
York sale and a decrease in share-based compensation expense due to $61 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 decrease in other expenses for the year ended December 31, 2017 compared to the year ended December 31, 2016
was primarily a result of decreased impairment losses of $11 million. The increase in other expenses for the year ended
December 31, 2016 compared to the year ended December 31, 2015 related primarily to the consolidation of a management
company in 2016, which increased other expenses by $8 million, as well as increased impairment losses of $6 million.
GAIN ON SALES OF ASSETS, NET
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
Gain on sales of assets, net
$ —
$ 8
$ 163
(100.0)
(95.1)
During the year ended December 31, 2016, we recognized a gain on the sale of one of our hotels held by a consolidated VIE.
During the year ended December 31, 2015, we recognized a gain upon completion of the sale of the Hilton Sydney. Note 4:
“Disposals” in our consolidated financial statements for additional information.
NON-OPERATING INCOME AND EXPENSES
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
Interest expense
$ (408)
$ (394)
Gain (loss) on foreign currency transactions
Loss on debt extinguishment
Other non-operating income, net
Income tax benefit (expense)
3
(60)
23
334
(16)
—
14
(564)
$ (377)
(41)
—
51
348
(1) Fluctuation in terms of percentage change is not meaningful.
3.6
NM(1)
NM(1)
64.3
NM(1)
4.5
(61.0)
—
(72.5)
NM(1)
The increase in interest expense during the year ended
December 31, 2017 compared to the year ended December 31,
2016 was primarily due to the issuances of the 4.625%
Senior Notes due 2025 (the “2025 Senior Notes”) and the
4.875% Senior Notes due 2027 (the “2027 Senior Notes”)
in March 2017 and the 4.25% Senior Notes due 2024 (the
“2024 Senior Notes”) in August 2016, as well as the reclassi-
fication of losses from accumulated other comprehensive
loss related to the dedesignation of interest rate swaps
in 2016. These increases were largely offset by decreases
in interest expense due to the March 2017 repayment of
the 5.625% Senior Notes due 2021 (the “2021 Senior Notes”)
and the refinancing of the senior secured term loan facility
(the “Term Loans”) in March 2017, which reduced the interest
rate on this borrowing.
prepayments and an amendment in August 2016 that
extended the maturity and reduced the interest rate on a
portion of the outstanding balance. See Note 9: “Debt” and
Note 11: “Derivative Instruments and Hedging Activities”
in our consolidated financial statements for additional
information on our indebtedness and interest rate swaps.
The net gain and losses on foreign currency transactions
for all periods were primarily related to changes in foreign
currency rates on our short-term cross-currency inter-
company loans. The changes were predominantly related
to loans denominated in the Australian dollar (“AUD”), the
British pound (“GBP”) and the euro for the years ended
December 31, 2017, 2016 and 2015, as well as the Brazilian
real, for the year ended December 31, 2015.
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 the 2024 Senior
Notes, partially offset by decreases in interest expense
on the Term Loans due to a reduction of principal from
The loss on debt extinguishment related to the repayment
of the 2021 Senior Notes and included a redemption
premium of $42 million and the accelerated recognition
of $18 million of unamortized debt issuance costs during
the year ended December 31, 2017.
42 | HILTON
Other non-operating income, net increased during the year
ended December 31, 2017 compared to the year ended
December 31, 2016 primarily as a result of a $7 million gain
recognized in 2017 related to an amendment of one of our
capital leases. Other non-operating income, net decreased
during the year ended December 31, 2016 compared to
the year ended December 31, 2015 primarily as a result of
a $24 million gain recognized in 2015 related to a capital
lease liability reduction from one of our consolidated VIEs,
as well as a pre-tax gain of $8 million recognized in 2015 on
a sale of assets.
On December 22, 2017, H.R.1, known as the Tax Cuts and
Jobs Act of 2017 (the “TCJ Act”) was signed into law, which
permanently reduces the corporate income tax rate
from a graduated 35 percent to a flat 21 percent rate and
imposes a one-time transition tax on earnings of foreign
subsidiaries that were previously deferred. The income
tax benefit during the year ended December 31, 2017 was
primarily due to a benefit of $665 million for the estimated
impact of the transition tax and the remeasurement of
deferred tax assets and liabilities and other tax liabilities based
on the rates at which they are expected to reverse in the
future. The benefit recorded as a result of the provisions of
the TCJ Act represents management’s best estimates of
the effect to the current period and are subject to refine-
ment and revision over a one-year period, to be finalized in
or before December 2018. This benefit was partially offset
by an increase in tax expense attributable to an increase in
income from continuing operations before income taxes
compared to the year ended December 31, 2016.
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 transac-
tions that were effected during the year 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 repre-
senting the estimated U.S. tax expected to be paid in future
years on income generated from the intellectual property
transferred to foreign subsidiaries. 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 increased. In total, these structuring
transactions resulted in additional income tax expense
of $482 million during the year ended December 31, 2016.
See Note 14: “Income Taxes” in our consolidated financial
statements for additional information.
SEGMENT RESULTS
We evaluate our business segment operating performance using operating income. Refer to Note 19: “Business Segments”
in our consolidated financial statements for a reconciliation of segment operating income to income from continuing
operations before income taxes and additional information on the evaluation of the performance of our segments using
operating income. The following table sets forth revenues and operating income by segment:
Year Ended December 31,
Percent Change
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
(in millions)
Revenues:
Management and franchise(1)
$ 1,983
$ 1,580
$ 1,496
Ownership
Segment revenues
Other revenues
Other revenues from managed
and franchised properties
Intersegment fees elimination(1)
1,450
3,433
105
5,645
(43)
1,452
3,032
82
4,310
(42)
1,596
3,092
71
4,011
(41)
Total revenues
$ 9,140
$ 7,382
$ 7,133
Operating Income(1):
Management and franchise
Ownership
Segment operating income
$ 1,983
121
$ 2,104
$ 1,580
115
$ 1,695
$ 1,496
141
$ 1,637
25.5
(0.1)
13.2
28.0
31.0
2.4
23.8
25.5
5.2
24.1
5.6
(9.0)
(1.9)
15.5
7.5
2.4
3.5
5.6
(18.4)
3.5
(1)
Includes management, royalty and intellectual property fees charged to our ownership segment by our management and franchise
segment, which were eliminated in our consolidated financial statements.
2017 ANNUAL REPORT | 43
Management and franchise segment revenues and
operating income increased for all periods 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 2.4 per-
cent and 2.0 percent for the years ended December 31,
2017 and 2016 compared to the years ended December 31,
2016 and 2015, respectively. For the year ended December 31,
2017 compared to the year ended December 31, 2016, the
increase in management and franchise segment revenues
and operating income was also due to an increase in
licensing and other fees. Refer to “—Revenues” for further
discussion of the increases in revenues from our managed
and franchised properties.
Ownership segment revenues decreased for all periods
primarily as a result of foreign currency changes and, for
the year ended December 31, 2016 compared to the year
ended December 31, 2015, the disposal of hotels. Ownership
operating income increased for the year ended December 31,
2017 compared to the year ended December 31, 2016
primarily as a result of decreases in owned and leased
hotel operating expenses. Ownership operating income
decreased 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 hotel operating
expenses. Refer to “—Revenues” and “—Operating Expenses”
for further discussion of the changes in revenues and
operating expenses at our owned and leased hotels.
Liquidity and Capital Resources
OVERVIEW
As of December 31, 2017, we had total cash and cash
equivalents of $670 million, including $100 million of
restricted cash and cash equivalents. The majority of
our restricted cash and cash equivalents balance related
to cash collateral on our self-insurance programs.
Our known short-term liquidity requirements primarily
consist of funds necessary to pay for operating and other
expenditures, including costs associated with the
management and franchising of hotels, corporate
expenses, payroll and related benefits, legal costs, interest
and scheduled principal payments on our outstanding
indebtedness, contract acquisition costs and capital
expenditures for renovations and maintenance at the
hotels within our ownership segment. Our long-term
liquidity requirements primarily consist of funds necessary
to pay for scheduled debt maturities, capital improvements
to the hotels within our ownership segment, commitments
to owners in our management and franchise segment,
dividends as declared, share repurchases 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 anticipated require-
ments for operating and other expenditures, including
corporate expenses, payroll and related benefits, legal costs
and other commitments for the foreseeable future. The
objectives of our cash management policy are to maintain
the availability of liquidity and minimize operational costs.
Further, we have an investment policy that is focused
on the preservation of capital and maximizing the return
on new and existing investments and returning available
capital to stockholders.
We and our affiliates may from time to time purchase our
outstanding debt through open market purchases, privately
negotiated transactions or otherwise. Purchases or
retirement of debt, if any, will depend on prevailing market
conditions, liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material.
In February 2017, our board of directors authorized a stock
repurchase program of up to $1.0 billion of the Company’s
common stock and, in November 2017, an additional $1.0 bil-
lion was authorized. During the year ended December 31,
2017, we repurchased $891 million of common stock under
the program, and, as of December 31, 2017, $1,109 million
remained available for share repurchases. The repurchase
program does not have an expiration date and may be
suspended or discontinued at any time.
SOURCES AND USES OF OUR CASH AND CASH EQUIVALENTS
The following table summarizes our net cash flows:
Year Ended December 31,
Percent Change
2017
2016 (1)
2015 (1)
2017 vs. 2016
2016 vs. 2015
(in millions)
Net cash provided by operating activities
$ 924
$ 1,365
$ 1,446
(32.3)
(5.6)
Net cash provided by (used in)
investing activities
Net cash used in financing activities
(222)
(1,724)
(478)
(44)
414
(1,753)
(53.6)
NM(2)
NM(2)
(97.5)
(1)
Includes the cash flows from operating activities, investing activities and financing activities of Hilton, Park and HGV.
(2) Fluctuation in terms of percentage change is not meaningful.
44 | HILTON
OPERATING ACTIVITIES
Cash flows from operating activities were primarily
generated from management and franchise fee revenue
and operating income from our owned and leased hotels
and, for the years ended December 31, 2016 and 2015,
sales of timeshare units.
The $441 million decrease in net cash provided by operating
activities during the year ended December 31, 2017 com-
pared to the year ended December 31, 2016 was primarily
as a result of a decrease in operating income from our
owned and leased properties and sales of timeshare units
as a result of the spin-offs.
The $81 million decrease in net cash provided by operating
activities during the year ended December 31, 2016 com-
pared to the year ended December 31, 2015 was primarily
as a result of an increase in net cash paid for income taxes
of $202 million, partially offset by the improved operating
results of our management and franchise segment and
HGV’s timeshare business.
INVESTING ACTIVITIES
For the years ended December 31, 2017 and 2016, net cash
used in investing activities consisted primarily of capital
expenditures for property and equipment, contract acqui-
sition costs and capitalized software costs.
During the year ended December 31, 2015, we generated
cash from investing activities primarily as a result of net
proceeds from the Waldorf Astoria New York sale, completed
for the benefit of Park, 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
for property and equipment, contract acquisition costs
and capitalized software costs.
Our capital expenditures for property and equipment
primarily consisted of expenditures related to our corporate
facilities and the renovation of hotels in our ownership
segment which, for the years ended December 31, 2016 and
2015, included those owned by Park following completion
of the spin-offs. Our capitalized software costs related to
various systems initiatives for the benefit of our hotel
owners and our overall corporate operations. Our contract
acquisition costs were incurred to incentivize hotel owners
to enter into management and franchise contracts with us.
FINANCING ACTIVITIES
The $1,680 million increase in net cash used in financing
activities during the year ended December 31, 2017 com-
pared to the year ended December 31, 2016 was primarily
the result of cash transferred in connection with the spin-
offs and $1.1 billion of capital returned to our stockholders,
which includes dividends and share repurchases, compared
to $277 million in 2016. In addition, during the year ended
December 31, 2017, we received $1.5 billion in proceeds
from the issuance of the 2025 Senior Notes and the 2027
Senior Notes, which we used with available cash to repay in
full our 2021 Senior Notes, including a redemption premium
of $42 million.
The $1,709 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, which were completed in prepara-
tion for the spin-offs, 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
$800 million was for HGV. We used proceeds from the
borrowings and available cash to repay the outstanding
balance of Park’s commercial mortgage backed securities
loan of $3,418 million, $550 million of Park’s mortgage loans
and $250 million on our Term Loans. The increase in cash
dividends was due to the declaration of quarterly cash
dividends beginning in the third quarter of 2015 and con-
tinuing quarterly for the full year of 2016.
DEBT AND BORROWING CAPACITY
As of December 31, 2017, our total indebtedness, excluding
unamortized deferred financing costs and discount, was
approximately $6.7 billion. For further information on our
total indebtedness, debt issuances and repayments and
guarantees on our debt, refer to Note 9: “Debt” and Note 23:
“Condensed Consolidating Guarantor Financial Information”
in our consolidated financial statements.
Our senior revolving credit facility provides for $1.0 billion in
borrowings, including the ability to draw up to $150 million
in the form of letters of credit. As of December 31, 2017, we
had $41 million of letters of credit outstanding, leaving us
with a borrowing capacity of $959 million. The maturities of
the letters of credit were within one year as of December 31,
2017, and the majority of them related to our self-insurance
programs.
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 senior secured revolving
credit facility. Our ability to make scheduled principal
payments and to pay interest on our debt depends on our
future operating performance, which is subject to general
conditions in or affecting the hospitality industry that may
be beyond our control.
2017 ANNUAL REPORT | 45
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations as of December 31, 2017:
(in millions)
Long-term debt(1)
Capital lease obligations
Operating leases
Purchase commitments
Total contractual obligations
Total
Less Than 1 Year
1-3 Years
3-5 Years More Than 5 Years
Payments Due by Period
$ 8,120
$ 299
$ 585
334
1,861
200
24
192
52
59
349
87
$ 579
59
295
57
$ 6,657
192
1,025
4
$ 10,515
$ 567
$ 1,080
$ 990
$ 7,878
(1)
Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate
of 1.55 percent as of December 31, 2017.
The total amount of unrecognized tax benefits as of
December 31, 2017 was $283 million. This amount is excluded
from the table above because these unrecognized tax
benefits 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 14: “Income Taxes” in our consolidated
financial statements for additional information on 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
(loss) and cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
Our off-balance sheet arrangements as of December 31, 2017
included letters of credit of $41 million and performance
guarantees with possible cash outlays of approximately
$79 million, for which we accrued $21 million as of
December 31, 2017 for estimated probable exposure. See
Note 20: “Commitments and Contingencies” in our consoli-
dated financial statements for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements
in accordance with GAAP requires us to make estimates
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 significant
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, cash flows 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
46 | HILTON
we believe our estimates, assumptions and judgments are
reasonable, they are based on information presently avail-
able. 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 the following critical accounting policies and estimates
with the audit committee of the board of directors.
GOODWILL
We evaluate goodwill for potential impairment annually
and at an interim date if indicators of impairment exist.
When using the quantitative process to evaluate goodwill
for potential impairment, consistent with our early adop-
tion of ASU No. 2017-04 in January 2017, we compare the
estimated fair value of the reporting unit to the carrying
value. When determining the estimated fair value, we utilize
discounted future cash flow models, as well as market con-
ditions 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 average
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.
We had $5,190 million of goodwill as of December 31, 2017.
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 those used in our impairment analysis.
BRANDS
We evaluate our brands intangible assets for impairment
on an annual basis and 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 the fair value, we utilize
discounted 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.
We had $4,890 million of brands intangible assets as of
December 31, 2017. Changes in the estimates and assump-
tions used in our brands impairment testing, most notably
revenue growth rates and discount rates, could result in
future impairment losses, which could be material.
INTANGIBLE ASSETS WITH FINITE LIVES
AND PROPERTY AND EQUIPMENT
We evaluate the carrying value of our intangible assets
with finite lives and property and equipment for potential
impairment by comparing the expected undiscounted
future cash flows to the net book value of the assets if
we determine there are indicators of impairment.
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 hos-
pitality industry and the general economy and regional
performance and expectations, 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-
developed discounted cash flow models. Assumptions
used in the discounted cash flow models include esti-
mating 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 $1,342 million of intangible assets with finite lives
and $353 million of property and equipment, net as of
December 31, 2017. Changes in estimates and assumptions
used in our impairment testing of intangible assets with
finite lives and property and equipment could result
in future impairment losses, which could be material.
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 a guest loyalty program liability of $1,461 million
as of December 31, 2017, including $622 million reflected
as a current liability in accounts payable, accrued expenses
and other. Changes in the estimates used in developing
our breakage rate or other expected future program oper-
ations could result in a material change to the guest loyalty
program liability.
INCOME TAXES
On December 22, 2017, the TCJ Act was signed into law
and includes widespread changes to the Internal Revenue
Code including, among other items, a reduction to the
federal corporate tax rate to 21 percent, a one-time transi-
tion tax on earnings of certain foreign subsidiaries that
were previously deferred and the creation of new taxes
on certain foreign earnings. As of December 31, 2017, we
had not completed our accounting for the tax effects of
enactment of the TCJ Act; however, where possible, we
made a reasonable estimate of the effects on our existing
deferred tax balances and the one-time transition tax. In
other cases, we were not able to make a reasonable estimate
and continued to account for those items based on the
provisions of the tax laws that were in effect immediately
prior to enactment. See Note 14: “Income Taxes” for addi-
tional discussion on the provisional effects of the TCJ Act.
We recognize deferred tax assets and liabilities based on
the differences between the financial statement carrying
values and the tax basis of assets and liabilities using cur-
rently 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 assumptions 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 effec-
tive tax rate, which could materially affect our consolidated
financial statements.
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. When determining
2017 ANNUAL REPORT | 47
the amount of tax benefit to be recognized, we assume,
among other items, the position will be examined, the
examiner will have all relevant information and the evalua-
tion of the position should be based on its technical merits.
Further, estimates based on the tax position’s technical
merits and amounts we would ultimately accept in a
negotiated settlement with the tax authorities, are used
to measure the largest amount of benefit that is greater
than 50 percent likely of being realized upon settlement.
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 uncertainty.
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 an entity in which we hold an interest is
considered to be a VIE, we use judgment determining
whether we are the primary beneficiary, and then consoli-
date those VIEs for which we have determined we are the
primary beneficiary. If the entity in which we hold an interest
does not meet the definition of a VIE, we evaluate whether
we have a controlling financial interest through our
voting interest in the entity. 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 share-based
compensation awards and recognizing the associated
expense over the requisite service period involves signifi-
cant estimates and assumptions made by management.
Refer to Note 16: “Share-Based Compensation” in our con-
solidated financial statements for additional information.
Any changes to these estimates will affect the amount
of share-based compensation expense we recognize with
respect to future grants. Additionally, since we determined
that the performance condition for our performance awards
is probable of achievement, we recognize expense based
on anticipated achievement percentages, which are based
on internally-developed projections of future Adjusted
EBITDA and free cash flow per share. Any changes to these
estimates will affect the amount of share-based compen-
sation expense we recognize in future periods.
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 the fair value of
the Company, depending on changes to interest rates 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 objec-
tives 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, and on our fixed-rate debt to the extent that the
interest rate affects its fair value. We are most vulnerable
to changes in one-month LIBOR, as the interest rate on our
variable-rate debt is based on this index. We use interest
rate swaps in order to maintain a level of exposure to
interest rate variability that we deem acceptable, and as of
December 31, 2017, we held two interest rate swaps which
swap one-month LIBOR on the Term Loans to fixed rates.
We elected to designate these interest rate swaps as cash
flow hedges for accounting purposes.
The following table sets forth the contractual maturities
and the total fair values as of December 31, 2017 for our
financial instruments that are materially affected by inter-
est rate risk, including long-term debt and interest rate
swaps. For long-term debt, the table presents contractual
maturities and related weighted average interest rates. For
interest rate swaps, the table presents notional amounts
and weighted average interest rates by contractual maturity
dates. Fixed rates are the weighted average actual rates
and variable rates are the weighted average market rates
prevailing as of December 31, 2017 for the interest rate
hedges in place.
48 | HILTON
Maturities by Period
2018
2019
2020
2021
2022
Thereafter Value
Carrying
Fair
Value
(in millions, excluding interest rates)
Long-term debt:
Fixed-rate long-term debt(1)(2)
$ —
$ —
$ —
$ —
$ —
$ 2,462
$ 2,462
$ 2,575
Weighted average interest rate(3)
4.54%
Variable-rate long-term debt(2)
$ 32
$ 32
$ 32
$ 32
$ 32
$ 3,726
$ 3,886
$ 3,954
Weighted average interest rate(3)
Interest rate swaps:
Variable to fixed(4)
Variable interest rate payable(5)
Fixed interest rate receivable(6)
3.55%
$ —
$ —
$ —
$ —
$ 2,350
$ —
$ 2,350
$
11
3.55%
1.99%
(1) Excludes capital lease obligations with a carrying value of $233 million and debt of certain consolidated VIEs with a carrying value
of $21 million as of December 31, 2017.
(2) Carrying value includes unamortized deferred financing costs and discount.
(3) Weighted average interest rate as of December 31, 2017.
(4) The carrying value balance reflects the notional amount. We measure our derivative instruments at fair value.
(5) Represents the estimated interest rate payable.
(6) Represents the interest rate receivable.
Refer to Note 11: “Derivative Instruments and Hedging Activities” and Note 12: “Fair Value Measurements” in our consolidated
financial statements for additional information of the fair value measurements of our derivatives and financial assets and
liabilities, respectively.
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 leased hotels, partially offset by foreign operating expenses, the value of
which could change materially in reference to our reporting currency, USD. 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, 2017,
our largest net exposures were to the euro, GBP and AUD.
We use forward contracts designated as cash flow hedges to offset exposure from foreign currency exchange rate risks
associated with our euro and yen denominated management and franchise fees. We use short-term foreign exchange forward
contracts not designated as hedging instruments to offset exposure to cash balances denominated in foreign currencies.
However, the fair value and earnings effect of these derivatives are not material to our consolidated financial statements.
2017 ANNUAL REPORT | 49
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
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, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
51
52
53
54
56
57
58
60
61
50 | HILTON
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 for external purposes
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 authori-
zations 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,
2017. 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, 2017.
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, 2017. The report is included herein.
2017 ANNUAL REPORT | 51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Hilton Worldwide Holdings Inc.
OPINION ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We have audited Hilton Worldwide Holdings Inc.’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hilton Worldwide Holdings Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Hilton Worldwide Holdings Inc. (the Company) as of December 31, 2017 and
2016, 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, 2017 of the Company and the related notes, and our report dated
February 14, 2018 expressed an unqualified opinion thereon.
BASIS FOR OPINION
The Company’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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 financial 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.
DEFINITION AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
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 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 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 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.
Tysons, Virginia
February 14, 2018
52 | HILTON
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Hilton Worldwide Holdings Inc.
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheets of Hilton Worldwide Holdings Inc. (the Company) as of
December 31, 2017 and 2016, 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, 2017 and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017, in conformity with US generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 14, 2018 expressed an unqualified opinion thereon.
BASIS FOR OPINION
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion
on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the US federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Tysons, Virginia
February 14, 2018
We have served as the Company’s auditor since 2002
2017 ANNUAL REPORT | 53
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31,
(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 $29 and $27
Prepaid expenses
Income taxes receivable
Other
Current assets of discontinued operations
Total current assets (variable interest entities—$93 and $167)
Intangibles and Other Assets:
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Property and equipment, net
Deferred income tax assets
Other
Non-current assets of discontinued operations
Total intangibles and other assets (variable interest entities—$171 and $569)
TOTAL ASSETS
(continued)
2017
2016
$
570
$ 1,062
100
998
111
36
171
121
755
89
13
39
—
1,986
1,478
3,557
5,190
4,890
5,218
4,848
909
433
353
113
434
963
447
341
82
408
—
12,322
10,347
22,654
$ 14,308
$ 26,211
54 | HILTON
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31,
(in millions, except share data)
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other
Current maturities of long-term debt
Income taxes payable
Current liabilities of discontinued operations
Total current liabilities (variable interest entities—$58 and $124)
Long-term debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Non-current liabilities of discontinued operations
Total liabilities (variable interest entities—$271 and $766)
Commitments and contingencies—see Note 20
Equity:
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares,
none issued or outstanding as of December 31, 2017 and 2016
Common stock(1), $0.01 par value; 10,000,000,000 authorized shares,
331,054,014 issued and 317,420,933 outstanding as of December 31, 2017
and 329,351,581 issued and 329,341,992 outstanding as of December 31, 2016
Treasury stock, at cost; 13,633,081 shares as of December 31, 2017
and 9,589 shares as of December 31, 2016
Additional paid-in capital(1)
Accumulated deficit
Accumulated other comprehensive loss
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
2017
2016
$ 2,150
$ 1,821
46
12
—
2,208
6,556
97
33
56
774
2,684
6,583
42
1,063
1,778
839
1,470
—
12,233
889
1,492
6,894
20,362
—
—
3
3
(891)
10,298
—
10,220
(6,596)
(3,323)
(742)
(1,001)
2,072
5,899
3
(50)
2,075
5,849
$ 14,308
$ 26,211
(1) Balance as of December 31, 2016 was adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017.
See Note 1: “Organization” for additional information.
See notes to consolidated financial statements.
2017 ANNUAL REPORT | 55
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
(in millions, except per share data)
Revenues
Franchise fees
Base and other management fees
Incentive management fees
Owned and leased hotels
Other revenues
Other revenues from managed and franchised properties
Total revenues
Expenses
Owned and leased hotels
Depreciation and amortization
General and administrative
Other expenses
Other expenses from managed and franchised properties
Total expenses
Gain on sales of assets, net
Operating income
Interest expense
Gain (loss) on foreign currency transactions
Loss on debt extinguishment
Other non-operating income, net
Income from continuing operations before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations, net of taxes
Income from discontinued operations, net of taxes
Net income
Net income attributable to noncontrolling interests
Net income attributable to Hilton stockholders
Earnings (loss) per share(1):
Basic:
Net income (loss) from continuing operations per share
Net income from discontinued operations per share
Net income per share
Diluted:
Net income (loss) from continuing operations per share
Net income from discontinued operations per share
Net income per share
Cash dividends declared per share(1)
2017
2016
2015
$ 1,382
$ 1,154
$ 1,087
336
222
1,450
105
3,495
5,645
9,140
1,286
347
434
56
2,123
5,645
7,768
—
1,372
(408)
3
(60)
23
930
334
1,264
—
1,264
242
142
1,452
82
3,072
4,310
7,382
1,295
364
403
66
2,128
4,310
6,438
8
952
(394)
(16)
230
138
1,596
71
3,122
4,011
7,133
1,414
385
537
49
2,385
4,011
6,396
163
900
(377)
(41)
—
—
14
556
(564)
(8)
372
364
51
533
348
881
535
1,416
(5)
(16)
(12)
$ 1,259
$ 348
$ 1,404
$ 3.88
$ (0.05)
$ 2.67
—
1.11
1.60
$ 3.88
$ 1.06
$ 4.27
$ 3.85
$ (0.05)
$ 2.66
—
1.11
$ 3.85
$ 1.06
$ 1.60
$ 4.26
$ 0.60
$ 0.84
$ 0.42
(1) Weighted average shares outstanding used in the computation of basic and diluted earnings (loss) per share and cash dividends declared
per share for the years ended December 31, 2016 and 2015 was adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3,
2017. See Note 1: “Organization” for additional information.
See notes to consolidated financial statements.
56 | HILTON
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
(in millions)
Net income
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $32, $19, and $(8)
Pension liability adjustment, net of tax of $(8), $(2), and $10
Cash flow hedge adjustment, net of tax of $(7), $2, and $4
Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interests
2017
2016
2015
$ 1,264
$ 364
$ 1,416
161
22
13
196
1,460
(5)
(159)
(57)
(2)
(218)
146
(15)
(134)
(15)
(7)
(156)
1,260
(12)
Comprehensive income attributable to Hilton stockholders
$ 1,455
$ 131
$ 1,248
See notes to consolidated financial statements.
2017 ANNUAL REPORT | 57
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(in millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Gain on sales of assets, net
Loss (gain) on foreign currency transactions
Loss on debt extinguishment
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
2017
2016
2015
$ 1,264
$ 364
$ 1,416
347
—
(3)
60
74
15
1
686
(9)
13
—
65
32
22
692
(306)
41
—
124
38
26
(727)
(79)
(479)
(210)
—
(15)
(24)
7
51
(43)
—
55
29
8
35
(143)
15
—
84
(2)
232
28
(54)
(47)
(39)
(27)
35
32
90
13
(49)
(219)
(212)
154
199
(23)
64
154
(120)
1,446
Net cash provided by operating activities
924
1,365
(continued)
58 | HILTON
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(in millions)
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 and redemption premium
Dividends paid
Cash transferred in spin-offs of Park and HGV
Repurchases of common stock
Distributions to noncontrolling interests
Tax withholdings on share-based compensation
Net cash used in financing activities
Effect of exchange rate changes on cash, restricted cash and cash equivalents
2017
2016
2015
$
(58)
$
(317)
$
(310)
—
—
(75)
(75)
(14)
—
11
(55)
(81)
(36)
(1,402)
2,205
(37)
(62)
20
(222)
(478)
414
1,824
(1,860)
(69)
(195)
(501)
(891)
(1)
(31)
(1,724)
8
4,715
(4,359)
(76)
(277)
—
—
(32)
(15)
(44)
(15)
48
(1,624)
—
(138)
—
—
(8)
(31)
(1,753)
(19)
88
Net increase (decrease) in cash, restricted cash and cash equivalents
(1,014)
828
Cash, restricted cash and cash equivalents from continuing
operations, beginning of period
Cash, restricted cash and cash equivalents from discontinued
operations, beginning of period
Cash, restricted cash and cash equivalents, beginning of period
Cash, restricted cash and cash equivalents from continuing
operations, end of period
Cash, restricted cash and cash equivalents from discontinued
operations, end of period
Cash, restricted cash and cash equivalents, end of period
1,183
633
628
501
1,684
223
856
140
768
670
1,183
633
—
501
223
$ 670
$ 1,684
$ 856
See notes to consolidated financial statements. For supplemental disclosures, see Note 22: “Supplemental Disclosures of Cash Flow Information.”
2017 ANNUAL REPORT | 59
HILTON WORLDWIDE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Equity Attributable to Hilton Stockholders
Common Stock
Treasury
Shares
Amount
Stock
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive Noncontrolling
Deficit
Loss
Interests
Total
(in millions)
Balance as of December 31, 2014(1)
328
$ 3
$ —
$ 10,035
$ (4,658)
$
(628)
$ (38)
$ 4,714
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
1
—
—
—
—
—
—
—
—
Balance as of December 31, 2015(1)
329
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
Cumulative effect of the adoption
of ASU 2015-02
Deconsolidation of a variable
interest entity
Distributions
Balance as of December 31, 2016(1)
Share-based compensation
Repurchases of common stock
Net income
Other comprehensive income,
net of tax:
Currency translation adjustment
Pension liability adjustment
Cash flow hedge adjustment
Other comprehensive income
Dividends
Spin-offs of Park and HGV
Cumulative effect of the adoption
of ASU 2016-09
Distributions
—
—
—
—
—
—
—
—
—
—
329
2
(14)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
115
—
—
1,404
—
—
—
—
—
8
—
10,158
62
—
—
—
—
—
—
—
—
—
—
(138)
—
—
(3,392)
—
348
—
—
—
—
—
—
(134)
(15)
(7)
(156)
—
—
—
(784)
—
—
(158)
(57)
(2)
(217)
(279)
—
—
—
—
—
—
—
—
—
(891)
—
—
—
—
—
—
—
—
—
—
—
10,220
77
—
—
—
—
—
—
—
—
—
—
(3,323)
—
—
1,259
—
—
—
—
(196)
(4,335)
1
(1)
—
—
—
—
(1,001)
—
—
—
161
22
13
196
—
63
—
—
—
12
—
—
—
—
—
—
(8)
(34)
—
16
(1)
—
—
(1)
—
5
(4)
(32)
(50)
—
—
5
—
—
—
—
—
49
—
(1)
115
1,416
(134)
(15)
(7)
(156)
(138)
8
(8)
5,951
62
364
(159)
(57)
(2)
(218)
(279)
5
(4)
(32)
5,849
77
(891)
1,264
161
22
13
196
(196)
(4,223)
—
(1)
Balance as of December 31, 2017
317
$ 3
$ (891)
$ 10,298
$ (6,596)
$
(742)
$ 3
$ 2,075
(1) Common stock and additional paid-in capital were adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017.
See Note 1: “Organization” for additional information.
See notes to consolidated financial statements.
60 | HILTON
HILTON WORLDWIDE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
ORGANIZATION
Organization
Hilton Worldwide Holdings Inc. (the “Parent,” or together
with its subsidiaries, “Hilton,” “we,” “us,” “our” or the “Company”),
a Delaware corporation, is one of the largest hospitality
companies in the world and is engaged in managing, fran-
chising, owning and leasing hotels and resorts, including
timeshare properties. As of December 31, 2017, we managed,
franchised, owned or leased 5,236 hotel and resort properties,
totaling 848,014 rooms in 105 countries and territories.
In March 2017, HNA Tourism Group Co., Ltd and certain
affiliates (together, “HNA”) acquired 82.5 million shares of
Hilton common stock from affiliates of The Blackstone
Group L.P. (“Blackstone”). As of December 31, 2017, HNA and
Blackstone beneficially owned approximately 26.0 percent
and 5.4 percent of our common stock, respectively.
Spin-offs
On January 3, 2017, we completed the spin-offs of a portfolio
of hotels and resorts, as well as our timeshare business, into
two independent, publicly traded companies: Park Hotels &
Resorts Inc. (“Park”) and Hilton Grand Vacations Inc. (“HGV”),
respectively, (the “spin-offs”). See Note 3: “Discontinued
Operations” for additional information.
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,
par value remained $0.01 per share and the authorized
number of shares of preferred stock remained 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 for periods prior to the Reverse
Stock Split have been retrospectively adjusted to reflect the
decreased number of shares resulting from the Reverse
Stock Split. The retrospective adjustments resulted in the
reclassification of $7 million from common stock to addi-
tional paid-in capital in the consolidated balance sheets
and consolidated statements of stockholders’ equity for
periods prior to the date of the Reverse Stock Split, as the
par value was unchanged, but the number of outstanding
shares was reduced.
NOTE 2:
BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements present the
consolidated financial position and the results of operations
of Hilton as of and for the years ended December 31, 2017,
2016 and 2015 giving effect to the spin-offs, with the com-
bined historical financial results of Park and HGV reflected
as discontinued operations. Unless otherwise indicated,
the information in the notes to the consolidated financial
statements refer only to Hilton’s continuing operations
and do not include discussion of balances or activity of
Park or HGV.
PRINCIPLES OF CONSOLIDATION
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.
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 benefi-
ciary, 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 con-
solidate 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.
RECLASSIFICATIONS
Certain amounts in previously issued financial statements
have been reclassified to conform to the presentation
following the spin-offs, which includes the reclassification
of the combined financial position and results of opera-
tions of Park and HGV as discontinued operations as of
December 31, 2016 and for the years ended December 31,
2016 and 2015. Additionally, certain line items in the
consolidated statements of operations have been revised
2017 ANNUAL REPORT | 61
to reflect the operating structure of Hilton subsequent
to the spin-offs. The primary changes to the consolidated
statements of operations are the disaggregation of man-
agement and franchise fee revenues and the combination
of certain line items that were individually immaterial.
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.
• Franchise fees represent fees earned in connection
with the licensing of one of our brands, usually under
long-term contracts with a hotel owner. We charge
a monthly franchise royalty fee, generally based on a
percentage of the hotel’s gross room revenue, and, for
our full service brands, a percentage of gross food and
beverage revenues and other revenues, as applicable.
Additionally, we receive one-time upfront fees upon
execution of certain franchise contracts, that consist
of application, initiation and other fees for new hotels
entering the system, when there is a change in owner-
ship or a contract is extended. We also earn license fees
from a license agreement with HGV and co-brand credit
card arrangements for the use of certain Hilton marks
and intellectual property. We recognize franchise fee
revenue as the fees are earned, which is when all material
services or conditions have been performed or satisfied
by us.
• Base and other management fees and incentive
management fees represent fees earned from hotels
that we manage, usually under long-term contracts with
the property owner. Management fees usually include a
base fee, which is generally a percentage of the hotel’s
gross revenue, and an incentive fee, which is typically
based on a fixed or variable percentage of hotel operating
profits and in some cases may be subject to a stated
return threshold to the owner, normally measured 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 con-
tract was terminated at the financial statement date.
• Owned and leased hotel revenues primarily consist
of hotel room rentals, revenue from accommodations
sold in conjunction with other services (e.g., package
reservations), food and beverage sales and other ancillary
goods and services (e.g., parking) related to owned,
leased and consolidated properties owned or leased by
non-wholly owned entities. Revenues are recognized
when rooms are occupied or goods and services have
been delivered or rendered, respectively.
62 | HILTON
• Other revenues include revenues generated by the
incidental support of hotel operations for owned,
leased, managed and franchised hotels, including
purchasing operations, and other operating income.
Purchasing revenues include any amounts received
for vendor rebate arrangements that we participate
in as a manager of hotel properties.
• Other revenues from managed and franchised properties
represent contractual reimbursements to us by property
owners for 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 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 fran-
chised 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
collection 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.
DISCONTINUED OPERATIONS
In determining whether a group of assets that is disposed
(or to be disposed) should be presented as a discontinued
operation, we analyze whether the group of assets being
disposed represents a component of the Company; that
is, whether it had historic operations and cash flows that
were clearly distinguished, both operationally and for
financial reporting purposes. In addition, we consider
whether the disposal represents a strategic shift that has
or will have a major effect on our operations and financial
results. The results of discontinued operations, as well as
any gain or loss on the disposal, if applicable, are aggregated
and separately presented in our consolidated statements
of operations, net of income taxes. The historical financial
position of discontinued operations are aggregated and
separately presented in our consolidated balance sheets.
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, ground rent
and property tax escrows, insurance and furniture, fixtures
and equipment replacement reserves required under
certain lease agreements.
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.
GOODWILL
Goodwill represents the future economic benefits arising
from other assets acquired in a business combination that
are not individually identified and separately recognized.
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.
In connection with the October 24, 2007 transaction whereby
we became a wholly owned subsidiary of an affiliate of
Blackstone (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 19: “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 perform a quanti-
tative analysis. The quantitative analysis is used to identify
both the existence of impairment and the amount of the
impairment loss by comparing the estimated fair value of
a reporting unit with its carrying value, including goodwill.
The estimated fair value is based on internal projections of
expected future cash flows and operating plans, as well as
market conditions relative to the operations of our report-
ing units. If the estimated fair value of the reporting unit
exceeds its carrying value, goodwill of the reporting unit is
not impaired; otherwise, an impairment loss is recognized
within our consolidated statements of operations in an
amount equal to that excess, limited to the total amount
of goodwill allocated to that reporting unit.
BRANDS
We own, lease, manage 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. As
of December 31, 2017, our brand portfolio included Hilton
Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad
Hotels & Resorts, Canopy by Hilton, Curio—A Collection by
Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton,
Embassy Suites by Hilton, Hilton Garden Inn, Hampton
by Hilton, Tru by Hilton, Homewood Suites by Hilton,
Home2 Suites by Hilton and our timeshare brand, Hilton
Grand Vacations.
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, Tapestry Collection by Hilton,
Tru by Hilton, and Home2 Suites by Hilton were launched
post-Merger and, as such, they were not assigned fair
values and we do not have any intangible assets for these
brands recorded in our consolidated balances sheets. 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 qualitatively that the fair value is in excess of
the carrying value, or we decide to bypass the qualitative
assessment, we perform a quantitative analysis. 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 loss.
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
contracts, franchise contracts, leases, certain proprietary
technologies and our guest loyalty program, Hilton Honors.
Additionally, we capitalize direct and incremental manage-
ment and franchise contract acquisition costs, including
development commissions, as finite lived intangible assets.
Intangible assets with finite useful lives are amortized using
the straight-line method over their respective estimated
useful lives, which are generally as follows: management
contracts recorded at the Merger (13 to 16 years), manage-
ment contract acquisition costs (20 to 30 years), franchise
contracts recorded at the Merger (12 to 13 years), franchise
contract acquisition costs (10 to 20 years), leases (12 to
35 years), Hilton Honors (16 years) and capitalized software
development costs (3 years).
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 information technology 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 values
may not be recoverable. If the carrying value of an asset
group is not recoverable, we recognize an impairment
loss for the excess carrying value over the fair value in our
consolidated statements of operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Costs of
improvements that extend the economic life or improve
service potential are also capitalized. Capitalized costs are
depreciated over their estimated useful lives. Costs for
normal repairs and maintenance are expensed as incurred.
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
2017 ANNUAL REPORT | 63
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 group carrying value by comparing the expected
undiscounted future cash flows to the net book value
of the asset group. If it is determined that the expected
undiscounted future cash flows are less than the net book
value of the asset group, the excess of the net book value
over the estimated fair value is recorded in our consolidated
statements of operations within impairment loss. Fair value
is generally estimated using valuation techniques that
consider the discounted cash flows of the asset group
using discount and capitalization rates deemed reasonable
for the type of assets, as well as prevailing market condi-
tions, 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 or through the normal operation of
the asset.
HILTON HONORS
Hilton Honors is a guest loyalty and marketing program
provided to hotels and resort properties. Nearly all of our
owned, leased, managed and franchised hotels and resort
properties participate in the Hilton Honors program. Hilton
Honors members earn points based on their spending at
our participating properties and through participation in
affiliated partner programs. When points are earned by
Hilton Honors members, the property or affiliated partner
pays Hilton Honors based on an estimated cost per point
for the estimated cost of award redemptions, as well as the
costs of operating the program, which include marketing,
promotion, communication and administrative expenses.
Hilton Honors member points are accumulated and may
be redeemed for the right to stay at participating proper-
ties, 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 record a liability for the payments received from
participating hotels and program partners in an amount
equal to the estimated cost per point of the future redemp-
tion 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
64 | HILTON
award certificates at our owned and leased hotels,
we recognize owned and leased hotel revenues in our
consolidated statements of operations.
FAIR VALUE MEASUREMENTS—
VALUATION HIERARCHY
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly trans-
action between market participants on the measurement
date (i.e., an exit price). We use the three-level valuation
hierarchy for classification of fair value measurements.
The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the
measurement date. Inputs refer broadly to the assumptions
that market participants would use in pricing an asset or
liability. Inputs may be observable or unobservable. Observ-
able inputs are inputs that reflect the assumptions market
participants would use in pricing the asset or liability
developed based on market data obtained from indepen-
dent 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 reporting 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 associated with
fluctuations in interest rates and foreign currency exchange
rates. We regularly monitor the financial stability and credit
standing of the counterparties to our derivative instru-
ments. 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 into, 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 recognized asset
or liability (“fair value hedge”) or a hedge of our investment
in a foreign operation (“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 specifi-
cally designate a derivative as one of the above, changes
in the fair value of the undesignated derivative instrument
are reported in current period earnings. Likewise, the
ineffective portion of designated derivative instruments
is 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, while cash flows
from undesignated derivative financial instruments are
included as an investing activity.
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 the 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 no longer highly
effective as a hedge, the underlying hedged transaction
is no longer probable or the hedging instrument expires,
is sold, terminated or exercised.
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 currencies
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 con-
solidated 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 managed proper-
ties 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 reinsurance arrangements that
provide coverage for a certain portion of our deductibles
and/or acts as a financial intermediary for claim payments
on our self-insurance program, along with property and
casualty insurance for certain international hotels that are
reinsured by other third parties. These obligations and
reinsurance arrangements can cause timing differences in
the recognition of assets, liabilities, gains and losses between
reporting periods, although these amounts ultimately
offset when the related claims are settled. 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 and 2017 Omnibus Incentive Plans, we
award time-vesting restricted stock units and restricted
stock (“RSUs”), nonqualified stock options (“options”) and
performance-vesting restricted stock units and restricted
stock (collectively, “performance shares”) to our eligible
employees and deferred share units (“DSUs”) to members
of our board of directors.
• RSUs generally vest in equal annual installments over
two or three years from the date of grant. Vested RSUs
generally will be settled for the Company’s common
stock, with the exception of certain awards that will be
settled in cash. The grant date fair value is equal to the
closing stock price on the grant date.
• Options vest over three years in equal annual installments
from the grant date and terminate 10 years from the date
of grant or earlier if the individual’s service terminates
under certain circumstances. The exercise price is equal
to the closing price of the Company’s common stock on
2017 ANNUAL REPORT | 65
the date of grant. The grant date fair value is estimated
using the Black-Scholes-Merton option-pricing 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 the
Company’s Adjusted earnings before interest expense,
a provision for income taxes and depreciation and
amortization (“EBITDA”) compound annual growth rate
(“CAGR”) (“EBITDA CAGR”) and the other 50 percent
of the shares subject to achievement based on the
Company’s free cash flow (“FCF”) per share CAGR (“FCF
CAGR”). The total number of performance shares that
vest related to each performance measure is based on
an achievement factor that, in both cases, ranges from
a zero to a 200 percent payout. The grant date fair value
for these awards is equal to the closing stock price on
the grant date.
• DSUs are issued to our independent directors and are
fully vested and non-forfeitable on the grant date. DSUs
are settled for shares of the Company’s 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 grant date.
We recognize these share-based payment transactions
when services from the employees 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 instruments that we are obligated
to issue when employees have rendered the requisite
service and satisfied any other conditions necessary to
earn the right to benefit from the instruments. The com-
pensation expense for an award classified as an equity
instrument is recognized ratably over the requisite service
period. 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. Compensation expense for awards
with performance conditions is recognized over the requi-
site 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 refundable for
the current year and to recognize the deferred tax assets
and liabilities that relate to tax consequences in future years,
which result from differences between the respective tax
basis of assets and liabilities and their financial reporting
66 | HILTON
amounts and tax attribute 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.
On December 22, 2017, H.R.1, known as the Tax Cuts and
Jobs Act of 2017 (the “TCJ Act”) was signed into law and
includes widespread changes to the Internal Revenue Code
including, among other items, a reduction to the federal
corporate tax rate to 21 percent, a one-time transition
tax on earnings of certain foreign subsidiaries that were
previously deferred and the creation of new taxes on certain
foreign earnings. As of December 31, 2017, we had not
completed our accounting for the tax effects of enactment
of the TCJ Act; however, where possible, we made a reason-
able estimate of the effects on our existing deferred tax
balances and the one-time transition tax. In other cases,
we were not able to make a reasonable estimate and con-
tinued to account for those items based on the provisions
of the tax laws that were in effect immediately prior to
enactment. We will update our estimates and finalize our
measurement of the result of the TCJ Act over a one-year
measurement period, to be completed in or before
December 2018.
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 deter-
mined 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 January 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-04 (“ASU 2017-04”), Intangibles—Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impair-
ment. This ASU simplifies the subsequent measurement of
goodwill by removing Step 2 from the goodwill impairment
test. We elected, as permitted by the standard, to early
adopt ASU 2017-04 on a prospective basis as of January 1,
2017. The adoption did not have a material effect on our
consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09 (“ASU
2016-09”), Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting. This ASU is intended to simplify several aspects
of the accounting for share-based payment transactions,
including the accounting for income taxes, forfeitures and
statutory withholding requirements, as well as to clarify the
classification in the statement of cash flows. We adopted
ASU 2016-09 as of January 1, 2017. One of the provisions
of this ASU requires entities to make an accounting policy
election with respect to forfeitures of share-based pay-
ment awards, and we elected to account for forfeitures
as they occur and adopted this provision of ASU 2016-09
using a modified retrospective approach by recording a
cumulative-effect adjustment to equity as of January 1, 2017
of approximately $1 million. Additionally, we have applied
the provisions of this ASU on a retrospective basis in our
consolidated statements of cash flows, which includes
presenting: (i) excess tax benefits as an operating activity,
which were previously presented as a financing activity;
and (ii) cash payments to tax authorities for employee
taxes when shares are withheld to meet statutory with-
holding requirements as a financing activity, which were
previously presented as an operating activity.
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 pro-
visions of ASU 2016-02 are to be applied using a modified
retrospective approach and are effective for reporting
periods beginning after December 15, 2018; early adoption
is permitted. We intend to adopt the standard on January 1,
2019 and apply the package of practical expedients avail-
able to us upon adoption. We are continuing to evaluate
the effect that this ASU will have on our consolidated
financial statements, but we expect this ASU to have a
material effect on our consolidated balance sheet.
In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”),
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 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 issued several related ASUs to clarify the applica-
tion of the new revenue recognition standard, collectively
referred to herein as ASU 2014-09. ASU 2014-09 permits
two transition approaches: full retrospective and modified
retrospective. We will adopt ASU 2014-09 on January 1,
2018 using the full retrospective approach. In preparation
for adoption, we have implemented internal controls and
key system functionality to enable the preparation of the
necessary financial information and have reached conclu-
sions on key accounting assessments.
The primary anticipated effects of the provisions of ASU
2014-09 on revenues for the year ended December 31, 2017
are as follows:
• Application, initiation and other fees, charged when
(i) new hotels enter our system; (ii) there is a change of
ownership; or (iii) contracts are extended, will be recog-
nized over the term of the franchise contract, rather
than upon execution of the contract. This change is
expected to reduce franchise fees by $56 million.
• Certain contract acquisition costs related to our
management and franchise contracts will be recognized
over the term of the contracts as a reduction to revenue,
instead of as amortization expense. This change is
expected to reduce franchise fees and base and other
management fees by $5 million and $9 million, respec-
tively, which will accordingly reduce depreciation and
amortization by $14 million, with no effect on the
Company’s net income (loss).
• 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,
as opposed to recognizing amounts that would be due
if the management contract was terminated at the end
of the reporting period. This change will not affect the
Company’s net income (loss) for any full year period.
• Revenue related to our Hilton Honors guest loyalty
program will be recognized upon point redemption,
net of any reward reimbursement paid to a third party,
as opposed to recognized on a gross basis at the time
points are issued in conjunction with the accrual of
the expected future cost of the reward reimbursement.
Additionally, since we are also the sponsor of the loyalty
program, points issued at owned and leased hotels will
be accounted for as a reduction of revenue from owned
and leased hotels, as opposed to expenses of owned
and leased hotels. These changes are expected to
reduce total revenues by $1,009 million, with a corre-
sponding reduction to total expenses of $818 million,
primarily reducing other revenues and expenses from
managed and franchised properties and an expected
offsetting reduction of revenues and expenses from
owned and leased hotels of $18 million.
• Reimbursable fees related to our management and
franchise contracts will be recognized as they are billed,
as opposed to when we incur the related expenses. This
change is expected to increase other revenues from
managed and franchised properties by $73 million, but
could increase or reduce these revenues in other periods.
Revenue recognition related to our accounting for ongoing
royalty and management fee revenues, direct reimbursable
fees from our management and franchise contracts and
hotel guest transactions at our owned and leased hotels
will otherwise remain substantially unchanged.
NOTE 3:
DISCONTINUED OPERATIONS
On January 3, 2017, we completed the spin-offs of Park and
HGV via a pro rata distribution to each of Hilton’s stock-
holders of record, as of close of business on December 15,
2016, of 100 percent of the outstanding common stock of
each of Park and HGV (the “Distribution”). Each Hilton
stockholder received one share of Park common stock for
every five shares of Hilton common stock and one share of
HGV common stock for every ten shares of Hilton common
stock. Following the spin-offs, Hilton did not retain any
2017 ANNUAL REPORT | 67
ownership interest in Park or HGV. Both Park and HGV
have their common stock listed on the New York Stock
Exchange under the symbols “PK” and “HGV,” respectively.
In connection with the spin-offs, on January 2, 2017, Hilton
entered into several agreements with Park and HGV
that govern Hilton’s relationship with them following the
Distribution, including: (i) a Distribution Agreement; (ii) an
Employee Matters Agreement; (iii) a Tax Matters Agree-
ment; (iv) a Transition Services Agreement (“TSA”); (v)
a License Agreement with HGV; (vi) a Tax Stockholders
Agreement; and (vii) management and franchise contracts
with Park.
Under the TSA with Park and HGV, Hilton or one of its
affiliates provides Park and HGV certain services for a
period of up to two years from the date of the TSA to facili-
tate an orderly transition following the Distribution. The
services that Hilton agreed to provide under the TSA include:
finance; information technology; human resources and
compensation; facilities; legal and compliance; and other
services. The entity providing the services is compensated
for any such services at agreed amounts as set forth in
the TSA.
The License Agreement with HGV granted HGV the
exclusive right, for an initial term of 100 years, to use certain
Hilton marks and intellectual property in its timeshare busi-
ness, subject to the terms and conditions of the agreement.
HGV pays a royalty fee of five percent of gross revenues,
as defined in the agreement, to Hilton quarterly in arrears,
as well as specified additional fees and reimbursements.
Additionally, during the term of the License Agreement,
HGV will participate in Hilton’s guest loyalty program,
Hilton Honors.
Under the management and franchise contracts with Park,
Park pays agreed upon fees for various services that Hilton
provides to support the operations of their hotels, as well
as royalty fees for the licensing of Hilton’s hotel brands. The
terms of the management contracts generally include a
base management fee, calculated as three percent of gross
hotel revenues or receipts, and an incentive management
fee, calculated as six percent of a specified measure of
hotel earnings as determined in accordance with the appli-
cable management contract. Additionally, payroll and
related costs, certain other operating costs, marketing
expenses and other expenses associated with Hilton’s
brands and shared services are directly reimbursed to
Hilton by Park pursuant to the terms of the management
and franchise contracts.
Financial Information
During the year ended December 31, 2017, we recognized
$157 million of management and franchise fees and
$1,197 million of other revenues from managed and fran-
chised properties under our management and franchise
contracts with Park. We also recognized $87 million of
franchise fees under our License Agreement with HGV.
Prior to the spin-offs, the results of Park were reported
in our ownership segment and the results of HGV were
reported in our timeshare segment. Following the spin-offs,
68 | HILTON
we do not report a timeshare segment, as we no longer
have timeshare operations.
The following table presents the assets and liabilities of
Park and HGV that were included in discontinued opera-
tions in our consolidated balance sheet:
December 31,
(in millions)
ASSETS
Current Assets:
Cash and cash equivalents
$
Restricted cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Inventories
Current portion of financing receivables, net
Other
Total current assets of discontinued
operations (variable interest
entities—$92)
Intangibles and Other Assets:
Goodwill
Management and franchise contracts, net
Other intangible assets, net
Property and equipment, net
Deferred income tax assets
Financing receivables, net
Investments in affiliates
Other
2016
341
160
250
48
527
136
16
1,478
604
56
60
8,589
35
895
81
27
Total intangibles and other assets
of discontinued operations
(variable interest entities—$405)
10,347
TOTAL ASSETS OF
DISCONTINUED OPERATIONS
$ 11,825
LIABILITIES
Current Liabilities:
Accounts payable, accrued
expenses and other
Current maturities of long-term debt
Current maturities of timeshare debt
Income taxes payable
Total current liabilities of
discontinued operations (variable
interest entities—$81)
Long-term debt
Timeshare debt
Deferred revenues
Deferred income tax liabilities
Other
TOTAL LIABILITIES OF
DISCONTINUED OPERATIONS
(variable interest entities—$506)
$
632
65
73
4
774
3,437
621
22
2,797
17
$ 7,668
The following table presents the results of operations of
Park and HGV that were included in discontinued opera-
tions in our consolidated statements of operations:
NOTE 4:
DISPOSALS
Year Ended December 31,
2016
2015
(in millions)
Total revenues from
discontinued operations
Expenses
$ 4,281
$ 4,139
Owned and leased hotels
Timeshare
Depreciation and amortization
Other
1,805
948
322
298
Total expenses from
discontinued operations
3,373
Gain on sales of assets, net
1
1,754
897
307
153
3,111
143
Operating income from
discontinued operations
Non-operating loss, net
Income from discontinued operations
before income taxes
Income tax expense
909
1,171
(210)
(208)
699
963
(327)
(428)
Income from discontinued operations,
net of taxes
372
535
Income from discontinued operations
attributable to noncontrolling
interests, net of taxes
(6)
(7)
Income from discontinued operations
attributable to Hilton stockholders,
net of taxes
$ 366
$ 528
The following table presents selected financial information
of Park and HGV that was included in our consolidated
statements of cash flows:
Year Ended December 31,
2016
2015
(in millions)
Non-cash items included in net income:
Depreciation and amortization
$ 322 $ 307
Gain on sales of assets, net
(1)
(143)
Investing activities:
Capital expenditures for property
and equipment
Acquisitions, net of cash acquired
Proceeds from asset dispositions
$ (255) $
(243)
—
—
(1,402)
1,866
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 of the sale). 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 good-
will reduction of $36 million and a reclassification of a
currency translation adjustment of $25 million from accu-
mulated 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 value 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.
NOTE 5:
CONSOLIDATED VARIABLE
INTEREST ENTITIES
As of December 31, 2017 and 2016, we consolidated three
VIEs: two entities that lease hotel properties and one
management company. We are the primary beneficiaries
of these consolidated VIEs as we have the power to direct
the activities that most significantly affect their economic
performance. Additionally, we have the obligation to absorb
their losses and the right to receive benefits that could be
significant to them. The assets of our consolidated VIEs
are only available to settle the obligations of the respective
entities. Our consolidated balance sheets included the
assets and liabilities of these entities, which primarily
comprised the following:
December 31,
(in millions)
2017
2016
Cash and cash equivalents
$ 73
$ 57
Accounts receivable, net
Property and equipment, net
Deferred income tax assets
Other non-current assets
Accounts payable, accrued
expenses and other
Long-term debt(1)
16
57
56
57
43
212
14
52
58
53
33
212
(1)
Includes capital lease obligations of $191 million as of
December 31, 2017 and 2016.
2017 ANNUAL REPORT | 69
During the years ended December 31, 2017, 2016 and 2015
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, one of our VIEs that we previously
consolidated 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 accounted for as an equity investment and was
included in other non-current assets in our consolidated
balance sheet as of December 31, 2016. In July 2017, we
received a distribution in complete liquidation of our
remaining interest in the entity.
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 was
previously fully impaired, this amount was recognized as
a gain in other non-operating income, net in our consoli-
dated statement of operations during the year ended
December 31, 2015.
NOTE 6: GOODWILL AND INTANGIBLE ASSETS
GOODWILL
Our goodwill balances, by reporting unit, were as follows:
(in millions)
Balance as of December 31, 2015
Foreign currency translation
Balance as of December 31, 2016
Spin-off of Park
Foreign currency translation
Balance as of December 31, 2017
Ownership (1)
Management and Franchise (2)
Total
$ 193
(9)
184
(91)
11
$ 104
$ 5,087
(53)
5,034
—
52
$ 5,086
$ 5,280
(62)
5,218
(91)
63
$ 5,190
(1) The balances as of December 31, 2016 and 2015 exclude goodwill of $2,707 million and $2,710 million, respectively, and accumulated
impairment losses of $2,103 million that were attributable to Park and included in non-current assets of discontinued operations in our
consolidated balance sheets. Amounts for the ownership reporting unit include the following gross carrying values and accumulated
impairment losses for the periods presented:
Gross
Carrying Value
Accumulated
Impairment Losses
Net Carrying
Value
(in millions)
Balance as of December 31, 2015
Foreign currency translation
Balance as of December 31, 2016
Spin-off of Park
Foreign currency translation
Balance as of December 31, 2017
$ 865
(9)
856
(423)
11
$ 444
$ (672)
—
(672)
332
—
$ (340)
$ 193
(9)
184
(91)
11
$ 104
(2) There were no accumulated impairment losses for the management and franchise reporting unit as of December 31, 2017, 2016 and 2015.
70 | HILTON
Intangible Assets
Changes to our brands intangible assets from December 31, 2016 to December 31, 2017 were due to foreign currency translations.
Amortizing intangible assets were as follows:
December 31, 2017
(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)
Contract acquisition costs and other
Other amortizing intangible assets:
Leases(1)
Capitalized software
Hilton Honors(1)
Other
December 31, 2016
(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)
Contract acquisition costs and other
Other amortizing intangible assets:
Leases(1)
Capitalized software
Hilton Honors(1)
Other
Gross
Carrying Value
Accumulated
Amortization
Net Carrying
Value
$ 2,242
457
$ 2,699
$ 301
585
341
38
$ 1,265
$ (1,715)
(75)
$ (1,790)
$
(153)
(428)
(217)
(34)
$
(832)
$ 527
382
$ 909
$ 148
157
124
4
$ 433
Gross
Carrying Value
Accumulated
Amortization
Net Carrying
Value
$ 2,221
343
$ 2,564
$ 276
510
335
37
$ 1,158
$ (1,534)
(67)
$ (1,601)
$ (126)
(362)
(192)
(31)
$ (711)
$ 687
276
$ 963
$ 150
148
143
6
$ 447
(1) Represents intangible assets that were initially recorded at their fair value as part of the Merger.
Amortization expense on our amortizing intangible assets was $288 million, $312 million and $325 million for the years
ended December 31, 2017, 2016 and 2015, respectively, including $67 million, $87 million and $87 million, respectively,
of amortization expense on our capitalized software.
2017 ANNUAL REPORT | 71
We estimated future amortization expense on our
amortizing intangible assets as of December 31, 2017
to be as follows:
Year
2018
2019
2020
2021
2022
Thereafter
(in millions)
$ 286
274
223
87
75
397
$ 1,342
NOTE 7:
PROPERTY AND EQUIPMENT
Property and equipment were as follows:
December 31,
(in millions)
Land
Buildings and leasehold improvements
Furniture and equipment
Construction-in-progress
Accumulated depreciation
2017
2016
$ 12
$ 12
428
346
17
803
384
357
14
767
(450)
(426)
$ 353
$ 341
As of December 31, 2017 and 2016, property and equipment
included approximately $90 million and $122 million,
respectively, of capital lease assets primarily consisting of
buildings and leasehold improvements, net of $90 million
and $74 million, respectively, of accumulated depreciation.
Depreciation expense on property and equipment was
$59 million, $52 million and $60 million during the years
ended December 31, 2017, 2016 and 2015, respectively.
72 | HILTON
NOTE 8:
ACCOUNTS PAYABLE, ACCRUED
EXPENSES AND OTHER
Accounts payable, accrued expenses and other were as
follows:
December 31,
(in millions)
Accrued employee compensation
and benefits
Accounts payable
Liability for guest loyalty
program, current
Insurance reserves, current
Other accrued expenses
2017
2016
$ 502
$ 438
282
314
622
264
480
543
122
404
$ 2,150
$ 1,821
Other accrued expenses consist of deferred revenues,
deposit liabilities related to hotel operations, taxes, rent,
interest and other accrued balances.
NOTE 9:
DEBT
Long-term Debt
Long-term debt balances, including obligations for capital
leases, and associated interest rates as of December 31,
2017 were as follows:
December 31,
(in millions)
2017
2016
Senior notes due 2021
$ —
$ 1,500
Senior notes with a rate of 4.250%
due 2024
Senior notes with a rate of 4.625%
due 2025
Senior notes with a rate of 4.875%
due 2027
Senior secured term loan facility
due 2020
Senior secured term loan facility
with a rate of 3.55%, due 2023
Capital lease obligations with an
average rate of 6.33%, due 2021
to 2030
Other debt with an average rate
of 2.65%, due 2018 to 2026
1,000
1,000
900
—
600
—
—
750
3,929
3,209
233
227
21
20
6,683
6,706
Less: unamortized deferred financing
costs and discount
(81)
(90)
Less: current maturities of
long-term debt(1)
(46)
(33)
$ 6,556
$ 6,583
(1) Net of unamortized deferred financing costs and discount
attributable to current maturities of long-term debt.
Senior Notes
In March 2017, we issued $900 million aggregate principal
amount of 4.625% Senior Notes due 2025 (the “2025 Senior
Notes”) and $600 million aggregate principal amount of
4.875% Senior Notes due 2027 (the “2027 Senior Notes”),
and incurred $21 million of debt issuance costs. Interest
on the 2025 Senior Notes and the 2027 Senior Notes is
payable semi-annually in arrears on April 1 and October 1
of each year, beginning from October 2017. We used the
net proceeds of the 2025 Senior Notes and the 2027 Senior
Notes, along with available cash, to redeem in full our
$1.5 billion 5.625% Senior Notes due 2021 (the “2021 Senior
Notes”), plus accrued and unpaid interest. In connection
with the repayment, we paid a redemption premium of
$42 million and accelerated the recognition of $18 million
of unamortized debt issuance costs, which were included
in loss on debt extinguishment in our consolidated state-
ment of operations for the year ended December 31, 2017.
In August 2016, Hilton issued $1.0 billion aggregate principal
amount of 4.25% Senior Notes due 2024 (the “2024 Senior
Notes”) and incurred $20 million of debt issuance costs.
Interest on the 2024 Senior Notes is payable semi-annually
in arrears on March 1 and September 1 of each year, begin-
ning from March 2017.
The 2024 Senior Notes, 2025 Senior Notes and 2027 Senior
Notes are guaranteed on a senior unsecured basis by Hilton
and certain of its wholly owned subsidiaries. See Note 23:
“Condensed Consolidating Guarantor Financial Information”
for additional details.
Senior Secured Credit Facilities
Our senior secured credit facility consists of a $1.0 billion
senior secured revolving credit facility (the “Revolving
Credit Facility”) and a senior secured term loan facility (the
“Term Loans”). The obligations of our senior secured credit
facility are unconditionally and irrevocably guaranteed by
Hilton and substantially all of our direct or indirect wholly
owned domestic subsidiaries.
In November 2016, we amended the Revolving Credit Facility
to extend the maturity to November 2021 and incurred
$5 million of debt issuance costs. As of December 31, 2017,
we had $41 million of letters of credit outstanding under
our Revolving Credit Facility and a borrowing capacity of
$959 million. We are required to pay a commitment fee of
0.125 percent per annum under the Revolving Credit Facility
in respect of the unused commitments thereunder.
In August 2016, we amended the Term Loans pursuant
to which $3,225 million of outstanding Term Loans were
converted into a new tranche of Term Loans due October
2023 with an interest rate of LIBOR plus 250 basis points.
In connection with this modification, 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 non-operating income,
net in our consolidated statement of operations for the
year ended December 31, 2016.
In March 2017, we amended the Term Loans again pursuant
to which the remaining $750 million of outstanding Term
Loans due in 2020 were extended, aligning their maturity
with the tranche of Term Loans due 2023. Additionally,
concurrent with the extension, the entire balance of the
Term Loans was repriced with an interest rate of LIBOR
plus 200 basis points. In connection with the refinancing
and modification of the Term Loans, we incurred $3 million
of debt issuance costs, which were included in other
non-operating income, net in our consolidated statement
of operations for the year ended December 31, 2017.
Debt Maturities
The contractual maturities of our long-term debt as of
December 31, 2017, were as follows:
Year
2018
2019
2020
2021
2022
Thereafter
(in millions)
$ 54
55
57
58
58
6,401
$ 6,683
NOTE 10:
OTHER LIABILITIES
Other long-term liabilities were as follows:
December 31,
(in millions)
Program surplus
Pension obligations
Other long-term tax liabilities
Deferred employee compensation
and benefits
Insurance reserves
Other
2017
2016
$ 549
$ 446
165
397
117
162
80
215
480
113
131
107
$ 1,470
$ 1,492
Program surplus represents obligations to operate our
marketing, sales and brand programs on behalf of our
hotel owners. Our obligations related to the insurance
claims are expected to be satisfied, on average, over the
next three years.
2017 ANNUAL REPORT | 73
NOTE 11: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Cash Flow Hedges
In May 2017, we began hedging foreign exchange-based cash flow variability in certain of our foreign currency denominated
management and franchise fees using forward contracts (the “Fee Forward Contracts”), and elected to designate these Fee
Forward Contracts as cash flow hedges for accounting purposes. As of December 31, 2017, the Fee Forward Contracts had
an aggregate notional amount of $31 million and maturities of 24 months or less.
In March 2017, we entered into two interest rate swap agreements with notional amounts of $1.6 billion and $750 million,
which swap one-month LIBOR on the Term Loans to fixed rates of 1.98 percent and 2.02 percent, respectively, and expire in
March 2022. We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
Non-designated Hedges
As of December 31, 2017, we held short-term forward contracts with an aggregate notional amount of $353 million to offset
exposure to fluctuations in certain of our foreign currency denominated cash balances. We elected not to designate these
forward contracts as hedging instruments. Depending on the fair value of each contract, we classify it as an asset or liability.
In August and September 2016, we dedesignated four interest rate swaps (the “2013 Interest Rate Swaps”) that were previously
designated as cash flow hedges as they no longer met the criteria for hedge accounting. These interest rate swaps, which
had an aggregate notional amount of $1.45 billion and swapped three-month LIBOR on the Term Loans to a fixed rate of
1.87 percent, were settled in March 2017.
Fair Value of Derivative Instruments
We measure our derivative instruments at fair value, which is estimated using a discounted cash flow analysis, and we
consider the inputs used to measure the fair value as Level 2 within the fair value hierarchy. The discounted cash flow analysis
reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs
of similar instruments, including interest rate curves and spot and forward rates, as applicable, as well as option volatility.
The fair values of our derivative instruments in our consolidated balance sheets were as follows:
December 31,
(in millions)
Cash Flow Hedges:
Interest rate swaps
Forward contracts
Non-designated Hedges:
Interest rate swaps
Forward contracts
Forward contracts
Balance Sheet Classification
2017
2016
Other non-current assets
Accounts payable, accrued expenses and other
Other liabilities
Other current assets
Accounts payable, accrued expenses and other
$ 11
1
N/A
4
1
N/A
N/A
$ 12
3
4
Earnings Effect of Derivative Instruments
The gains and losses recognized in our consolidated statements of operations and consolidated statements of comprehensive
income (loss) before any effect for income taxes were as follows:
Year Ended December 31,
Classification of Gain (Loss) Recognized
2017
2016
2015
(in millions)
Cash Flow Hedges(1)(2):
Interest rate swaps
Forward contracts
Non-designated Hedges:
Interest rate swaps
Interest rate swaps(3)
Forward contracts
Other comprehensive income (loss)
Other comprehensive income (loss)
$ 11
(1)
$
(7)
N/A
$ (11)
N/A
Other non-operating income, net
Interest expense
Gain (loss) on foreign currency transactions
2
(10)
12
4
(4)
7
N/A
N/A
11
(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, 2017, 2016 and 2015.
(2) The earnings effect of the Fee Forward Contracts on fee revenues for the year ended December 31, 2017 was less than $1 million.
(3) These amounts are related to the dedesignation of the 2013 Interest Rate Swaps as cash flow hedges and were reclassified from
accumulated other comprehensive loss as the underlying transactions occurred.
74 | HILTON
NOTE 12: FAIR VALUE MEASUREMENTS
We did not elect the fair value measurement option for any of our financial assets or liabilities. The fair values of certain
financial instruments and the hierarchy level we used to estimate the fair values are shown below (see Note 11: “Derivative
Instruments and Hedging Activities” for the fair value information of our derivatives and Note 15: “Employee Benefit Plans”
for fair value information of our pension assets):
December 31, 2017
(in millions)
Assets:
Cash equivalents
Restricted cash equivalents
Liabilities:
Long-term debt(1)
December 31, 2016
(in millions)
Assets:
Cash equivalents
Restricted cash equivalents
Liabilities:
Long-term debt(1)
Carrying Value
Level 1
Level 2
Level 3
Hierarchy Level
$ 284
12
$ —
—
$ 284
12
$ —
—
6,348
2,575
—
3,954
Carrying Value
Level 1
Level 2
Level 3
Hierarchy Level
$ 782
11
$ —
—
$ 782
11
$ —
—
6,369
2,516
—
4,006
(1) The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude capital lease
obligations and other debt.
The fair values of financial instruments not included in
these tables are estimated to be equal to their carrying
values as of December 31, 2017 and 2016. Our estimates
of the fair values were determined using available market
information and appropriate valuation methods. Consider-
able judgment is necessary to interpret market data and
develop the estimated fair values.
Cash equivalents and restricted cash equivalents primarily
consisted of short-term interest-bearing money market
funds with maturities of less than 90 days and time deposits.
The estimated fair values were based on available market
pricing information of similar financial instruments.
The estimated fair values of our Level 1 long-term debt were
based on prices in active debt markets. The estimated fair
values of our Level 3 long-term debt were based on indica-
tive quotes received for similar issuances.
NOTE 13:
LEASES
We lease hotel properties, land, equipment and corporate
office space under operating and capital leases. As of
December 31, 2017 and 2016, we leased 59 hotels and
61 hotels, respectively, under operating leases, and four
hotels under capital leases. As of December 31, 2017 and
2016, two of these capital leases were liabilities of VIEs that
we consolidated and were non-recourse to us. Our leases
expire at various dates from 2018 through 2196, with vary-
ing 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.
2017 ANNUAL REPORT | 75
The future minimum rent payments under non-cancelable
leases as of December 31, 2017, were as follows:
NOTE 14:
INCOME TAXES
Operating Capital
Leases
Leases
Non-Recourse
Capital
Leases
$ 192
$ 5
$ 19
174
175
165
130
1,025
5
6
6
5
34
24
24
24
24
158
273
Our tax provision includes federal, state and foreign income
taxes payable. The domestic and foreign components of
income from continuing operations before income taxes
were as follows:
Year Ended December 31,
2017
2016
2015
(in millions)
U.S. income before tax
$ 791
$ 934
$ 262
Foreign income (loss)
before tax
Income from continuing
operations before
139
(378)
271
income taxes
$ 930
$ 556
$ 533
The components of our provision (benefit) for income
taxes were as follows:
rent payments
$ 1,861
61
Less: amount
representing interest
(19)
(82)
Year
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total minimum
Present value
of net minimum
rent payments
$ 42
$ 191
Year Ended December 31,
2017
2016
2015
Rent expense for all operating leases was as follows:
Year Ended December 31,
2017
2016
2015
(in millions)
Minimum rentals
Contingent rentals
$ 183
101
$ 284
$ 224
98
$ 322
$ 244
104
$ 348
The amortization of assets recorded under capital leases
is included in depreciation and amortization in our consol-
idated statements of operations and is recognized over
the shorter of the lease term or useful life of the asset.
(in millions)
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision (benefit)
for income taxes
$ 239
$ 441
$ 164
59
95
393
(679)
(24)
(24)
(727)
143
70
654
(116)
50
(24)
(90)
51
64
279
(606)
(86)
65
(627)
$ (334)
$ 564
$ (348)
Reconciliations of our tax provision at the U.S. statutory rate to the provision (benefit) for income taxes were as follows:
Year Ended December 31,
(in millions)
Statutory U.S. federal income tax provision
State income taxes, net of U.S. federal tax benefit
Impact of foreign operations
Effects of the Tax Cuts and Jobs Act
Nontaxable liquidation of subsidiaries
Corporate restructuring
Change in deferred tax asset valuation allowance
Provision (benefit) for uncertain tax positions
Non-deductible share-based compensation
Non-deductible goodwill
Other, net
Provision (benefit) for income taxes
76 | HILTON
2017
2016
2015
$ 326
$ 194
$ 187
26
1
(665)
—
—
(48)
38
—
—
(12)
23
32
—
—
482
(22)
(139)
—
—
(6)
17
3
—
(628)
—
24
18
23
13
(5)
$ (334)
$ 564
$ (348)
On December 22, 2017, the TCJ Act was signed into law,
which permanently reduces the corporate income tax rate
from a graduated 35 percent to a flat 21 percent rate and
imposes a one-time transition tax on earnings of foreign
subsidiaries that were previously deferred. As of December 31,
2017, we had not completed our accounting for the tax
effects of enactment of the TCJ Act; however, where pos-
sible, as described below, we made a reasonable estimate
of the effects on our existing deferred tax balances and
the one-time transition tax. In other cases, we were not able
to make a reasonable estimate and continued to account
for those items based on the provisions of the tax laws that
were in effect immediately prior to enactment. For the items
for which we were able to determine a reasonable estimate,
we recognized a provisional benefit of $665 million, of
which $517 million was the result of the remeasurement of
U.S. deferred tax assets and liabilities and other tax liabilities.
Provisional amounts
• Deferred tax assets and liabilities and other tax liabilities.
We remeasured deferred tax assets and liabilities and
other tax liabilities based on the rates at which they
are expected to reverse in the future, which is generally
21 percent. The provisional amounts recorded related
to the remeasurement of our deferred tax assets and
liabilities, uncertain tax position reserves and other
tax liabilities were income tax benefits of $517 million,
$33 million and $84 million, respectively. However, this
remeasurement is based on estimates as of the enact-
ment date of the TCJ Act and our existing analysis of
the numerous complex tax law changes in the TCJ Act.
As we finalize our analysis of the tax law changes in
the TCJ Act, including the impact on our current year
tax return filing positions throughout the 2018 fiscal
year, we will update our provisional amounts for this
remeasurement.
• Foreign taxation changes. A one-time transition tax is
applied to foreign earnings previously not subjected to
U.S. tax. The one-time transition tax is based on our total
post-1986 earnings and profits (“E&P”) that were previ-
ously deferred from U.S. income taxes, but is assessed
at a lower tax rate than the federal corporate tax rate of
35 percent. We recorded a provisional amount for our
one-time transition tax liability for our foreign subsid-
iaries based on estimates, as of the enactment date of
the TCJ Act, for our controlled foreign subsidiaries and
estimates of the total post-1986 E&P for noncontrolled
foreign subsidiaries. Additionally, the language in the
TCJ Act is not specific enough to address all aspects of
the calculation of the transition tax and leaves certain
components of the calculation open to interpretation.
The U.S. Treasury department is expected to issue
regulations to provide clarification. We will update our
provisional amounts related to the transition tax for the
E&P of our noncontrolled foreign subsidiaries as further
guidance is provided by the U.S. Treasury department.
We previously recorded a federal deferred tax liability
for our deferred earnings at the statutory 35 percent
rate. The application of the transition tax results in the
deferred earnings previously recorded at 35 percent
being subjected to a lower rate, resulting in a provisional
income tax benefit of $15 million. We had not recorded
certain deferred tax assets, related primarily to E&P
deficits, for some foreign subsidiaries based upon an
expectation that no tax benefit from such assets would
be realized within the foreseeable future. The recognition
of tax benefits from the deferred tax assets previously
not recorded resulted in a provisional income tax benefit
of $16 million.
We have not made sufficient progress on our analysis of
the TCJ Act’s impact on our recognition of deferred tax
assets and liabilities for outside basis differences in our
investments in foreign subsidiaries due to the complexity
of these calculations on both our U.S. and foreign tax posi-
tions and uncertainty regarding the impact of new taxes on
certain foreign earnings and, therefore, have not recorded
provisional amounts. As of December 31, 2017, we have not
recorded any deferred tax assets or liabilities for outside
basis differences in our investments in foreign subsidiaries.
We will further analyze the impact of these new taxes on
foreign earnings and their impact on our tax positions
throughout fiscal year 2018 to allow us to complete the
required accounting for our outside basis differences in
our investments in foreign subsidiaries. We continued to
apply Accounting Standards Codification 740 based on
the provisions of the tax laws that were in effect immedi-
ately prior to the TCJ Act being enacted.
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 “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 subsidiaries. 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 foot-
print 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 struc-
turing activities, our estimated deferred effective tax rate
increased for the year ended December 31, 2016. In total,
these structuring transactions, which became effective in
December 2016, resulted in additional income tax expense
of $482 million in the period.
2017 ANNUAL REPORT | 77
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:
December 31,
(in millions)
Deferred tax assets:
2017
2016
Net operating loss carryforwards
$ 395 $ 394
Compensation
Other reserves
Capital lease obligations
Insurance reserves
Program surplus
Property and equipment
Investments
Other
123
214
12
78
27
17
32
16
57
15
84
36
84
26
12
66
Total gross deferred tax assets
757
931
Less: valuation allowance
Deferred tax assets
Deferred tax liabilities:
Brands
Amortizing intangible assets
Investment in foreign subsidiaries
Deferred income
Deferred tax liabilities
Net deferred taxes
(408)
(507)
349
424
(1,121)
(1,626)
(178)
—
—
(305)
(39)
(150)
(1,299)
(2,120)
$
(950) $ (1,696)
As of December 31, 2017, we had foreign net operating
loss carryforwards of $1.6 billion, which resulted in deferred
tax assets of $395 million for foreign jurisdictions.
Approximately $6 million of our deferred tax assets as
of December 31, 2017 related to net operating loss carry-
forwards that will expire between 2018 and 2037 with less
than $1 million of that amount expiring in 2018. Approximately
$389 million of our deferred tax assets as of December 31,
2017 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 foreign net operat-
ing loss carryforwards will not be realized. In recognition
of this assessment, we provided a valuation allowance of
$384 million as of December 31, 2017 on the deferred tax
assets relating to the foreign net operating loss carry-
forwards. Our total valuation allowance relating to these
net operating loss carryforwards and other deferred tax
assets decreased $99 million during the year ended
December 31, 2017. Based on our consideration of all
available positive and negative evidence, we determined
that it was more likely than not that we would be able to
realize the benefit of certain foreign deferred tax assets
and released valuation allowances of $48 million against
our foreign deferred tax assets through continuing opera-
tions. Additionally, other factors that did not have any
impact on income tax expense, including revaluations of
certain foreign deferred tax assets and their associated
valuation allowances, resulted in the reduction of total
valuation allowances of $51 million.
We classify reserves for tax uncertainties within current
income taxes payable and other long-term liabilities in our
consolidated balance sheets. Reconciliations of the begin-
ning and ending amounts of unrecognized tax benefits
were as follows:
Year Ended December 31,
2017
2016
2015
(in millions)
Balance at beginning of year
$ 174
$ 315
$ 296
Additions for tax positions
related to the prior year
Additions for tax positions
3
77
25
related to the current year
126
9
8
Reductions for tax positions
related to prior years
Settlements
Lapse of statute of limitations
(10)
(9)
(2)
(204)
(21)
(2)
Currency translation adjustment
1
—
(4)
(4)
(2)
(4)
Balance at end of year
$ 283
$ 174
$ 315
The changes to our unrecognized tax benefits during the
year ended December 31, 2017 were primarily related to
uncertainty regarding the valuation of certain tax assets
in the U.S. and the United Kingdom. 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 ongo-
ing U.S. federal audit. We recognize interest and penalties
accrued related to uncertain tax positions in income tax
expense. During the years ended December 31, 2017, 2016
and 2015, we accrued $3 million, $4 million and $5 million,
respectively, of interest and penalties and as of December 31,
2017 and 2016, we had accrued balances of $33 million and
$30 million, respectively, for the related payments. Included
in the balance of uncertain tax positions as of December 31,
2017 and 2016 were $285 million and $176 million, respec-
tively, associated with positions that if favorably resolved
would provide a benefit to our effective tax rate.
In April 2014, we received 30-day Letters from the Internal
Revenue Service (“IRS”) and the Revenue Agents Report
(“RAR”) for the 2006 and October 2007 tax years. We dis-
agreed with several of the proposed adjustments in the
RAR, filed a formal appeals protest with the IRS and did
78 | HILTON
State income tax returns are generally subject to examination
for a period of three to five years after filing the respective
return; however, the state effect of any federal tax return
changes remains subject to examination by various states
for a period generally of up to one year after formal notifi-
cation 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 15:
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 participant
benefit accruals in 1996; therefore, the projected benefit
obligation is equal to the accumulated benefit obligation.
The plan assets will be used to pay benefits due to employ-
ees for service through December 31, 1996. Since employees
have not accrued additional benefits from that time, we
do not utilize salary or pension inflation assumptions in
calculating our benefit obligation for the Domestic Plan.
The 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 corresponding
adjustments for changes in the value through accumu-
lated other comprehensive loss, net of taxes.
not make any tax payments related to this audit. The issues
being protested in appeals relate to assertions by the IRS
that: (i) certain foreign currency denominated intercompany
loans from our foreign subsidiaries to certain U.S. subsid-
iaries should be recharacterized as equity for U.S. federal
income tax purposes and constitute deemed dividends
from such foreign subsidiaries to our U.S. subsidiaries; (ii) in
calculating the amount of U.S. taxable income resulting
from our Hilton Honors guest loyalty program, we should
not reduce gross income by the estimated costs of future
redemptions, but rather such costs would be deductible
at the time the points are redeemed; and (iii) certain for-
eign 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 submitted. In total, the proposed
adjustments sought by the IRS would result in additional
U.S. federal tax owed of approximately $874 million, exclud-
ing interest and penalties and potential state income
taxes. The portion of this amount related to Hilton Honors
would result in a decrease to our future tax liability when the
points are redeemed. We disagree with the IRS’s position on
each of these assertions and intend to vigorously contest
them. However, based on continuing appeals process
discussions with the IRS, we believe that it is more likely
than not that we will not recognize the full benefit related
to certain of the issues being appealed. Accordingly, we
have recorded $45 million of unrecognized tax benefits
related to these issues.
We file income tax returns, including returns for our
subsidiaries, with federal, state, local and foreign tax juris-
dictions. We are under regular and recurring audit by the
IRS and other taxing authorities on open tax positions. The
timing of the resolution of tax audits is highly uncertain, as
are the amounts, if any, that may ultimately be paid upon
such resolution. Changes may result from the conclusion
of ongoing audits, appeals or litigation in federal, state,
local and foreign tax jurisdictions or from the resolution
of various proceedings between the U.S. and foreign tax
authorities. We are no longer subject to U.S. federal income
tax examination for years through 2004. As of December 31,
2017, we remain subject to federal examinations from 2005
through 2016, state examinations from 2005 through 2016
and foreign examinations of our income tax returns for the
years 1996 through 2016.
2017 ANNUAL REPORT | 79
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:
Domestic Plan
U.K. Plan
International Plans
2017
2016
2017
2016
2017
2016
(in millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year
$ 381
$ 394
$ 404
$ 391
$ 81
$ 82
Service cost
Interest cost
Actuarial loss
Settlements and curtailments
Effect of foreign exchange rates
Benefits paid
—
12
16
(1)
—
(24)
—
13
1
(2)
—
(25)
Benefit obligation at end of year
$ 384
$ 381
Change in Plan Assets:
2
10
4
—
40
(17)
$ 443
2
12
87
—
(74)
(14)
$ 404
1
1
3
—
4
(4)
$ 86
2
2
2
(1)
(1)
(5)
$ 81
Fair value of plan assets at beginning of year
$ 267
$ 265
$ 336
$ 368
$ 58
$ 60
Actual return on plan assets, net of expenses
Employer contributions
Settlements
Effect of foreign exchange rates
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year (underfunded)
43
21
(1)
—
(24)
306
(78)
11
18
(2)
—
(25)
267
(114)
24
9
—
34
(17)
386
(57)
42
5
—
(65)
(14)
336
(68)
6
4
—
1
(4)
65
(21)
1
3
(1)
—
(5)
58
(23)
Accumulated benefit obligation
$ 384
$ 381
$ 443
$ 404
$ 86
$ 81
Amounts recognized in the consolidated balance sheets consisted of the following:
(in millions)
Other non-current assets
Other liabilities
Net amount recognized
Domestic Plan
U.K. Plan
International Plans
2017
2016
2017
2016
2017
2016
$ —
(78)
$ (78)
$
4
(118)
$ (114)
$ —
(57)
$ (57)
$ —
(68)
$ (68)
$ 9
(30)
$ (21)
$ 6
(29)
$ (23)
Amounts recognized in accumulated other comprehensive loss consisted of the following:
(in millions)
Net actuarial loss (gain)
Prior service credit
Amortization of net loss
Net amount recognized
Domestic Plan
U.K. Plan
International Plans
2017
2016
2015
2017
2016
2015
2017
2016
2015
$ (15)
(3)
(3)
$ (21)
$ —
(3)
(3)
$ (6)
$ 15
(4)
(3)
$ 8
$ 13
—
(4)
$ 9
$ 41
—
(2)
$ 39
$ 16
—
(2)
$ 14
$ —
—
—
$ —
$ 3
—
(1)
$ 2
$ 1
—
(9)
$ (8)
80 | HILTON
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:
Domestic Plan
U.K. Plan
International Plans
2017
2016
2015
2017
2016
2015
2017
2016
2015
(in millions)
Unrecognized net losses
Unrecognized prior service cost
Amount unrecognized
$ 3
4
$ 7
$ 2
4
$ 6
$ 2
4
$ 6
$ 4
—
$ 4
$ 4
—
$ 4
$ 2
—
$ 2
$ —
—
$ —
$ —
—
$ —
$ —
—
$ —
The net periodic pension cost (credit) was as follows:
Domestic Plan
U.K. Plan
International Plans
2017
2016
2015
2017
2016
2015
2017
2016
2015
(in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement losses
$ 8
$ 8
$ 7
$ 2
$ 2
$ 2
$ 2
$ 3
$ 3
12
(19)
3
3
—
13
(19)
4
3
—
16
(19)
4
3
—
10
(19)
—
4
—
12
(22)
—
2
—
15
(25)
—
2
—
2
(3)
—
—
—
2
(3)
—
—
—
2
(4)
—
—
10
Net periodic pension cost (credit) $ 7
$ 9
$ 11
$ (3)
$ (6)
$ (6)
$ 1
$ 2
$ 11
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
2017
2016
2017
2016
2017
2016
3.6%
4.0%
2.6%
2.8%
2.4%
3.1%
N/A
N/A
N/A
N/A
1.8
3.0
1.9
3.1
2.2
1.8
2.1
1.7
The weighted-average assumptions used to determine net periodic pension cost (credit) were as follows:
Domestic Plan
U.K. Plan
International Plans
2017
2016
2015
2017
2016
2015
2017
Discount rate
4.0%
4.2%
3.9%
2.8%
3.9%
3.8%
3.0%
Expected return on plan assets
7.0
Salary inflation
Pension inflation
N/A
N/A
7.3
N/A
N/A
7.5
N/A
N/A
5.5
1.9
3.1
6.5
1.7
2.8
6.5
1.6
2.8
4.3
2.1
1.7
2016
3.5%
5.4
2.1
1.6
2015
3.3%
5.1
2.2
1.8
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, 2017 and 2016, was 80 percent and 65 percent, respectively, in funds that invest in equity securities, and
20 percent and 35 percent, respectively, in funds that invest in debt securities. The target asset allocation for the U.K. Plan
and the International Plans was 75 percent and 65 percent in funds that invest in equity and debt securities and 25 percent
and 35 percent in bond funds as of December 31, 2017 and 2016, respectively.
2017 ANNUAL REPORT | 81
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.
December 31, 2017
(in millions)
Domestic Plan
U.K. Plan
International Plans
Level 1
Level 2
Level 1
Level 2
Level 1
Level 2
Cash and cash equivalents
$ —
$ —
$ —
$ —
$ 11
$ —
Equity funds
Debt securities
Bond funds
Common collective trusts
Other
Total
December 31, 2016
(in millions)
—
—
—
—
—
—
—
—
306
—
—
—
—
—
—
—
—
—
386
—
—
—
—
—
—
6
—
5
43
—
$ —
$ 306
$ —
$ 386
$ 11
$ 54
Domestic Plan
U.K. Plan
International Plans
Level 1
Level 2
Level 1
Level 2
Level 1
Level 2
Cash and cash equivalents
$ —
$ —
$ —
$ —
$ 10
$ —
Equity funds
Debt securities
Bond funds
Common collective trusts
Other
Total
We expect to contribute approximately $19 million,
$9 million and $4 million to the Domestic Plan, the U.K.
Plan and the International Plans, respectively, in 2018.
As of December 31, 2017, the benefits expected to be paid
in the next five years and in the aggregate for the five years
thereafter were as follows:
Year
(in millions)
2018
2019
2020
2021
2022
2023-2027
Domestic
Plan
U.K.
Plan
International
Plans
$ 33
$ 18
$ 10
26
26
26
26
121
18
19
19
19
102
5
5
5
5
26
$ 258
$ 195
$ 56
25
1
—
—
—
—
62
—
139
40
—
—
—
—
—
—
—
—
336
—
3
—
—
—
—
6
—
6
33
—
$ 26
$ 241
$ —
$ 336
$ 13
$ 45
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, 2017
and 2016, these plans had benefit obligations of $15 million
and $19 million, respectively, which were fully accrued in
other liabilities in our consolidated balance sheets. Expenses
incurred under the Supplemental Plans for the years ended
December 31, 2017 and 2016 were $1 million and $3 million,
respectively, and for the year ended December 31, 2015
were 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 $15 million, $17 million and $18 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
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, 2017 and 2016, the multi-
ple employer plan had combined plan assets of $331 million
and $289 million, respectively, and a projected benefit
obligation of $409 million and $405 million, respectively.
We also have plans covering qualifying employees and
non-officer directors (the “Supplemental Plans”). Benefits
NOTE 16:
SHARE-BASED COMPENSATION
We recognized share-based compensation expense of
$121 million, $81 million and $147 million during the years
ended December 31, 2017, 2016 and 2015, respectively,
which included amounts reimbursed by hotel owners. The
total tax benefit recognized related to this share-based
compensation expense was $49 million, $31 million and
$31 million for the years ended December 31, 2017, 2016
82 | HILTON
and 2015, respectively. Share-based compensation expense
for the year ended December 31, 2015 included compensa-
tion expense that was recognized when certain remaining
awards granted in connection with our initial public offering
vested during 2015. As of December 31, 2017 and 2016, we
accrued $15 million in accounts payable, accrued expenses
and other in our consolidated balance sheets for certain
awards settled in cash.
As of December 31, 2017, unrecognized compensation
costs for unvested awards was approximately $116 million,
which is expected to be recognized over a weighted-average
period of 1.8 years on a straight-line basis. As of December 31,
2017, there were 17,968,736 shares of common stock avail-
able for future issuance under our 2017 Omnibus Incentive
Plan, plus any shares subject to awards outstanding under
our 2013 Omnibus Incentive Plan, which will become available
for issuance under our 2017 Omnibus Incentive Plan as a
result of such outstanding awards expiring or terminating
or being canceled or forfeited.
The following table summarizes the activity of our RSUs
during the year ended December 31, 2017:
Weighted
Average
Grant Date
Fair Value
per Share
Number
of Shares
1,624,541
$ 65.24
671,604
439,113
1,467,396
(1,199,987)
(161,736)
72.42
57.60
58.80
51.65
50.33
2,840,931
51.44
Outstanding as
of December 31, 2016
Conversion from performance
shares upon completion
of the spin-offs(1)
Effect of the spin-offs(2)
Granted
Vested(2)
Forfeited(2)
Outstanding as
of December 31, 2017
All share and share-related information presented for
periods prior to January 3, 2017 have been adjusted to
reflect the Reverse Stock Split. See Note 1: “Organization”
for additional information.
(1) Represents all performance shares outstanding as of
December 31, 2016.
(2) The weighted average grant date fair value was adjusted
to reflect the Conversion Factor.
Effect of the Spin-offs on Equity Awards
In connection with the spin-offs, the outstanding
share-based compensation awards held by employees
transferring to Park and HGV were converted to equity
awards in Park and HGV common stock, respectively.
Share-based compensation awards of employees remaining
at Hilton were adjusted using a conversion factor in accor-
dance with the anti-dilution provisions of the 2013 Omnibus
Incentive Plan with the intent to preserve the intrinsic
value of the original awards (the “Conversion Factor”). The
adjustments were determined by comparing the fair value
of such awards immediately prior to the spin-offs to the
fair value of such awards immediately after the spin-offs.
The comparison resulted in no incremental share-based
compensation expense. Equity awards that were adjusted
generally remain subject to the same vesting, expiration
and other terms and conditions as applied to the awards
immediately prior to the spin-offs.
RSUs
The following table provides information about our RSU
grants for the last three fiscal years:
Year Ended December 31,
2017
2016
2015
Number of
shares granted
1,467,396 1,169,238 679,546
Weighted average grant
date fair value per share
Fair value of shares
vested (in millions)
$ 58.80
$ 59.73
$ 82.38
Options
The following table provides information about our option
grants for the last three fiscal years:
Year Ended December 31,
2017
2016
2015
Number of options granted 748,965 503,150 309,528
Weighted average exercise
price per share
Weighted average grant
date fair value per share
$ 58.40
$ 58.83
$ 82.38
$ 13.96
$ 16.41
$ 25.17
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:
Year Ended December 31,
2017
2016
2015
Expected volatility(1)
24.00 % 32.00 % 28.00 %
Dividend yield(2)
Risk-free rate(3)
0.92%–1.03 %
1.43 % — %
1.93%–2.03 %
1.36 % 1.67 %
Expected term (in years)(4)
6.0
6.0
6.0
(1) Estimated using historical movement of Hilton’s stock price
and, due to limited trading history, historical volatility of our
peer group over a time period consistent with our expected
term assumption.
(2) Estimated based on the expected annualized dividend payment
at the grant date. For the 2015 options granted, 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
$
78
$
40
$ 90
with similar expected lives.
(4) Estimated using the average of the vesting periods and the
contractual term of the options.
2017 ANNUAL REPORT | 83
The following table summarizes the activity of our options
during the year ended December 31, 2017:
Weighted
Average
Exersice
Price
per Share
Number
of Shares
1,076,031
$ 66.83
251,145
748,965
(61,888)
(20,799)
57.60
58.40
46.75
53.47
1,993,454
51.24
741,798
48.32
Outstanding as
of December 31, 2016
Effect of the spin-offs(1)
Granted
Exercised(1)
Forfeited or expired(1)
Outstanding as
of December 31, 2017(2)
Exercisable as
of December 31, 2017(1)(2)
(1) The weighted average exercise price was adjusted to reflect
the Conversion Factor.
(2) The aggregate intrinsic value of options outstanding and options
exercisable was $57 million and $23 million, respectively, as of
December 31, 2017.
The weighted average remaining contractual term for
options outstanding as of December 31, 2017 was 8.6 years.
Performance Shares
As of December 31, 2016, we had outstanding performance
awards based on a measure of the Company’s total share-
holder return relative to the total shareholder returns of
members of a peer company group (“relative shareholder
return”) and based on the Company’s EBITDA CAGR. In
November 2016, we modified our performance shares, such
that upon completion of the spin-offs, we converted all
671,604 outstanding performance shares to RSUs based
on a 100 percent achievement percentage with the same
vesting periods as the original awards. We recognized
$3.3 million and $0.3 million of incremental expense related
to the modification of these awards during the years
ended December 31, 2017 and 2016, respectively, and we
will recognize additional expense of $2.3 million from the
modification in 2018.
During the year ended December 31, 2017, we issued
performance shares with 50 percent of the shares subject
to achievement based on the Company’s EBITDA CAGR
and the other 50 percent of the shares subject to achieve-
ment based on the Company’s FCF CAGR. The performance
shares are settled at the end of the three-year performance
period. We determined that the performance condition
for these awards is probable of achievement and, as of
December 31, 2017, we recognized compensation expense
based on the anticipated achievement percentage of
200 percent and 175 percent for the performance awards
based on EBITDA CAGR and FCF CAGR, respectively. As of
December 31, 2017, there were no outstanding performance
shares based on relative shareholder return.
The following table provides information about our performance share grants for the last three fiscal years:
Year Ended December 31,
EBITDA CAGR:
Number of shares granted
Weighted average grant date fair value per share
Fair value of shares vested (in millions)
FCF CAGR:
Number of shares granted
Weighted average grant date fair value per share
Fair value of shares vested (in millions)
Relative Shareholder Return:
Number of shares granted
Weighted average grant date fair value per share
Fair value of shares vested (in millions)
2017
2016
2015
179,006
300,784
204,523
$ 58.40
$ —
$ 58.83
$
12
$ 82.38
$ —
178,975
$ 58.40
$ —
N/A
N/A
N/A
N/A
N/A
N/A
N/A
300,784
204,523
N/A
N/A
$ 62.43
$
16
$ 98.94
$ —
The following table summarizes the activity of our performance shares during the year ended December 31, 2017:
Outstanding as of December 31, 2016
Conversion to RSUs upon completion of the spin-offs
Granted
Forfeited or canceled
Outstanding as of December 31, 2017
84 | HILTON
EBITDA CAGR
FCF CAGR
Number
of Shares
335,802
(335,802)
179,006
(2,915)
176,091
Weighted Average
Grant Date Fair
Value per Share
Number
of Shares
Weighted Average
Grant Date Fair
Value per Share
$ 68.09
68.09
58.40
58.02
58.41
—
—
178,975
(2,914)
176,061
N/A
N/A
$ 58.40
58.02
58.41
DSUs
During the years ended December 31, 2017, 2016 and 2015, we issued to our independent directors 16,638, 11,393 and
6,179 DSUs, respectively, with weighted average grant date fair values of $66.09, $66.12 and $84.96, respectively.
NOTE 17: EARNINGS (LOSS) PER SHARE
The following table presents the calculation of basic and diluted earnings (loss) per share (“EPS”). All share and per share
amounts for the years ended December 31, 2016 and 2015 have been adjusted to reflect the Reverse Stock Split. See Note 1:
“Organization” for additional information.
Year Ended December 31,
(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income (loss) from continuing operations attributable
to Hilton stockholders
Denominator:
Weighted average shares outstanding
Basic EPS
Diluted EPS:
Numerator:
Net income (loss) from continuing operations attributable
to Hilton stockholders
Denominator:
Weighted average shares outstanding
Diluted EPS
2017
2016
2015
$ 1,259
$
(18)
$ 876
324
$ 3.88
329
$ (0.05)
329
$ 2.67
$ 1,259
$
(18)
$ 876
327
329
$ 3.85
$ (0.05)
330
$ 2.66
Approximately 1 million, 2 million and less than 1 million share-based compensation awards were excluded from the weighted
average shares outstanding in the computation of diluted EPS for the years ended December 31, 2017, 2016 and 2015,
respectively, because their effect would have been anti-dilutive under the treasury stock method.
NOTE 18: ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency
Translation
Pension
Liability
Adjustment(1) Adjustment Adjustment
Cash Flow
Hedge
Total
(in millions)
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
Balance as of December 31, 2016
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Spin-offs of Park and HGV
Balance as of December 31, 2017
$ (446)
(150)
16
(134)
(580)
(157)
(1)
(158)
(738)
160
1
161
63
$ (179)
(21)
6
(15)
(194)
(63)
6
(57)
(251)
15
7
22
—
$ (3)
$
(628)
(7)
—
(7)
(10)
(5)
3
(2)
(12)
7
6
13
—
(178)
22
(156)
(784)
(225)
8
(217)
(1,001)
182
14
196
63
$ (514)
$ (229)
$ 1
$
(742)
(1)
Includes net investment hedges and intra-entity foreign currency transactions that are of a long-term investment nature.
2017 ANNUAL REPORT | 85
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):
Year Ended December 31,
(in millions)
Currency translation adjustment:
2017
2016
2015
Sale or liquidation of investment in foreign entity(1)
$ (2)
$ —
$ (25)
Gains on net investment hedges(2)
Tax benefit(3)(4)
Total currency translation adjustment reclassifications for the period, net of taxes
Pension liability adjustment:
Amortization of prior service cost(5)
Amortization of net loss(5)
Tax benefit(3)
Total pension liability adjustment reclassifications for the period, net of taxes
Cash flow hedge adjustment:
Dedesignation of interest rate swaps(6)
Tax benefit(3)
Total cash flow hedge adjustment reclassifications for the period, net of taxes
1
—
(1)
(3)
(7)
3
(7)
(10)
4
(6)
1
—
1
(4)
(5)
3
(6)
(4)
1
(3)
—
9
(16)
(4)
(5)
3
(6)
—
—
—
Total reclassifications for the period, net of taxes
$ (14)
$ (8)
$ (22)
(1) Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions and gain on sales of assets,
net in our consolidated statements of operations for the years ended December 31, 2017 and 2015, respectively.
(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 benefit (expense) in our consolidated statements of operations.
(4) The tax benefit was less than $1 million for the years ended December 31, 2017 and 2016.
(5) Reclassified out of accumulated other comprehensive loss to general and administrative expenses in our consolidated statements
of operations. These amounts were included in the computation of net periodic pension cost. See Note 15: “Employee Benefit Plans”
for additional information.
(6) Reclassified out of accumulated other comprehensive loss to interest expense in our consolidated statements of operations.
Refer to Note 11: “Derivative Instruments and Hedging Activities” for additional information.
NOTE 19:
BUSINESS SEGMENTS
We are a hospitality company with operations organized
in two distinct operating segments: (i) management and
franchise; and (ii) ownership. These segments are man-
aged and reported separately because of their distinct
economic characteristics.
The management and franchise segment includes all of
the hotels we manage for third-party owners, as well as all
franchised hotels operated or managed by someone other
than us. As of December 31, 2017, this segment included
656 managed hotels and 4,507 franchised hotels consist-
ing of 825,808 total rooms, which includes 67 hotels with
35,406 rooms that were previously owned or leased by
Hilton or unconsolidated affiliates of Hilton and, upon
completion of the spin-offs, were owned or leased by
Park or unconsolidated affiliates of Park. This segment
also earns fees for managing properties in our ownership
segment and, effective upon completion of the spin-offs,
a license fee from HGV.
As of December 31, 2017, the ownership segment included
73 properties totaling 22,206 rooms, comprising 64 hotels
that we wholly owned or leased, one hotel owned by a
consolidated non-wholly owned entity, two hotels leased
by consolidated VIEs and six hotels owned or leased by
unconsolidated affiliates.
The performance of our operating segments is evaluated
primarily on operating income, without allocating corpo-
rate and other revenues and other expenses or general
and administrative expenses.
86 | HILTON
The following table presents revenues for our reportable
segments, reconciled to consolidated amounts:
Year Ended December 31,
2017
2016
2015
(in millions)
Management and franchise(1)
$ 1,983
$ 1,580
$ 1,496
Ownership
Segment revenues
Other revenues
1,450
3,433
105
1,452
3,032
82
1,596
3,092
71
Other revenues from managed
and franchised properties
5,645
4,310
4,011
Intersegment fees
elimination(1)
(43)
(42)
(41)
Total revenues
$ 9,140
$ 7,382
$ 7,133
(1)
Includes management, royalty and intellectual property fees
charged to our ownership segment, which were eliminated in
our consolidated statements of operations.
The following table presents operating income for our
reportable segments, reconciled to consolidated income
from continuing operations before income taxes:
The following table presents total assets for our reportable
segments, reconciled to consolidated assets of continuing
operations:
December 31,
(in millions)
2017
2016
Management and franchise
$ 11,454 $ 10,825
Ownership
Corporate and other
964
1,032
1,890
2,529
$ 14,308 $ 14,386
The following table presents capital expenditures for
property and equipment for our reportable segments,
reconciled to consolidated capital expenditures of
continuing operations:
Year Ended December 31,
2017
2016
2015
(in millions)
Ownership
Corporate and other
$ 32
26
$ 58
$ 45
17
$ 62
$ 52
15
$ 67
Year Ended December 31,
2017
2016
2015
Total revenues by country were as follows:
(in millions)
Year Ended December 31,
2017
2016
2015
Management and franchise(1)
$ 1,983
$ 1,580
$ 1,496
Ownership(1)
121
115
141
Segment operating
(in millions)
U.S.
income
2,104
1,695
1,637
United Kingdom
Other revenues, less
other expenses
49
16
22
All other
$ 7,033
$ 5,315
$ 4,935
547
1,560
955
1,112
1,017
1,181
$ 9,140
$ 7,382
$ 7,133
Depreciation and amortization
(347)
(364)
(385)
General and administrative
(434)
(403)
(537)
Gain on sales of assets, net
Operating income
Interest expense
Gain (loss) on foreign
currency transactions
—
1,372
8
952
163
900
(408)
(394)
(377)
3
(16)
(41)
Loss on debt extinguishment
(60)
—
—
Other non-operating
income, net
Income from continuing
operations before
23
14
51
income taxes
$ 930
$ 556
$ 533
(1)
Includes management, royalty and intellectual property fees
charged to our ownership segment by our management and
franchise segment, which were eliminated in our consolidated
financial statements.
Other than the countries included above, there were no
countries that individually represented more than 10 per-
cent of total revenues for the years ended December 31,
2017, 2016 and 2015.
Property and equipment, net by country was as follows:
December 31,
(in millions)
U.S.
Japan
United Kingdom
Germany
All other
2017
2016
$ 105
$ 92
94
82
36
36
87
79
35
48
$ 353
$ 341
Other than the countries included above, there were no
countries that individually represented more than 10 percent
of total property and equipment, net as of December 31,
2017 and 2016.
2017 ANNUAL REPORT | 87
NOTE 20:
COMMITMENTS AND
CONTINGENCIES
We provide performance guarantees to certain owners
of hotels that we operate under management contracts.
Most of these guarantees allow us to terminate the con-
tract, rather than fund shortfalls, if specified operating
performance levels are not achieved. However, in limited
cases, we are obligated to fund performance shortfalls.
As of December 31, 2017, we had six contracts containing
performance guarantees, with expirations ranging from
2019 to 2030, and possible cash outlays totaling approxi-
mately $79 million. Our obligations under these guarantees
in future periods are dependent on the operating perfor-
mance 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, 2017 and 2016, we recorded $12 million
and $11 million, respectively, in accounts payable, accrued
expenses and other and $9 million and $17 million, respec-
tively, in other liabilities in our consolidated balance sheets
for two outstanding performance guarantees that are
related to VIEs for which we are not the primary beneficiary.
We are involved in 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 pending or threatened claims and
litigation as of December 31, 2017 will not have a material
effect on our consolidated financial position, results of
operations or cash flows.
NOTE 21:
RELATED PARTY TRANSACTIONS
Equity Investments
We hold equity investments in entities that own or lease
properties that we manage. The following tables summa-
rize amounts included in our consolidated financial
statements related to these management contracts:
December 31,
(in millions)
Balance Sheets
Assets:
2017
2016
Accounts receivable, net
$ 2
$ 4
Management and
franchise contracts, net
20
20
Liabilities:
Accounts payable, accrued
expenses and other
1
1
Year Ended December 31,
2017
2016
2015
(in millions)
Statements of Operations
Revenues:
Franchise fees
Base and other
$ 1
$ 1
$ 1
management fees
Incentive management fees
6
3
8
4
6
2
Other revenues
from managed and
franchised properties
Expenses:
Other expenses
from managed and
franchised properties
Statements of Cash Flows
Investing Activities:
22
21
31
22
21
31
Contract acquisition costs
—
—
4
88 | HILTON
NOTE 22:
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Interest paid during the years ended December 31, 2017,
2016 and 2015, was $314 million, $478 million and $485 mil-
lion, respectively.
Income taxes, net of refunds, paid during the years ended
December 31, 2017, 2016 and 2015 were $526 million,
$677 million and $475 million, respectively.
The following non-cash investing and financing activities
were excluded from the consolidated statements of
cash flows:
• In 2017, we had non-cash financing activities of
$25 million in connection with the spin-offs.
• In 2016, we transferred $116 million of Park’s property
and equipment to HGV’s timeshare inventory for
conversion into timeshare units.
• In 2015, we assumed a $450 million loan as a result
of an acquisition for Park.
• 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.
Blackstone
Blackstone directly and indirectly owns or controls hotels
that we manage or franchise and for which we receive fees
in connection with the related management and franchise
contracts. Our maximum exposure to loss related to these
hotels is limited to the amounts discussed below; there-
fore, our involvement with these hotels does not expose us
to additional variability or risk of loss. Due to continued
sales of the Company’s common stock, Blackstone was no
longer considered a related party of the Company as of
October 1, 2017. As such, only financial information related
to Blackstone as of December 31, 2016 and for the nine
months ended September 30, 2017 and the years ended
December 31, 2016 and 2015 is included in the following
tables, which summarize amounts included in our consoli-
dated financial statements related to their management
and franchise contracts:
December 31,
(in millions)
Balance Sheets
Assets:
Accounts receivable, net
Management and
`
franchise contracts, net
Liabilities:
Accounts payable, accrued
expenses and other
2016
$ 18
13
8
Year Ended December 31,
2017(1)
2016
2015
(in millions)
Statements of Operations
Revenues:
Franchise fees
Base and other
$ 19
$ 29
$ 34
management fees
Incentive management fees
5
1
10
3
11
3
Other revenues
from managed and
franchised properties
Expenses:
Other expenses
from managed and
franchised properties
Statements of Cash Flows
Investing Activities:
113
144
160
113
144
160
Contract acquisition costs
11
—
—
(1)
Includes amounts only for the nine months ended September 30,
2017, the period in 2017 during which Blackstone was a related
party of the Company.
2017 ANNUAL REPORT | 89
NOTE 23:
CONDENSED CONSOLIDATING
GUARANTOR FINANCIAL
INFORMATION
In October 2013, Hilton Worldwide Finance LLC and Hilton
Worldwide Finance Corp. (the “HWF Issuers”), entities that
are 100 percent owned by Hilton Worldwide Parent LLC
(“HWP”), which is 100 percent owned by the Parent, issued
the 2021 Senior Notes. In September 2016, Hilton Domestic
Operating Company Inc. (“HOC”), an entity incorporated in
July 2016 that is 100 percent owned by Hilton Worldwide
Finance LLC and is a guarantor of the 2021 Senior Notes,
2025 Senior Notes and 2027 Senior Notes, assumed the
2024 Senior Notes that were issued in August 2016 by escrow
issuers. In March 2017, the HWF Issuers, which are guaran-
tors of the 2024 Senior Notes, issued the 2025 Senior Notes
and 2027 Senior Notes, and used the net proceeds and
available cash to repay in full the 2021 Senior Notes. The
2024 Senior Notes, 2025 Senior Notes and 2027 Senior
Notes are collectively referred to as the Senior Notes. The
HWF Issuers and HOC are collectively referred to as the
Subsidiary Issuers.
The Senior Notes are guaranteed jointly and severally on
a senior unsecured basis by HWP, the Parent and certain
of the Parent’s 100 percent owned domestic restricted
subsidiaries that are themselves not issuers of the applica-
ble series of Senior Notes (together, the “Guarantors’’). The
indentures that govern the Senior Notes provide that any
subsidiary of the Company that provides a guarantee of
our senior secured credit facility will guarantee the Senior
Notes. As of December 31, 2017, none of our foreign
subsidiaries or U.S. subsidiaries owned by foreign subsid-
iaries or conducting foreign operations or our non-wholly
owned subsidiaries guarantee the Senior Notes (collectively,
the “Non-Guarantors”).
In September 2016, certain employees, assets and liabilities
of a guarantor subsidiary were transferred into HOC. This
transfer was considered to be a transfer of assets rather
than a transfer of a business. Accordingly, we have separately
presented HOC as a subsidiary issuer in our condensed
consolidating financial information prospectively from
the date of the transfer. Due to the timing of the transfer,
our condensed consolidating statements of operations
include the results of operations of HOC beginning
October 1, 2016.
In connection with the spin-offs, certain entities that were
previously guarantors of the 2021 Senior Notes and 2024
Senior Notes were released and no longer guaranteed
these senior notes. The condensed consolidating financial
information presents the financial information based on
the composition of the Guarantors and Non-Guarantors
as of December 31, 2017.
The guarantees are full and unconditional, subject to
certain customary release provisions. The indentures that
govern the Senior Notes provide that any Guarantor may
be released from its guarantee so long as: (i) the subsidiary
is sold or sells all of its assets; (ii) the subsidiary is released
from its guaranty under our senior secured credit facility;
(iii) the subsidiary is declared “unrestricted” for covenant
purposes; (iv) the subsidiary is merged with or into the
applicable Subsidiary Issuers or another Guarantor or the
Guarantor liquidates after transferring all of its assets to
the applicable Subsidiary Issuers or another Guarantor;
or (v) the requirements for legal defeasance or covenant
defeasance or to discharge the indenture have been satis-
fied, in each case in compliance with applicable provisions
of the indentures.
90 | HILTON
The following tables present the condensed consolidating financial information as of December 31, 2017 and 2016 and for
the years ended December 31, 2017, 2016 and 2015, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors.
December 31, 2017
(in millions)
ASSETS
Current Assets:
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
Cash and cash equivalents
$ —
$ —
$
2
$
Restricted cash and cash equivalents
Accounts receivable, net
Intercompany receivables
Prepaid expenses
Income taxes receivable
Other
Total current assets
Intangibles and Other Assets:
Investments in subsidiaries
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Property and equipment, net
Deferred income tax assets
Other
Total intangibles and other assets
—
—
—
—
—
—
—
2,081
—
—
—
—
—
6
—
2,087
—
—
—
—
—
—
—
7,451
—
—
—
—
—
—
20
18
10
$ 550 $
29
702
275
61
21
—
—
—
$
570
100
998
(40)
—
(3)
(24)
—
111
36
171
(67)
1,986
40
84
—
155
1,133
—
(20,326)
—
1,366
485
273
149
266
124
200
—
—
—
—
—
(122)
—
5,190
4,890
909
433
353
113
434
—
—
6
—
1
91
8,713
—
—
2
1
20
24
60
15
829
2,081
3,824
4,405
634
283
67
105
—
31
183
7,471
8,872
11,477
2,863
(20,448)
12,322
TOTAL ASSETS
$ 2,087
$ 7,471
$ 8,963
$ 12,306
$ 3,996 $ (20,515)
$ 14,308
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued
expenses and other
Intercompany payables
Current maturities of long-term debt
Income taxes payable
Total current liabilities
Long-term debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Total liabilities
Equity:
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
$
15
$
20
$ 256
$ 1,229
$ 633 $
(3)
$ 2,150
—
—
—
15
—
—
—
—
—
15
2,072
—
2,072
—
32
—
52
5,333
—
5
—
—
5,390
2,081
—
2,081
40
—
—
(40)
—
—
—
296
983
—
—
—
233
1,512
7,451
—
7,451
—
—
1,229
—
97
1,180
839
581
3,926
8,380
—
8,380
14
36
683
240
—
—
—
656
1,579
—
(24)
(67)
—
—
46
12
2,208
6,556
97
(122)
1,063
—
—
839
1,470
(189)
12,233
2,414
(20,326)
2,072
3
—
3
2,417
(20,326)
2,075
TOTAL LIABILITIES AND EQUITY
$ 2,087
$ 7,471
$ 8,963
$ 12,306
$ 3,996 $ (20,515)
$ 14,308
2017 ANNUAL REPORT | 91
December 31, 2016
(in millions)
ASSETS
Current Assets:
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
Cash and cash equivalents
$ —
$ —
$
3
$
Restricted cash and cash equivalents
Accounts receivable, net
Intercompany receivables
Prepaid expenses
Income taxes receivable
Other
Current assets of discontinued operations
Total current assets
Intangibles and Other Assets:
Investments in subsidiaries
Goodwill
Brands
Management and franchise contracts, net
Other intangible assets, net
Property and equipment, net
Deferred income tax assets
Other
Non-current assets of
discontinued operations
Total intangibles and other assets
—
—
—
—
—
—
—
—
5,889
—
—
—
—
—
10
—
—
5,899
—
—
87
7
22
9
$ 1,037 $
25
484
264
—
—
—
—
6
—
—
—
1
21
30
5
—
—
—
—
104
571
42
65
—
33
1,502
2,968
—
—
—
$ 1,062
121
755
(42)
—
(3)
(17)
—
(24)
(86)
89
13
39
1,478
3,557
11,300
12,583
5,889
—
(35,661)
—
—
—
3,824
—
—
4,404
—
—
—
—
2
12
1
12
167
30
716
296
62
—
1,394
444
247
150
267
82
213
153
—
—
—
—
—
(179)
—
5,218
4,848
963
447
341
82
408
—
—
12
10,345
(10)
10,347
11,314
12,793
15,416
13,082
(35,850)
22,654
TOTAL ASSETS
$ 5,899
$ 11,314
$ 12,897
$ 15,987
$ 16,050 $ (35,936)
$ 26,211
Current liabilities of discontinued operations
—
—
—
77
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued
expenses and other
Intercompany payables
Current maturities of long-term debt
Income taxes payable
Total current liabilities
Long-term debt
Deferred revenues
Deferred income tax liabilities
Liability for guest loyalty program
Other
Non-current liabilities
of discontinued operations
Total liabilities
Equity:
Total Hilton stockholders’ equity
Noncontrolling interests
Total equity
—
—
—
—
—
—
—
—
5,899
—
5,899
$ —
$
26
$
293
$ 1,091
$ 414 $
(3)
$ 1,821
—
42
—
—
(42)
—
—
—
—
26
—
—
—
—
—
7
73
721
1,215
241
—
—
(17)
(24)
(86)
—
—
33
56
774
2,684
6,583
42
52
5,361
335
981
1,168
—
—
—
42
—
—
1,919
38
(179)
1,778
—
—
12
277
889
490
—
4
—
5,425
1,597
4,508
—
713
6,900
9,107
—
—
889
1,492
(10)
6,894
(275)
20,362
5,889
11,300
11,479
6,993
(35,661)
5,899
—
—
—
(50)
—
(50)
5,889
11,300
11,479
6,943
(35,661)
5,849
TOTAL LIABILITIES AND EQUITY
$ 5,899
$ 11,314
$ 12,897
$ 15,987
$ 16,050 $ (35,936)
$ 26,211
92 | HILTON
Year Ended December 31, 2017
(in millions)
Revenues
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
Franchise fees
$ —
$ —
$ 143
$ 1,127
$ 129
$
(17)
$ 1,382
Base and other management fees
Incentive management fees
Owned and leased hotels
Other revenues
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Depreciation and amortization
General and administrative
Other expenses
Other expenses from managed
and franchised properties
Total expenses
Gain (loss) on sales of assets, net
Operating income (loss)
Interest expense
Gain (loss) on foreign currency transactions
Loss on debt extinguishment
Other non-operating income (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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(244)
—
(60)
(3)
1
—
—
31
175
154
329
—
5
327
17
349
154
503
—
(174)
(106)
10
—
4
—
(307)
(266)
(3)
122
48
(3)
(185)
(218)
1,262
1,259
1,447
1,262
1,665
1,447
336
222
1,450
105
3,495
5,645
9,140
1,286
347
434
56
2,123
5,645
7,768
—
1,372
(408)
3
(60)
201
76
—
70
1,474
4,893
6,367
—
247
—
29
276
4,893
5,169
134
146
1,450
11
1,870
—
—
—
(7)
(24)
598
2,468
—
(24)
1,286
—
95
—
113
27
1,521
(6)
(17)
(23)
598
2,119
—
(23)
(1)
1
—
1,197
—
124
—
7
1,328
69
1,397
1,262
2,659
350
(59)
(1)
1
(131)
—
—
—
15
—
23
175
—
98
—
273
—
273
—
(5,636)
(5,636)
930
334
1,264
—
1,264
—
—
—
—
(5)
—
(5)
Net income attributable to Hilton stockholders
$ 1,259
$ 1,262
$ 1,447
$ 2,659
$ 268
$ (5,636)
$ 1,259
Comprehensive income
$ 1,455
$ 1,276
$ 1,463
$ 2,662
$ 436
$ (5,832)
$ 1,460
Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable
to Hilton stockholders
—
—
—
—
(5)
—
(5)
$ 1,455
$ 1,276
$ 1,463
$ 2,662
$ 431
$ (5,832)
$ 1,455
2017 ANNUAL REPORT | 93
Year Ended December 31, 2016
(in millions)
Revenues
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
Franchise fees
$ —
$ —
$ 21
$ 1,031
$ 112
$
(10)
$ 1,154
Base and other management fees
Incentive management fees
Owned and leased hotels
Other revenues
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Depreciation and amortization
General and administrative
Other expenses
Other expenses from managed
and franchised properties
Total expenses
Gain on sales of assets, net
Operating income (loss)
Interest expense
Gain (loss) on foreign currency transactions
Other non-operating income, net
Income (loss) from continuing operations
before income taxes and equity in losses
from subsidiaries
Income tax benefit (expense)
Income (loss) from continuing operations
before equity in losses from subsidiaries
Equity in losses from subsidiaries
Income (loss) from continuing operations,
net of taxes
Income from discontinued operations,
net of taxes
Net income
Net income attributable
to noncontrolling interests
Net income attributable to Hilton stockholders
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
193
193
(211)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(261)
—
1
(260)
100
(160)
(51)
—
—
—
10
31
32
63
—
1
90
1
92
32
124
—
(61)
(30)
11
1
(79)
32
126
16
—
61
116
126
1,452
—
—
—
11
—
242
142
1,452
82
1,234
1,817
(10)
3,072
3,777
5,011
501
2,318
—
(10)
4,310
7,382
—
272
204
31
1,295
—
91
—
109
—
507
1,539
44
(10)
(10)
3,777
4,284
—
727
501
2,040
—
(10)
8
—
286
—
(51)
(52)
—
(150)
123
—
8
4
—
1,295
364
403
66
2,128
4,310
6,438
8
952
(394)
(16)
14
534
361
—
(319)
(570)
—
556
(564)
(47)
215
(209)
—
(8)
(4)
(211)
—
477
—
(18)
(211)
(51)
4
(209)
477
(8)
366
348
366
155
366
315
428
432
374
165
(1,528)
(1,051)
372
364
—
$ 348
—
$ 155
—
—
(16)
—
(16)
$ 315
$ 432
$ 149
$ (1,051)
$ 348
Comprehensive income
$ 131
$ 153
$ 320
$ 361
$
15
$
(834)
$ 146
Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable
to Hilton stockholders
—
—
—
—
(15)
—
(15)
$ 131
$ 153
$ 320
$ 361
$ —
$
(834)
$ 131
94 | HILTON
Year Ended December 31, 2015
Parent
Issuers Guarantors Guarantors Eliminations Total
HWF
Non-
(in millions)
Revenues
Franchise fees
$ —
$ —
$ 998
$ 101
$
(12)
$ 1,087
Base and other management fees
Incentive management fees
Owned and leased hotels
Other revenues
Other revenues from managed
and franchised properties
Total revenues
Expenses
Owned and leased hotels
Depreciation and amortization
General and administrative
Other expenses
Other expenses from managed
and franchised properties
Total expenses
Gain on sales of assets, net
Operating income
Interest expense
Gain (loss) on foreign currency transactions
Other non-operating income, net
Income (loss) from continuing operations
before income taxes and equity in
earnings from subsidiaries
Income tax benefit (expense)
Income (loss) from continuing operations
before equity in earnings from subsidiaries
Equity in earnings from subsidiaries
Income from continuing operations, net of taxes
Income from discontinued operations, net of taxes
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(281)
—
—
—
(7)
(281)
108
(7)
(173)
883
876
528
1,404
—
1,056
883
528
1,411
—
749
1,648
125
18
—
61
105
120
1,596
10
—
—
—
—
230
138
1,596
71
1,202
1,932
(12)
3,122
501
2,433
—
(12)
3,510
4,712
—
288
424
37
3,510
4,259
—
453
(50)
77
14
494
189
683
373
1,056
528
1,584
—
4,011
7,133
1,414
385
537
49
2,385
4,011
6,396
163
900
(377)
(41)
51
533
348
881
—
881
535
1,416
1,414
97
113
24
501
2,149
163
447
(46)
(118)
37
320
58
378
—
378
460
838
—
—
—
(12)
(12)
—
(12)
—
—
—
—
—
—
—
—
(2,312)
(2,312)
(1,509)
(3,821)
(12)
—
(12)
$ 1,404
$ 1,248
$ 1,411
$ 1,404
$ 1,584
$ 826
$ (3,821)
$ 1,404
$ 1,546
$ 727
$ (3,665)
$ 1,260
—
—
—
(12)
—
(12)
$ 1,248
$ 1,404
$ 1,546
$ 715
$ (3,665)
$ 1,248
2017 ANNUAL REPORT | 95
Year Ended December 31, 2017
(in millions)
Operating Activities:
Net cash provided by (used in)
operating activities
Investing Activities:
Capital expenditures for property
and equipment
Contract acquisition costs
Capitalized software costs
Other
Net cash used in investing activities
Financing Activities:
Borrowings
Repayment of debt
Debt issuance costs and
redemption premium
Repayment of intercompany borrowings
Intercompany transfers
Dividends paid
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
$ —
$
(113)
$ (103)
$ 988
$ 322
$ (170)
$ 924
—
—
—
(13)
(13)
(12)
—
—
—
(12)
(38)
(75)
(1)
(12)
(126)
—
—
—
—
—
—
—
—
—
1,086
1,822
(1,852)
—
—
(69)
—
—
225
(195)
—
(34)
(37)
—
3
(68)
2
(8)
—
—
(568)
—
(170)
(501)
—
(1)
—
—
—
—
(865)
—
—
—
—
—
—
—
(865)
(1,246)
—
—
—
(3)
(3)
—
—
—
3
—
—
170
—
—
—
—
173
(58)
(75)
(75)
(14)
(222)
1,824
(1,860)
(69)
—
—
(195)
—
(501)
(891)
(1)
(31)
(1,724)
(3)
122
—
—
—
—
—
(31)
88
Intercompany dividends
—
Cash transferred in spin-offs of Park and HGV —
—
—
Repurchases of common stock
(891)
—
Distributions to noncontrolling interests
—
—
Tax withholdings on
share-based compensation
Net cash provided by (used in) financing activities
—
—
—
126
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
from continuing operations, beginning
—
—
—
—
8
—
8
—
—
(27)
(3)
(984)
—
(1,014)
of period
—
—
90
31
1,062
—
1,183
Cash, restricted cash and cash equivalents
from discontinued operations, beginning
of period
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash equivalents,
end of period
—
—
—
—
501
—
501
—
—
90
31
1,563
—
1,684
$ —
$ —
$ 63
$ 28
$ 579
$ —
$ 670
96 | HILTON
Year Ended December 31, 2016
(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
Debt issuance costs
Intercompany borrowings
Repayment of intercompany borrowings
Intercompany transfers
Dividends paid
Intercompany dividends
Distributions to noncontrolling interests
Tax withholdings on
share-based compensation
Net cash provided by (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
from continuing operations, beginning
Parent
HWF
Issuers
Non-
HOC Guarantors Guarantors Eliminations Total
$ —
$ (37)
$ —
$ 912
$ 1,095
$ (605)
$ 1,365
—
—
—
—
—
—
—
—
—
—
—
—
—
277
(277)
—
—
—
—
—
—
—
—
—
—
(6)
(6)
—
(266)
(17)
—
—
326
—
—
—
—
43
—
—
—
—
—
—
—
—
1,000
—
(20)
—
—
(890)
—
—
—
—
90
(308)
(42)
—
234
(317)
—
—
(192)
—
11
(9)
(8)
5
(351)
3,715
(4,093)
(39)
—
—
—
—
42
—
—
—
11
(55)
(81)
(36)
(478)
4,715
(4,359)
(76)
192
(234)
—
(9)
(192)
192
—
(46)
(73)
(35)
(163)
—
—
—
42
—
(192)
(854)
1,141
—
—
—
—
(605)
(32)
(15)
(827)
—
87
192
—
—
605
—
—
563
—
—
(277)
—
(32)
(15)
(44)
(15)
—
—
—
—
(15)
—
—
—
90
(78)
816
—
828
of period
—
—
—
109
524
—
633
Cash, restricted cash and cash equivalents
from discontinued operations, beginning
of period
—
—
—
—
223
—
223
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash
equivalents from continuing
operations, end of period
Cash, restricted cash and cash
equivalents from discontinued
operations, end of period
Cash, restricted cash and cash equivalents,
end of period
—
—
—
109
747
—
856
—
—
90
31
1,062
—
1,183
—
—
—
—
501
—
501
$ —
$ —
$
90
$ 31
$ 1,563
$ —
$ 1,684
2017 ANNUAL REPORT | 97
Year Ended December 31, 2015
Parent
Issuers Guarantors Guarantors Eliminations Total
HWF
Non-
(in millions)
Operating Activities:
Net cash provided by operating activities
$ —
$ 184
$ 975
$ 723
$ (436)
$ 1,446
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
Intercompany transfers
Dividends paid
Intercompany dividends
Distributions to noncontrolling interests
Tax withholdings on 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
from continuing operations, beginning
—
—
—
—
—
—
—
—
—
138
(138)
—
—
—
—
—
—
—
—
—
—
—
—
(775)
591
—
—
—
—
(184)
(11)
—
—
(23)
(57)
13
(78)
—
—
(693)
—
(184)
—
(31)
(908)
(299)
(1,402)
2,205
(14)
(5)
7
492
48
(849)
(36)
—
(252)
(8)
—
(1,097)
—
—
—
—
—
—
—
—
—
—
—
436
—
—
436
—
—
—
(19)
—
—
—
(11)
99
—
(310)
(1,402)
2,205
(37)
(62)
20
414
48
(1,624)
—
(138)
—
(8)
(31)
(1,753)
(19)
88
of period
—
—
119
509
—
628
Cash, restricted cash and cash equivalents
from discontinued operations, beginning
of period
—
—
1
139
—
140
Cash, restricted cash and cash equivalents,
beginning of period
Cash, restricted cash and cash equivalents
—
—
120
648
—
768
from continuing operations, end of period
—
—
109
524
—
633
Cash, restricted cash and cash equivalents
from discontinued operations, end of period
—
—
—
223
—
223
Cash, restricted cash and cash equivalents,
end of period
$ —
$ —
$ 109
$ 747
$ —
$ 856
98 | HILTON
NOTE 24: SELECTED QUARTERLY FINANCIAL INFORMATION
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 fairly present our financial results. Operating results for previous periods do
not necessarily indicate results that may be achieved in any future period.
2017
(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)
2016
(in millions, except per share data)
Revenues
Operating income
Income (loss) from continuing operations, net of taxes
Income from discontinued operations, net of taxes
Net income (loss)
Net income (loss) attributable to Hilton stockholders
Basic earnings (loss) per share(1):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
$ 2,161
$ 2,346
$ 2,354
$ 2,279
$ 9,140
277
75
74
$ 0.22
$ 0.22
365
167
166
$ 0.51
$ 0.51
382
181
179
$ 0.56
$ 0.55
348
841
840
$ 2.63
$ 2.61
1,372
1,264
1,259
$ 3.88
$ 3.85
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
$ 1,726
$ 1,950
$ 1,867
$ 1,839
$ 7,382
170
191
119
310
309
273
100
144
244
239
265
89
103
192
187
244
(388)
6
(382)
(387)
952
(8)
372
364
348
Net income (loss) from continuing operations
$ 0.58
$ 0.29
$ 0.27
$ (1.20)
$ (0.05)
Net income from discontinued operations
0.36
0.44
0.30
0.02
1.11
Net income (loss)
Diluted earnings (loss) per share(1):
$ 0.94
$ 0.73
$ 0.57
$ (1.18)
$ 1.06
Net income (loss) from continuing operations
$ 0.58
$ 0.29
$ 0.27
$ (1.20)
$ (0.05)
Net income from discontinued operations
0.36
0.43
0.30
0.02
1.11
Net income (loss)
$ 0.94
$ 0.72
$ 0.57
$ (1.18)
$ 1.06
(1) The sum of the earnings (loss) 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.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
2017 ANNUAL REPORT | 99
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 effec-
tive 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.
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. Manage-
ment’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.
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 2018
Annual Meeting of Stockholders to be filed with the SEC
within 120 days of the fiscal year ended December 31, 2017.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to our definitive proxy statement for the 2018
Annual Meeting of Stockholders to be filed with the SEC
within 120 days of the fiscal year ended December 31, 2017.
ITEM 12.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Securities Authorized for Issuance Under
Equity Compensation Plans
The following table provides certain information about
common stock that may be issued under our existing
equity compensation plans. The only plan pursuant to
which the Company may grant new equity-based awards
is the Company’s 2017 Omnibus Incentive Plan (the “2017
Incentive Plan”), which replaced the Company’s 2013
Omnibus Incentive Plan (the “2013 Incentive Plan”). The
number of securities to be issued upon exercise of out-
standing options, warrants and rights reflected in the
100 | HILTON
table below includes shares underlying equity-based awards granted, and that remained outstanding as of December 31,
2017 under, the 2017 Incentive Plan and the 2013 Incentive Plan.
As of December 31, 2017
Equity compensation plans
approved by stockholders
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights (1)
Weighted-average exercise
price of outstanding options
Number of securities remaining
available for future issuance
under equity compensation plans
5,573,387
$ 51.24
17,968,736
(1)
In addition to shares issuable upon exercise of stock options, also includes 3,579,933 shares that may be issued upon the vesting of
restricted stock units, shares that may be issued upon the vesting of performance shares and director deferred share units and dividend
equivalents accrued thereon. The number of shares to be issued in respect of performance shares has been calculated based on the
assumption that the maximum levels of performance applicable to the performance shares will be achieved. The restricted stock units,
performance shares and deferred share units cannot be exercised for consideration.
The remaining information required by this item is incorporated by reference to our definitive proxy statement for the 2018
Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017.
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 2018 Annual
Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to our definitive proxy statement for the 2018 Annual
Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017.
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 Description
Exhibit
2.1
3.1
3.2
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).
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).
2017 ANNUAL REPORT | 101
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1
10.2
10.3
Amended and Restated By-Laws 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 November 17, 2017).
Indenture with respect to the 4.625% Senior Notes due 2025 (the “2025 Notes”) and the 4.875% Senior Notes due 2027 (the
“2027 Notes”), dated as of March 16, 2017, by and among Hilton Worldwide Finance LLC, Hilton Worldwide Finance Corp.,
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 March 22, 2017).
Form of 4.625% Senior Note due 2025 (included in Exhibit 4.1).
Form of 4.875% Senior Note due 2027 (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 4.4).
First Supplemental Indenture with respect to the 2025 Notes and the 2027 Notes, dated as of December 6, 2017, 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 (incorporated by reference to Exhibit 4.14 to the
Company’s Annual Report on Form 10-K (File No. 001-36243) for the year ended December 31, 2016).
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 (incorporated by reference to Exhibit 4.15
to the Company’s Annual Report on Form 10-K (File No. 001-36243) for the year ended December 31, 2016).
Fifth Supplemental Indenture with respect to the 2024 Notes, dated as of December 6, 2017, 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)).
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).
102 | HILTON
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Amendment No. 3, dated as of March 16, 2017, to the Credit Agreement, dated as of October 25, 2013 (as amended), by and
among Hilton Worldwide Holdings Inc., Hilton Worldwide Parent LLC, 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 March 22, 2017).
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)).
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).
Hilton Worldwide Holdings Inc. 2013 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15 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, 2018).*
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 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 Restricted Stock Agreement—Conversion of 2016 Performance Shares (incorporated by reference to
Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2017).*
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).*
Form of 2017 Performance Share Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly
Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2017).*
Form of 2017 Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly
Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2017).*
Form of 2017 Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.9 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2017).*
Form of 2017 Restricted Stock Unit Agreement for Special Awards (incorporated by reference to Exhibit 10.10 to the
Company’s Quarterly Report on Form 10-Q (File No. 001-36243) for the quarter ended March 31, 2017).*
2017 ANNUAL REPORT | 103
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Hilton 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K (File No. 001-36243) filed on May 26, 2017).*
Form of Deferred Share Unit Agreement for independent directors (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 June 30, 2017).*
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).
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).
10.35
Restricted Stock Unit Agreement with Jonathan Witter (Two-Year Vesting).*
10.36
Restricted Stock Unit Agreement with Jonathan Witter (Four-Year Vesting).*
104 | HILTON
12
21.1
23.1
31.1
31.2
32.1
32.2
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).
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.
2017 ANNUAL REPORT | 105
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 14th day of
February 2018.
HILTON WORLDWIDE HOLDINGS INC.
By: /s/ Christopher J. Nassetta
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 14th day of February 2018.
Signature
Title
/s/ Christopher J. Nassetta
President, Chief Executive Officer and Director
Christopher J. Nassetta
(principal executive officer)
/s/ Jonathan D. Gray
Chairman of the Board of Directors
Jonathan D. Gray
/s/ Charlene T. Begley
Charlene T. Begley
/s/ Melanie L. Healey
Melanie L. Healey
/s/ Raymond E. Mabus, Jr.
Raymond E. Mabus, 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/ Zhang Ling
Zhang Ling
Director
Director
Director
Director
Director
Director
Director
Director
/s/ Kevin J. Jacobs
Executive Vice President and Chief Financial Officer
Kevin J. Jacobs
(principal financial officer)
/s/ Michael W. Duffy
Senior Vice President and Chief Accounting Officer
Michael W. Duffy
(principal accounting officer)
106 | HILTON
Stockholder Information
Stock Market Information
Ticker Symbol: HLT
Market Listed and Traded:
NYSE
Corporate Office
Hilton
7930 Jones Branch Drive
McLean, Virginia 22102
+1 703 883 1000
www.hilton.com/corporate
Investor Relations
7930 Jones Branch Drive
McLean, Virginia 22102
+1 703 883 5476
ir.hilton.com
ir@hilton.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
1775 Tysons Boulevard
Tysons, Virginia 221022
+1 703 747 1000
ey.com
Transfer Agent
EQ Shareowner Services
P.O. Box 64874
St. Paul, Minnesota 55164-0874
+1 800 468 9716
www.shareowneronline.com
Annual Meeting
of Stockholders
May 10, 2018
McLean, Virginia 22102
Fellow Shareholders
Nearly a century ago,
a young entrepreneur
named Conrad Hilton
purchased, almost on
impulse, the Mobley
Hotel in Cisco, Texas.
Soon the inventor
of the modern
hospitality industry
found himself setting
an even grander goal:
“To fill the earth with
the light and warmth
of hospitality.” Almost one hundred years later our
world continues to benefit from Conrad’s vision.
I have said for some time that we have entered a
Golden Age of Travel, and 2017 brought an important
milestone with international tourism arrivals reaching
a staggering 1.3 billion1 — an all-time high. Trends
indicate this record will continue to be broken as
the middle class grows in places like China and India,
and the next generations of travelers seek unique
adventures and genuine hospitality.
This golden age is a golden opportunity for our
industry. Travel and tourism can emerge as a powerful
remedy to the world’s challenges. We are a principal
contributor to global economic growth, providing
10 percent of global GDP. We are also the world’s
largest employer, hiring one out of every nine people.1
Travel is an engine for understanding, connecting
diverse peoples, ideas, and cultures. We are in
the business of creating travel opportunities
and environments that enhance those human
connections, creating a positive ripple effect
through communities all over the world.
This golden age is also a golden opportunity for
Hilton. Our guests come from around the globe
and arrive at our nearly 5,300 properties carrying
the excitement, joy, and stress of their days.
Waiting to greet them are 380,0002 Hilton Team
Members with a simple mission: To make each
and every guest feel like part of our family, feel at
home, and to enrich their lives with unforgettable
travel experiences.
Travel is an engine for
understanding, connecting
diverse peoples, ideas,
and cultures.
2017 was a pivotal year for Hilton. We successfully
completed the spin-offs of Park Hotels & Resorts
and Hilton Grand Vacations to create a new
simplified, resilient, fee-based business model.
We celebrated our 5,000th property milestone,
launched our 14th brand — Tapestry Collection by
Hilton, rolled out new technologies, and returned
nearly $1.1 billion to shareholders, all of which
enhance the guest experience, strengthen our
loyalty base, and drive performance.
Hilton continued to expand travel opportunities
for millions of ambitious new travelers. We opened
nearly 400 new properties, a rate of more than
one hotel per day, and 51,600 net new rooms.
This marked our third consecutive year of record
net unit growth — 6.5 percent — allowing us to
welcome guests in 105 countries and territories.
With a pipeline of nearly 2,300 properties and
345,000 rooms, we continue to lead the industry
in net unit growth. And our 21 percent share of
rooms under construction accounts for more than
four times our current market share, more than
any other hospitality company.
1 Source: WTTC https://www.wttc.org/-/media/files/reports/economic-impact-research/regions-2017/world2017.pdf
2 Team Members include employees at Hilton corporate offices and its owned and managed properties, and employees of franchisees who work
on-property at independently owned and operated franchise properties in the Hilton portfolio.
© 2018 Hilton
Designed and produced by Corporate Reports Inc./Atlanta. www.cricommunications.com.
2017 ANNUAL REPORT
HILTON
We Are
We Are
HOSPITALITY
H
I
L
T
O
N
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
ir.hilton.com