|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Note 1: Organization and Basis of Presentation
Organization
Hilton Worldwide Holdings Inc. (“Hilton” together with its subsidiaries, “we,” “us,” “our” or the “Company”), a Delaware corporation, is one of the largest hospitality companies in the world based upon the number of hotel rooms and timeshare units under our 12 distinct brands. We are engaged in owning, leasing, managing, developing and franchising hotels, resorts and timeshare properties. As of September 30, 2014, we owned, leased, managed or franchised 4,221 hotel and resort properties, totaling 698,402 rooms in 93 countries and territories, as well as 44 timeshare properties comprising 6,794 units.
In December 2013, we completed a 9,205,128-for-1 stock split on issued and outstanding shares, which is reflected in all share and per share data presented in our condensed consolidated financial statements and accompanying notes.
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements for the nine months ended September 30, 2014 and 2013 have been prepared in accordance with United States of America (“U.S.”) generally accepted accounting principles (“GAAP”) and are unaudited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance.
In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.
Note 1: Organization
Hilton Worldwide Holdings Inc. (“Hilton” together with its subsidiaries, “we,” “us,” “our” or the “Company”) was incorporated in Delaware on March 18, 2010 to hold, directly or indirectly, all of the equity of Hilton Worldwide, Inc. (“HWI”). The accompanying financial statements present the consolidated financial position of Hilton, which includes consolidation of HWI. Hilton is one of the largest hospitality companies in the world based upon the number of hotel rooms and timeshare units under our 10 distinct brands. We are engaged in owning, leasing, managing, developing and franchising hotels, resorts and timeshare properties. As of December 31, 2013, we owned, leased, managed or franchised 4,073 hotel and resort properties, totaling 672,083 rooms in 91 countries and territories, as well as 42 timeshare properties comprising 6,547 units.
On October 24, 2007, HWI became a wholly owned subsidiary of BH Hotels Holdco, LLC (“BH Hotels”), an affiliate of The Blackstone Group L.P. (“Blackstone” or “our Sponsor”), following the completion of a merger (the “Merger”). BH Hotels and its subsidiaries subsequently formed Hilton Global Holdings, LLC (“HGH” or our “Parent”), which owned 100 percent of our stock. On December 17, 2013, we completed a 9,205,128-for-1 stock split on issued and outstanding shares, which is reflected in all share and per share data presented in the consolidated financial statements and accompanying notes, and an initial public offering (the “IPO”) in which we sold 64,102,564 newly issued shares of common stock and a selling stockholder of the Company sold 71,184,153 shares of existing common stock at a public offering price of $20.00 per share. As of December 31, 2013, our Sponsor beneficially owned approximately 76.4 percent of our common stock. The common stock is listed on the New York Stock Exchange under the symbol “HLT” and began trading publicly on December 12, 2013.
|
Note 2: Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11 (“ASU 2013-11”), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. The provisions of ASU 2013-11 were effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption of this ASU resulted in the reclassification of $108 million of unrecognized tax benefits against deferred income tax assets.
In March 2013, the FASB issued ASU No. 2013-05 (“ASU 2013-05”),Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. The provisions of ASU 2013-05 were effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption did not have a material effect on our condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In August 2014, the FASB issued ASU No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU requires management to assess and evaluate whether conditions or events exist, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements issue date. The provisions of ASU 2014-15 are effective for annual periods beginning after December 15, 2016 and for annual and interim periods thereafter; early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
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 in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The provisions of ASU 2014-09 are effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and are to be applied retrospectively; early application is not permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08 (“ASU 2014-08”), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU amends guidance on reporting discontinued operations only if the disposal of a component of an entity or group of components of an entity represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The provisions of ASU 2014-08 should be applied prospectively for all disposals of components of an entity and for all businesses that, on acquisition, are classified as held for sale that occurred within annual periods beginning on or after December 15, 2014, and interim periods within. We have elected, as permitted by the standard, to early adopt ASU 2014-08 effective for components disposed of or held for sale on or after October 1, 2014. The adoption is not expected to have a material effect on our consolidated financial statements.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the accounts of Hilton, our wholly owned subsidiaries and entities in which we have a controlling financial interest, including variable interest entities (“VIEs”) where we are the primary beneficiary. Entities in which we have a controlling financial interest generally comprise majority owned real estate ownership and management enterprises.
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 beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or have a controlling general partner interest of a partnership, assuming the absence of other factors determining control, including the ability of noncontrolling owners to participate in or block certain decisions. As of December 31, 2013, we consolidated six non-wholly owned entities in which we own more than 50 percent of the voting shares of the entities or we have determined we are the primary beneficiary of VIEs.
All material intercompany transactions and balances have been eliminated in consolidation. References in these financial statements to net income attributable to Hilton stockholders and Hilton stockholders’ equity do not include noncontrolling interests, which represent the outside ownership interests of our six consolidated, non-wholly owned entities and are reported separately.
Use of Estimates
The preparation of financial statements in conformity with United States of America (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to current presentation.
Summary of Significant Accounting Policies
Revenue Recognition
Revenues are primarily derived from the following sources and are generally recognized as services are rendered and when collectibility is reasonably assured. Amounts received in advance of revenue recognition are deferred as liabilities.
• | Owned and leased hotel revenues primarily consist of room rentals and food and beverage sales from owned, leased and consolidated non-wholly owned hotel properties. Revenues are recorded when rooms are occupied or goods and services have been delivered or rendered. |
• | Management fees represent fees earned from hotels and timeshare properties that we manage, usually under long-term contracts with the property owner. Management fees from hotels usually include a base fee, which is generally a percentage of hotel revenues, and an incentive fee, which is typically based on a fixed or variable percentage of hotel profits and in some cases may be subject to a stated return threshold to the owner, normally over a one-calendar year period. Additionally, we receive one-time upfront fees upon execution of certain management contracts. We recognize base fees as revenue when earned in accordance with the terms of the management agreement. For incentive fees, we recognize those amounts that would be due if the contract was terminated at the financial statement date. One-time, upfront fees are recognized when all conditions have been substantially performed or satisfied by us. Management fees from timeshare properties are generally a fixed percent as stated in the management agreement and are recognized as the services are performed. |
• | Franchise fees represent fees earned in connection with the licensing of one of our hotel brands, usually under long-term contracts with the hotel owner. We charge a monthly franchise royalty fee, generally based on a percentage of room revenue, as well as application and initiation fees for new hotels entering the system. Royalty fees for our full-service brands may also include a percentage of gross food and beverage revenues and other revenues, where applicable. We recognize franchise fee revenue as the fees are earned, which is when all material services or conditions have been performed or satisfied. |
• | Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels and other rental income. This includes any revenues received for vendor rebate arrangements we participate in as a manager of hotel and timeshare properties. |
• |
Timeshare revenues consist of revenues generated from our Hilton Grand Vacations timeshare business. Timeshare revenues are principally generated from the sale and financing of timeshare intervals. Revenue from a deeded timeshare sale is recognized when the customer has executed a binding sales contract, a minimum ten percent down payment has been received, certain minimum sales thresholds for a timeshare project have been attained, the purchaser’s period to cancel for a refund has expired and the related receivable is deemed to be collectible. We defer revenue recognition for sales that do not meet these criteria. During periods of construction, revenue from timeshare sales is recognized under the percentage-of-completion method. One of our timeshare products is accounted for as a long-term lease with a reversionary interest, rather than the sale of a deeded interest in real estate. In this case, sales revenue is recognized on a straight-line basis over the term of the lease. Revenue from the financing of timeshare sales is recognized on the accrual method as earned based on the outstanding principal, interest rate and terms stated in each individual financing agreement. See “Financing Receivables” section below for further discussion of the policies applicable to our timeshare financing receivables. Additionally, we receive sales commissions from certain third-party developers that we assist in selling their timeshare inventory. We recognize revenue from commissions on these sales as intervals are sold and we fulfill the service requirements under the respective sales agreements with the developers. We also generate revenues from enrollment and other fees, rentals of timeshare units, food and beverage sales and other ancillary services at our timeshare properties that are recognized when units are rented or goods and services are delivered or rendered. |
• | Other revenues from managed and franchised properties represent payroll and related costs, certain other operating costs of the managed and franchised properties’ operations, marketing expenses and other expenses associated with our brands and shared services that are contractually reimbursed to us by the property owners or paid from fees collected in advance from these properties. The corresponding expenses are presented as other expenses from managed and franchised properties in our consolidated statements of operations, resulting in no effect on operating income (loss) or net income (loss). |
We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a 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.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash balances established as security for certain guarantees, lender reserves, ground rent and property tax escrows, reserves statutorily required to be held by our captive insurance subsidiary and advance deposits received on timeshare sales that are held in escrow until the contract is closed. For purposes of our consolidated statements of cash flows, changes in restricted cash and cash equivalents caused by changes in lender reserves due to restrictions under our loan agreements are shown as financing activities. The remaining changes in restricted cash and cash equivalents are the result of our normal operations, and, as such, are reflected in operating activities.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided on accounts receivable when losses are probable based on historical collection activity and current business conditions.
Inventories
Inventories comprise unsold timeshare intervals at our timeshare properties, as well as hotel inventories consisting of operating supplies that have a period of consumption of one year or less, guest room items and food and beverage items.
Timeshare inventory is carried at the lower of cost or market, based on the relative sales value or net realizable value. Capital expenditures associated with our non-lease timeshare products are reflected as inventory until the timeshare intervals are sold. Consistent with industry practice, timeshare inventory is classified as a current asset despite an operating cycle that exceeds 12 months. The majority of sales and marketing costs incurred to sell timeshare intervals are expensed when incurred. Certain direct and incremental selling and marketing costs are deferred on a contract until revenue from the interval sale has been recognized.
In accordance with the accounting standards for costs and the initial rental operations of real estate projects, we use the relative sales value method of costing our timeshare sales and relieving inventory. In addition, we continually assess our timeshare inventory and, if necessary, impose pricing adjustments to accelerate sales pace. It is possible that any future changes in our development and sales strategies could have a material effect on the carrying value of certain projects and inventory. We monitor our projects and inventory on an ongoing basis and complete an evaluation each reporting period to ensure that the inventory is stated at the lower of cost or market.
Hotel inventories are generally valued at the lower of cost (using “first-in, first-out”, or FIFO) or market.
Property and Equipment
Property and equipment are recorded at cost and interest applicable to major construction or development projects is capitalized. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.
Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements (8 to 40 years), furniture and equipment (3 to 8 years) and computer equipment and acquired software (3 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the lives estimates above, or the lease term.
We evaluate the carrying value of our property and equipment if there are indicators of potential impairment. We perform an analysis to determine the recoverability of the asset’s carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset using discount and capitalization rates deemed reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.
If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset.
Financing Receivables
We define financing receivables as financing arrangements that represent a contractual right to receive money either on demand or on fixed or determinable dates, which are recognized as an asset in our consolidated balance sheets. We record all financing receivables at amortized cost in current and long-term financing receivables. We recognize interest income as earned and provide an allowance for cancellations and defaults. We have divided our financing receivables into two portfolio segments based on the level of aggregation at which we develop and document a systematic methodology to determine the allowance for credit losses. Based on their initial measurement, risk characteristics and our method for monitoring and assessing credit risk, we have determined the classes of financing receivables to correspond to our identified portfolio segments as follows:
• |
Timeshare financing receivables comprise loans related to our financing of timeshare interval sales and secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare financing receivables as earned. The interest rate charged on the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase that is financed, among other factors. We record an estimate of uncollectibility as a reduction of sales revenue at the time revenue is recognized on a timeshare interval sale. We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing receivables, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. With the exception of the financing provided to customers of our timeshare business, we do not normally require collateral or other security to support credit sales. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our timeshare financing receivables. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Once a note is 90 days past due or is determined to be uncollectible prior to 90 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees, late charges, interest and principal. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 90 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 120 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. |
• | Other financing receivables primarily comprise individual loans and other types of unsecured financing arrangements provided to hotel owners. We individually assess all financing receivables in this portfolio for collectibility and impairment. We measure loan impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For impaired loans, we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows. We do not recognize interest income on unsecured financing to hotel owners for notes that are greater than 90 days past due and only resume interest recognition if the financing receivable becomes current. We fully reserve unsecured financing to hotel owners when we determine that the receivables are uncollectible and when all commercially reasonable means of recovering the receivable balances have been exhausted. |
Investments in Affiliates
We hold investments in affiliates that primarily own or lease hotels under one of our nine distinct hotel brands. If the entity does not meet the definition of a VIE, we evaluate our voting interest or general partnership interest to determine if we have a controlling financial interest in the entity. Investments in affiliates over which we exercise significant influence, but lack a controlling financial interest, are accounted for using the equity method. We account for investments using the equity method when we own more than a minimal investment, but have no more than a 50 percent voting interest or do not otherwise control the investment. Investments in affiliates over which we are not able to exercise significant influence are accounted for under the cost method.
Our proportionate share of earnings (losses) from our equity method investments is presented as equity in earnings (losses) from unconsolidated affiliates in our consolidated statements of operations. Distributions from investments in unconsolidated entities are presented as an operating activity in our consolidated statements of cash flows when such distributions are a return on investment. Distributions from unconsolidated affiliates are recorded as an investing activity in our consolidated statements of cash flows when such distributions are a return of investment.
We assess the recoverability of our equity method and cost method investments if there are indicators of potential impairment. If an identified event or change in circumstances requires an evaluation to determine if an investment may have an other-than-temporary impairment, we assess the fair value of the investment based on accepted valuation methodologies, which include discounted cash flows, estimates of sales proceeds and external appraisals. If an investment’s fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in earnings (losses) from unconsolidated affiliates for equity method investments or impairment losses for cost method investments in our consolidated statements of operations.
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.
We review the carrying value of our goodwill 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 24: “Business Segments”. We perform this evaluation annually or at an interim date if indicators of impairment exist. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process. In the first step, we determine the fair value of each of our reporting units. The valuation is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its estimated fair value, then the second step must be performed. In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Brands
We own, operate and franchise hotels under our portfolio of brands. There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these brands and, accordingly, the useful lives of these brands are considered to be indefinite. Our hotel brand portfolio includes Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton (including DoubleTree Suites by Hilton), Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn (including Hampton Inn & Suites and, outside of the U.S., Hampton by Hilton), Homewood Suites by Hilton and Home2 Suites by Hilton. In addition, we also develop and operate timeshare properties under our Hilton Grand Vacations brand.
At the time of the Merger, our brands were assigned a fair value based on a common valuation technique known as the relief from royalty approach. Home2 Suites by Hilton was launched post-Merger and, as such, it was not assigned a fair value. 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 a brand’s estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value at the time of the Merger. These intangible assets consist of management agreements, franchise contracts, leases, certain proprietary technologies and our guest loyalty program, Hilton HHonors. Additionally, we capitalize management and franchise contract acquisition costs as finite-lived intangible assets. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives.
We capitalize costs incurred to develop internal-use computer software. Internal and external costs incurred in connection with development of upgrades or enhancements that result in additional functionality are also capitalized. These capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. These capitalized costs are recorded in other intangible assets in our consolidated balance sheets.
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the fair value in our consolidated statements of operations.
Hilton HHonors
Hilton HHonors is a guest loyalty program provided to hotels. Most of our owned, leased, managed and franchised hotels and timeshare properties participate in the Hilton HHonors program. Hilton HHonors members earn points based on their spending at our participating hotel and timeshare properties and through participation in affiliated partner programs. When points are earned by Hilton HHonors members, the property or affiliated partner pays Hilton HHonors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication, administration and the estimated cost of award redemptions. Hilton HHonors member points are accumulated and may be redeemed for certificates that entitle the holder to the right to stay at participating properties, as well as other opportunities with third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining. We provide Hilton HHonors as a marketing program to participating hotels, with the objective of operating the program on a break-even basis to us.
Hilton HHonors defers revenue received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of “breakage” (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of reimbursing hotels and other third parties in respect to other redemption opportunities available to members. Revenue is recognized by participating hotels and resorts only when points that have been redeemed for hotel stay certificates are used by members or their designees at the respective properties. Additionally, when members of the Hilton HHonors loyalty program redeem award certificates at our owned and leased hotels, we recognize room rental revenue.
Fair Value Measurements—Valuation Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions 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.
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 instruments. Under the terms of our loan agreements, we are required to maintain derivative financial instruments to manage interest rates. We do not enter into derivative financial instruments for trading or speculative purposes.
We record all derivatives at fair value. On the date the derivative contract is entered, we 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), a hedge of our foreign currency exposure (net investment hedge) or an undesignated hedge instrument. 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. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows. Cash flows from undesignated derivative financial instruments are included as an investing activity in the consolidated statements of cash flows.
If we determine that we qualify for and will designate a derivative as a hedging instrument, at the designation date we formally document all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions, linking all derivatives designated as fair value hedges to specific assets and liabilities in our consolidated balance sheets, and determining the foreign currency exposure of 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 via use of the Hypothetical Derivative Method. This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions. Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument. We discontinue hedge accounting prospectively, when the derivative is not highly effective as a hedge, the underlying hedged 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 equity. Income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to 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 reported as a component of gain (loss) on foreign currency transactions in our consolidated statements of operations.
Self-Insurance
We are self-insured for various levels of general liability, auto liability, workers’ compensation and employee health insurance coverage at our owned properties. Additionally, the majority of employees at managed hotels, of which we are the employer, participate in our workers’ compensation and employee health insurance coverage. Also, a number of our managed hotels participate in our general liability, auto liability, excess liability and property insurance programs. We purchase insurance coverage for claim amounts that exceed our self-insured retentions. Our insurance reserves are accrued based on estimates of the ultimate cost of claims that occurred during the covered period, which includes claims incurred but not reported. 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. Our provision for insured events for the years ended December 31, 2013, 2012 and 2011 was $38 million, $27 million and $33 million, respectively. Our insured claims and adjustments paid for the years ended December 31, 2013, 2012 and 2011 were $36 million, $37 million and $33 million, respectively.
Share-based Compensation
We recognize the cost of services received in a share-based payment transaction with an employee as services are received and recognize either a corresponding increase in equity or a liability, 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 compensation cost for an award classified as an equity instrument is recognized ratably over the requisite service period, including an estimate of forfeitures. The requisite service period is the period during which an employee is required to provide service in exchange for an award.
Liability awards under a share-based payment arrangement 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 cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period, including an estimate of forfeitures.
Compensation cost for awards with performance conditions is recognized over the requisite service period if it is probable that the performance condition will be satisfied. If such performance conditions are not considered probable until they occur, no compensation 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, to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit carry forwards. 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 carry forwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carry forwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.
We use a prescribed recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
Recently Issued Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11 (“ASU 2013-11”), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. The provisions of ASU 2013-11 are effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to materially affect our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05 (“ASU 2013-05”), Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. The provisions of ASU 2013-05 are effective for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-05 is not expected to materially affect our consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU amends existing guidance by requiring companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income in the same reporting period. For amounts which are not required to be reclassified in their entirety to net income in the same reporting period, companies are required to cross reference other disclosures that provide information about those amounts. The provisions of ASU 2013-02 were effective, prospectively, for reporting periods beginning after December 15, 2012. The adoption of this ASU resulted in additional disclosures within Note 23: “Accumulated Other Comprehensive Loss.”
In July 2012, the FASB issued ASU No. 2012-02 (“ASU 2012-02”), Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This ASU was effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 14, 2012. The adoption of ASU 2012-02 did not have a material effect on our consolidated financial statements.
|
Note 3: Acquisitions
Equity Investments Exchange
We had a portfolio of 11 hotels we owned through noncontrolling interests in equity investments with one other partner. In July 2014, we entered into an agreement to exchange with our partner our ownership interest in six of these hotels for the remaining interest in the other five hotels. As a result of this exchange, we have a 100 percent ownership interest in five of the 11 hotels and no longer have any ownership interest in the remaining six hotels. The following is a listing of all 11 hotels involved in this exchange, including pre-exchange and post-exchange ownership percentages:
Property |
Pre-Exchange Ownership % |
Post-Exchange Ownership % |
||||||
Embassy Suites Atlanta—Perimeter Center |
50 | % | 100 | % | ||||
Embassy Suites Kansas City—Overland Park |
50 | % | 100 | % | ||||
Embassy Suites Kansas City—Plaza |
50 | % | 100 | % | ||||
Embassy Suites Parsippany |
50 | % | 100 | % | ||||
Embassy Suites San Rafael—Marin County |
50 | % | 100 | % | ||||
Embassy Suites Austin—Central |
50 | % | — | % | ||||
Embassy Suites Chicago—Lombard/Oak Brook |
50 | % | — | % | ||||
Embassy Suites Raleigh—Crabtree |
50 | % | — | % | ||||
Embassy Suites San Antonio—International Airport |
50 | % | — | % | ||||
Embassy Suites San Antonio—NW I-10 |
50 | % | — | % | ||||
DoubleTree Guest Suites Austin |
10 | % | — | % |
This transaction was accounted for as a business combination achieved in stages, resulting in a remeasurement gain based upon the fair values of the equity investments. The carrying values of these equity investments immediately before the exchange were $59 million and the fair values of these equity investments immediately before the exchange were $83 million, resulting in a pre-tax gain of $24 million recognized in other gain, net in our condensed consolidated statements of operations for the nine months ended September 30, 2014. We also incurred transaction-related costs of $1 million recognized in other gain, net in our condensed consolidated statements of operations for the nine months ended September 30, 2014. Following the exchange, we consolidated the five hotels we owned 100 percent.
The fair value of the assets and liabilities acquired as a result of the exchange were as follows:
(in millions) | ||||
Cash and cash equivalents |
$ | 2 | ||
Property and equipment |
144 | |||
Other intangible assets |
1 | |||
Long-term debt |
(64) | |||
|
|
|||
Net assets acquired |
$ | 83 | ||
|
|
See Note 10: “Fair Value Measurements” for additional details on the fair value techniques and inputs used for the remeasurement of the assets and liabilities.
The results of operations from the five wholly owned hotels included in the condensed consolidated statements of operations for the nine months ended September 30, 2014 following the exchange were not material.
Land Parcel
During the nine months ended September 30, 2013, we acquired a parcel of land for $28 million, which we previously leased under a long-term ground lease.
Note 3: Acquisitions
In conjunction with business combinations, we record the assets acquired, liabilities assumed and noncontrolling interests at fair value as of the acquisition date, including any contingent consideration. Furthermore, acquisition-related costs, such as due diligence, legal and accounting fees, are expensed in the period incurred and are not capitalized or applied in determining the fair value of the acquired assets.
Hilton Bradford
In October 2013, we purchased the land and building associated with the Hilton Bradford, which we previously leased under a capital lease, for a cash payment of British Pound Sterling (“GBP”) 9 million, or approximately $15 million. As a result of the acquisition, we released our capital lease obligation of $17 million and recognized a gain of $2 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2013.
Land Parcel Acquisition
In April 2013, we acquired a parcel of land for $28 million, which we previously leased under a long-term ground lease.
Odawara Hilton Co., LTD
In December 2012, we purchased the remaining 53.5 percent ownership interest in Odawara Hilton Co., LTD (“OHC”), which leased the Hilton Odawara that we managed, for a cash payment of Japanese Yen (“JPY”) 155 million, or approximately $1 million. Prior to the acquisition, we had a 46.5 percent ownership interest in OHC, with the remaining interest held by nine stockholders each of whom had no more than a 10 percent ownership interest. We were considered to be the primary beneficiary of this VIE and, as such, OHC was consolidated in our consolidated financial statements. Upon completion of the acquisition of the remaining interests, we wholly own OHC. The equity transaction resulted in a decrease of approximately $4 million to additional paid-in capital.
In conjunction with this acquisition and predicated upon the fact that it would occur, in December 2012, OHC executed a binding purchase agreement with the owner of the Hilton Odawara to purchase the building and the surrounding land. However, the closing of the sale, which will include the exchange of cash and the acquisition of the title by Hilton, will not occur until December 2015. As a result of this purchase agreement and other factors, the Hilton Odawara lease, which was previously accounted for as an operating lease, was recorded as a capital lease asset and obligation of $15 million as of December 31, 2012.
Oakbrook Suites and Garden Inn, LLC
In August 2011, we purchased the remaining 50 percent ownership interest in Oakbrook Suites and Garden Inn, LLC (“Oakbrook LLC”), which owned the Hilton Suites Oakbrook and the Hilton Garden Inn Oakbrook Terrace, for a cash payment of $12 million. Prior to the acquisition, we had a 50 percent ownership interest in Oakbrook LLC, which was accounted for using the equity method. Upon completion of the acquisition of the remaining interests, we wholly owned Oakbrook LLC, and it was consolidated in our consolidated financial statements. The fair value of the net assets acquired was $24 million. Our cash paid for the acquisition, along with the carrying value of our investment in Oakbrook LLC, was allocated to the net assets acquired, which consisted primarily of land, buildings and furniture and equipment.
|
Note 4: Disposals
Conrad Istanbul
In December 2013, we completed the sale of our 25 percent equity interest in a joint venture entity that owns the Conrad Istanbul for $17 million. As a result of the sale, we reclassified a currency translation adjustment of $14 million, which was previously included in accumulated other comprehensive loss, to earnings and included this in our calculation of the loss on sale of our equity interest. In total, we recognized a pre-tax loss on the sale of $1 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2013.
India Joint Venture
In December 2011, we completed the sale of our 26 percent interest in a hotel development joint venture located in India for GBP 15 million, or approximately $23 million. As a result of the sale, we reclassified the currency translation adjustment of $8 million, which was previously recognized in accumulated other comprehensive loss, to earnings within our consolidated statement of operations for the year ended December 31, 2011. Further, we recognized a related pre-tax loss on the sale of $10 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2011.
Beverly Hills Office Building
In January 2011, we completed the sale of our former corporate headquarters office building in Beverly Hills, California for approximately $65 million and recognized a pre-tax gain of $16 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2011.
|
Note 5: Inventories
Inventories were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Timeshare |
$ | 371 | $ | 389 | ||||
Hotel |
25 | 26 | ||||||
|
|
|
|
|||||
$ | 396 | $ | 415 | |||||
|
|
|
|
|
Note 4: Property and Equipment
Property and equipment were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Land |
$ | 4,115 | $ | 4,098 | ||||
Buildings and leasehold improvements |
5,706 | 5,511 | ||||||
Furniture and equipment |
1,203 | 1,172 | ||||||
Construction-in-progress |
97 | 67 | ||||||
|
|
|
|
|||||
11,121 | 10,848 | |||||||
Accumulated depreciation and amortization |
(1,997) | (1,790) | ||||||
|
|
|
|
|||||
$ | 9,124 | $ | 9,058 | |||||
|
|
|
|
Depreciation and amortization expense on property and equipment, including amortization of assets recorded under capital leases, was $235 million and $243 million during the nine months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014 and December 31, 2013, property and equipment included approximately $150 million and $130 million, respectively, of capital lease assets primarily consisting of buildings and leasehold improvements, net of $64 million and $59 million, respectively, of accumulated depreciation and amortization.
During the nine months ended September 30, 2014, we completed the sale of two hotels for approximately $9 million and a vacant parcel of land for approximately $6 million. As a result of these sales, we recognized a pre-tax gain of $13 million, including the reclassification of a currency translation adjustment of $3 million, which was previously recognized in accumulated other comprehensive loss. The gain was included in other gain, net in our condensed consolidated statement of operations. Additionally, we completed the sale of certain land and easement rights to a related party in connection with a timeshare project during the nine months ended September 30, 2014. As a result, the related party acquired the rights to the name, plans, designs, contracts and other documents related to the timeshare project. The total consideration received for this transaction was approximately $37 million. We recognized $13 million, net of tax, as a capital contribution within additional paid-in capital, representing the excess of the fair value of the consideration received over the carrying value of the assets sold.
Note 6: Property and Equipment
Property and equipment were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Land |
$ | 4,098 | $ | 4,090 | ||||
Buildings and leasehold improvements |
5,511 | 5,450 | ||||||
Furniture and equipment |
1,172 | 1,111 | ||||||
Construction-in-progress |
67 | 88 | ||||||
|
|
|
|
|||||
10,848 | 10,739 | |||||||
Accumulated depreciation and amortization |
(1,790) | (1,542) | ||||||
|
|
|
|
|||||
$ | 9,058 | $ | 9,197 | |||||
|
|
|
|
Depreciation and amortization expense on property and equipment, including amortization of assets recorded under capital leases, was $318 million, $290 million and $323 million during the years ended December 31, 2013, 2012 and 2011, respectively.
As of December 31, 2013 and 2012, property and equipment included approximately $130 million and $157 million, respectively, of capital lease assets primarily consisting of buildings and leasehold improvements, net of $59 million and $71 million, respectively, of accumulated depreciation and amortization.
No impairment losses were recognized on property and equipment for the year ended December 31, 2013. The following table details the impairment losses recognized on our assets included in property and equipment, by property type, for the years ended December 31, 2012 and 2011:
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Owned and leased hotels |
$ | 42 | $ | 17 | ||||
Timeshare properties |
— | 3 | ||||||
Corporate office facilities |
11 | — | ||||||
|
|
|
|
|||||
$ | 53 | $ | 20 | |||||
|
|
|
|
|
Note 5: Financing Receivables
Financing receivables were as follows:
September 30, 2014 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 459 | $ | 412 | $ | 24 | $ | 895 | ||||||||
Less: allowance |
(26) | (54) | (1) | (81) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
433 | 358 | 23 | 814 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
68 | 63 | 2 | 133 | ||||||||||||
Less: allowance |
(4) | (9) | — | (13) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
64 | 54 | 2 | 120 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 497 | $ | 412 | $ | 25 | $ | 934 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 205 | $ | 654 | $ | 49 | $ | 908 | ||||||||
Less: allowance |
(11) | (67) | (1) | (79) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
194 | 587 | 48 | 829 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
29 | 106 | — | 135 | ||||||||||||
Less: allowance |
(2) | (12) | — | (14) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27 | 94 | — | 121 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 221 | $ | 681 | $ | 48 | $ | 950 | ||||||||
|
|
|
|
|
|
|
|
Timeshare Financing Receivables
As of September 30, 2014, we had 51,923 timeshare financing receivables with interest rates ranging from zero percent to 20.50 percent, a weighted average interest rate of 12.16 percent, a weighted average remaining term of 7.4 years and maturities through 2025. As of September 30, 2014 and December 31, 2013, we had ceased accruing interest on timeshare financing receivables with aggregate principal balances of $31 million and $32 million, respectively.
In June 2014, we completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $304 million of 1.77 percent notes and approximately $46 million of 2.07 percent notes, which have a stated maturity date in November 2026. The securitization transaction did not qualify as a sale for accounting purposes and, accordingly, no gain or loss was recognized. In August 2013, we completed a securitization of approximately $255 million of gross timeshare financing receivables and issued $250 million of 2.28 percent notes that have a stated maturity date in January 2026. The proceeds from both transactions are presented as debt (collectively, the “Securitized Timeshare Debt”). See Note 8: “Debt” for additional details.
In May 2013, we entered into a revolving non-recourse timeshare financing receivables credit facility (“Timeshare Facility”) that is secured by certain of our timeshare financing receivables. As of September 30, 2014 and December 31, 2013, we had $164 million and $492 million, respectively, of gross timeshare financing receivables secured under our Timeshare Facility.
The changes in our allowance for uncollectible timeshare financing receivables were as follows:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Beginning balance |
$ | 92 | $ | 93 | ||||
Write-offs |
(24) | (19) | ||||||
Provision for uncollectibles on sales |
25 | 20 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 93 | $ | 94 | ||||
|
|
|
|
Our timeshare financing receivables as of September 30, 2014 mature as follows:
Securitized Timeshare |
Unsecuritized Timeshare |
|||||||
Year | (in millions) | |||||||
2014 (remaining) |
$ | 17 | $ | 27 | ||||
2015 |
68 | 48 | ||||||
2016 |
71 | 51 | ||||||
2017 |
73 | 52 | ||||||
2018 |
72 | 52 | ||||||
Thereafter |
226 | 245 | ||||||
|
|
|
|
|||||
527 | 475 | |||||||
Less: allowance |
(30) | (63) | ||||||
|
|
|
|
|||||
$ | 497 | $ | 412 | |||||
|
|
|
|
The following table details an aged analysis of our gross timeshare financing receivables balance:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Current |
$ | 958 | $ | 948 | ||||
30 - 89 days past due |
13 | 14 | ||||||
90 - 119 days past due |
3 | 4 | ||||||
120 days and greater past due |
28 | 28 | ||||||
|
|
|
|
|||||
$ | 1,002 | $ | 994 | |||||
|
|
|
|
Note 7: Financing Receivables
Financing receivables were as follows:
December 31, 2013 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 205 | $ | 654 | $ | 49 | $ | 908 | ||||||||
Less: allowance |
(11) | (67) | (1) | (79) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
194 | 587 | 48 | 829 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
29 | 106 | — | 135 | ||||||||||||
Less: allowance |
(2) | (12) | — | (14) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27 | 94 | — | 121 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 221 | $ | 681 | $ | 48 | $ | 950 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||
Unsecuritized Timeshare |
Other | Total | ||||||||||
(in millions) | ||||||||||||
Financing receivables |
$ | 853 | $ | 44 | $ | 897 | ||||||
Less: allowance |
(81) | (1) | (82) | |||||||||
|
|
|
|
|
|
|||||||
772 | 43 | 815 | ||||||||||
|
|
|
|
|
|
|||||||
Current portion of financing receivables |
131 | — | 131 | |||||||||
Less: allowance |
(12) | — | (12) | |||||||||
|
|
|
|
|
|
|||||||
119 | — | 119 | ||||||||||
|
|
|
|
|
|
|||||||
Total financing receivables |
$ | 891 | $ | 43 | $ | 934 | ||||||
|
|
|
|
|
|
Timeshare Financing Receivables
In August 2013, we completed a securitization of approximately $255 million of gross timeshare financing receivables and issued $250 million in aggregate principal amount of 2.28 percent notes with maturities of January 2026 (“Securitized Timeshare Debt”). The securitization transaction did not qualify as a sale for accounting purposes and, accordingly, no gain or loss was recognized and the proceeds were presented as debt. See Note 13: “Debt” for additional details.
In May 2013, we entered into a revolving non-recourse timeshare financing receivables credit facility (“Timeshare Facility”) that is secured by certain of our timeshare financing receivables. As of December 31, 2013, we had $492 million of gross timeshare financing receivables secured under our Timeshare Facility. See Note 13: “Debt” for additional details.
As of December 31, 2013, we had 53,123 timeshare notes outstanding, including those which are collateral for our Securitized Timeshare Debt, with interest rates ranging from zero to 20.50 percent, an average interest rate of 11.97 percent, a weighted average remaining term of 7.5 years and maturities through 2025. As of December 31, 2013 and 2012, we had ceased accruing interest on timeshare notes with aggregate principal balances of $32 million and $30 million, respectively.
The changes in our allowance for uncollectible timeshare financing receivables were as follows:
(in millions) | ||||
Balance as of December 31, 2010 |
$ | 101 | ||
Write-offs |
(36) | |||
Provision for uncollectibles on sales |
32 | |||
|
|
|||
Balance as of December 31, 2011 |
97 | |||
Write-offs |
(33) | |||
Provision for uncollectibles on sales |
29 | |||
|
|
|||
Balance as of December 31, 2012 |
93 | |||
Write-offs |
(25) | |||
Provision for uncollectibles on sales |
24 | |||
|
|
|||
Balance as of December 31, 2013 |
$ | 92 | ||
|
|
Our timeshare financing receivables as of December 31, 2013 mature as follows:
Securitized Timeshare |
Unsecuritized Timeshare |
|||||||
Year | (in millions) | |||||||
2014 |
$ | 29 | $ | 106 | ||||
2015 |
29 | 87 | ||||||
2016 |
30 | 90 | ||||||
2017 |
30 | 92 | ||||||
2018 |
30 | 89 | ||||||
Thereafter |
86 | 296 | ||||||
|
|
|
|
|||||
234 | 760 | |||||||
Less: allowance |
(13) | (79) | ||||||
|
|
|
|
|||||
$ | 221 | $ | 681 | |||||
|
|
|
|
The following table details an aged analysis of our gross timeshare financing receivables balance:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Current |
$ | 948 | $ | 940 | ||||
30 - 89 days past due |
14 | 14 | ||||||
90 - 119 days past due |
4 | 4 | ||||||
120 days and greater past due |
28 | 26 | ||||||
|
|
|
|
|||||
$ | 994 | $ | 984 | |||||
|
|
|
|
|
Note 6: Investments in Affiliates
Investments in affiliates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Equity investments |
$ | 157 | $ | 245 | ||||
Other investments |
17 | 15 | ||||||
|
|
|
|
|||||
$ | 174 | $ | 260 | |||||
|
|
|
|
We maintain investments in affiliates accounted for under the equity method, which are primarily investments in entities that owned or leased 16 and 30 hotels as of September 30, 2014 and December 31, 2013, respectively. These entities had total debt of approximately $0.9 billion and $1.1 billion as of September 30, 2014 and December 31, 2013, respectively. Substantially all of the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us. We were the creditor on $2 million and $17 million of debt from unconsolidated affiliates as of September 30, 2014 and December 31, 2013, respectively, which was included in financing receivables, net in our condensed consolidated balance sheets.
In July 2014, we exchanged our noncontrolling ownership interest in six hotels, held as part of a portfolio that owned 11 hotels previously classified in investments in affiliates and accounted for under the equity method, for the remaining interest in the other five hotels, the acquisition of which we accounted for as a business combination. See Note 3: “Acquisitions” for additional details.
Note 8: Investments in Affiliates
Investments in affiliates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Equity investments |
$ | 245 | $ | 276 | ||||
Other investments |
15 | 15 | ||||||
|
|
|
|
|||||
$ | 260 | $ | 291 | |||||
|
|
|
|
We maintain investments in affiliates accounted for under the equity method, which are primarily investments in entities that owned or leased 30 and 32 hotels as of December 31, 2013 and 2012, respectively.
Our investments in affiliates accounted for under the equity method totaled $245 million and $276 million, representing approximately one percent of total assets as of December 31, 2013 and 2012. We are a partner in joint ventures with Felcor Hotels, LLC and affiliates that own 13 hotels in which our ownership interest ranges from 10 percent to 50 percent, as well as a management company in which we have a 50 percent interest. The total carrying amount of our investments with Felcor Hotels, LLC and affiliates was $99 million and $104 million as of December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, we sold a joint venture investment with Felcor with a carrying value of $3 million. We are also partners in other significant joint ventures with the following ownership interests and carrying amounts: a 25 percent ownership interest in Ashford HHC Partners III, LP, which owns two hotels and had a carrying amount of $20 million and $37 million as of December 31, 2013 and 2012, respectively; and a 40 percent interest in Domhotel GmbH, Berlin, which owns one hotel and had a carrying amount of $38 million and $35 million as of December 31, 2013 and 2012, respectively. We also have investments in 14 other joint ventures in which our ownership interest ranges from 10 percent to 50 percent.
The equity investments had total debt of approximately $1.1 billion as of December 31, 2013 and 2012. Substantially all of the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us. We were the creditor on $17 million and $20 million of total debt from unconsolidated affiliates as of December 31, 2013 and 2012, respectively, which was included in financing receivables, net in our consolidated balance sheets.
We identified certain indicators of impairment in 2012 and 2011 relative to the carrying value of certain of our investments and, as a result, determined that we had impairments on these investments during the years ended December 31, 2012 and 2011. We recorded $19 million and $141 million of impairment losses on certain equity method investments during the years ended December 31, 2012 and 2011, respectively, which were included in equity in earnings (losses) from unconsolidated affiliates in our consolidated statements of operations. Additionally in 2012, we recorded a $1 million impairment loss on one of our other investments, which was included in impairment losses in our consolidated statement of operations for the year ended December 31, 2012.
In connection with the Merger, we recorded our equity method investments at their estimated fair value, which resulted in an increase to our historical basis in those entities, primarily as a result of an increase in the fair value of the real estate assets of the investee entities. The basis difference is being amortized as a component of equity in earnings (losses) from unconsolidated affiliates over a period of approximately 40 years and is also adjusted for impairment losses. The unamortized basis was $119 million and $120 million, as of December 31, 2013 and 2012, respectively. We estimate our future amortization expense to be approximately $3 million per year for the remaining amortization period.
|
Note 7: Consolidated Variable Interest Entities
As of September 30, 2014 and December 31, 2013, we consolidated five and four variable interest entities (“VIEs”), respectively. During the nine months ended September 30, 2014 and 2013, 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.
Two of these VIEs lease hotels from unconsolidated affiliates in Japan. We hold a significant ownership interest in these VIEs and have the power to direct the activities that most significantly affect their economic performance. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised $32 million and $42 million of cash and cash equivalents, $45 million and $26 million of property and equipment, net, and $264 million and $284 million of non-recourse debt as of September 30, 2014 and December 31, 2013, respectively. The assets of these entities are only available to settle the obligations of these entities. Interest expense related to the non-recourse debt of these two consolidated VIEs was $13 million and $20 million during the nine months ended September 30, 2014 and 2013, respectively, and was included in interest expense in our condensed consolidated statements of operations.
In September 2014, we acquired an additional ownership interest in one of our consolidated VIEs in Japan. The effect of this acquisition was recognized during the nine months ended September 30, 2014, resulting in a decrease in additional paid-in capital of $6 million, a decrease in accumulated other comprehensive loss of $1 million and an increase in noncontrolling interests of $5 million. Additionally, we identified an immaterial error as of and for the years ended December 31, 2013, 2012 and 2011 with respect to accounting for the acquisition of additional ownership interests in our consolidated VIEs in Japan. The cumulative effect of the correction of these transactions resulted in a decrease in additional paid-in capital of $28 million, an increase in accumulated other comprehensive loss of $7 million and an increase in noncontrolling interests of $35 million, and had no net effect on total assets, total liabilities or total equity in any period. The correction has been reflected in our condensed consolidated balance sheet as of September 30, 2014 and within equity contributions to consolidated variable interest entities in our condensed consolidated statement of stockholders’ equity for the nine months ended September 30, 2014, and did not affect our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) or condensed consolidated statements of cash flows for the nine months ended September 30, 2014.
In February 2013, one of our consolidated VIEs in Japan signed a Memorandum of Understanding to restructure the terms of its capital lease. The effect of the capital lease restructuring was recognized during the nine months ended September 30, 2013, resulting in a reduction in property and equipment, net of $44 million and a reduction in non-recourse debt of $48 million.
In June 2014 and August 2013, we formed VIEs associated with each of our securitization transactions to issue our Securitized Timeshare Debt. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance, the obligation to absorb their losses and the right to receive benefits that are significant to them. As of September 30, 2014 and December 31, 2013, our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised $20 million and $8 million of restricted cash and cash equivalents, $497 million and $221 million of securitized financing receivables, net and $511 million and $222 million of non-recourse debt, respectively. Our condensed consolidated statements of operations included interest income related to these VIEs of $36 million and $9 million for the nine months ended September 30, 2014 and 2013, respectively, included in timeshare revenue, as well as interest expense related to these VIEs of $7 million and $1 million for the nine months ended September 30, 2014 and 2013, respectively, included in interest expense. See Note 5: “Financing Receivables” and Note 8: “Debt” for additional details.
We have an additional consolidated VIE that owns one hotel that was immaterial to our condensed consolidated financial statements.
Note 9: Consolidated Variable Interest Entities
As of December 31, 2013, 2012 and 2011, we consolidated four, three and four VIEs, respectively. During the years ended December 31, 2013, 2012 and 2011, 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.
Two of our VIEs lease hotels from unconsolidated affiliates in Japan. We hold a significant ownership interest in these VIEs and have the power to direct the activities that most significantly affect their economic performance. Our consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised $42 million and $29 million of cash and cash equivalents, $26 million and $66 million of property and equipment, net and $284 million and $408 million of non-recourse debt as of December 31, 2013 and 2012, respectively. The assets of these entities are only available to settle the obligations of these entities. Interest expense related to the non-recourse debt of these two consolidated VIEs was $28 million during the year ended December 31, 2013 and $33 million during the years ended December 31, 2012 and 2011, and was included in interest expense in our consolidated statements of operations.
In February 2013, Osaka Hilton Co., Ltd., one of our consolidated VIEs in Japan, signed a Memorandum of Understanding to restructure the terms of their capital lease. The terms of the restructuring call for a reduction in future rent expense under the lease, as well as a commitment to fund capital improvements to the hotel. As of December 31, 2013, we no longer have a commitment to fund these capital improvements. The effect of the capital lease restructuring was recognized during the year ended December 31, 2013, resulting in a reduction in property and equipment, net of $44 million and a reduction in non-recourse debt of $48 million.
In 2012, we acquired the remaining ownership interest in OHC, which was previously one of our consolidated VIEs located in Japan. See Note 3: “Acquisitions” for further discussion of this transaction.
In 2011, two of our consolidated VIEs located in Japan restructured their lease agreements which were accounted for as capital leases. We recognized a gain associated with one of the lease restructurings of $13 million during the year ended December 31, 2011, resulting from the difference between the fair value of the new lease terms and the carrying value of the former lease. This gain was recognized in other gain, net, in our consolidated statement of operations for the year ended December 31, 2011. Additionally, $7 million of the gain was recognized as being attributable to noncontrolling interests based on their ownership interest in the VIE, and was included in net income attributable to noncontrolling interests in our consolidated statement of operations for the year ended December 31, 2011.
In August 2013, we formed a VIE to issue our Securitized Timeshare Debt. We are the primary beneficiary of this VIE as we have the power to direct the activities that most significantly affect the VIE’s economic performance, the obligation to absorb losses and the right to receive benefits that are significant to the VIE. As of December 31, 2013, our consolidated balance sheet included the assets and liabilities of this entity, which primarily comprised $8 million of restricted cash and cash equivalents, $221 million of securitized financing receivables, net and $222 million of non-recourse debt. Our consolidated statement of operations included interest income of $17 million, included in timeshare revenue, and interest expense of $3 million, included in interest expense, for the year ended December 31, 2013, related to this VIE. See Note 7: “Financing Receivables” and Note 13: “Debt” for additional details of the timeshare securitization transaction.
We have an additional VIE that owns one hotel that was immaterial to our consolidated financial statements.
|
Note 10 : Goodwill
As part of the purchase accounting for the Merger, we recorded $10.5 billion of goodwill representing the excess purchase price over the fair value of the other identified assets and liabilities. During the year ended December 31, 2008, we recognized approximately $4.3 billion of impairment charges relating to our goodwill, including impairment losses of $795 million on our goodwill assigned to our timeshare reporting unit, which had no remaining goodwill assigned to that reporting unit as of December 31, 2013, 2012 and 2011. In the fourth quarter of each year, we performed our annual assessment for impairment and concluded that there was no impairment of our goodwill for the years ended December 31, 2013, 2012 and 2011. Changes to our goodwill during the years ended December 31, 2013, 2012 and 2011 were due to foreign currency translations. Our goodwill balances, by reporting unit, were as follows:
Ownership | Management and Franchise |
Total | ||||||||||
(in millions) | ||||||||||||
Goodwill |
$ | 4,555 | $ | 5,147 | $ | 9,702 | ||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2011 |
1,028 | 5,147 | 6,175 | |||||||||
Foreign currency translation |
4 | 18 | 22 | |||||||||
Goodwill |
4,559 | 5,165 | 9,724 | |||||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2012 |
1,032 | 5,165 | 6,197 | |||||||||
Foreign currency translation |
4 | 19 | 23 | |||||||||
Goodwill |
4,563 | 5,184 | 9,747 | |||||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2013 |
$ | 1,036 | $ | 5,184 | $ | 6,220 | ||||||
|
|
|
|
|
|
|
Note 11 : Other Intangible Assets
Other intangible assets were as follows:
December 31, 2013 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management and franchise agreements |
$ | 2,573 | $ | (1,121) | $ | 1,452 | ||||||
Leases |
436 | (132) | 304 | |||||||||
Other(1) |
727 | (280) | 447 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,736 | $ | (1,533) | $ | 2,203 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,013 | $ | — | $ | 5,013 |
December 31, 2012 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management and franchise agreements |
$ | 2,542 | $ | (942) | $ | 1,600 | ||||||
Leases |
408 | (107) | 301 | |||||||||
Other(1) |
646 | (203) | 443 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,596 | $ | (1,252) | $ | 2,344 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,029 | $ | — | $ | 5,029 |
(1) |
Includes capitalized software with a net balance of $218 million and $191 million as of December 31, 2013 and 2012, respectively, and the Hilton HHonors intangible with a net balance of $215 million and $236 million as of December 31, 2013 and 2012, respectively. We recorded amortization expense on capitalized software of $52 million, $30 million and $15 million for the years ended December 31, 2013, 2012 and 2011, respectively, and amortization expense on the Hilton HHonors intangible of $22 million for the years ended December 31, 2013, 2012 and 2011. |
Our amortizing intangible assets related to management and franchise agreements, leases, proprietary technologies, capitalized software and Hilton HHonors have finite lives and, accordingly, we recorded amortization expense of $285 million, $260 million and $241 million for the years ended December 31, 2013, 2012 and 2011, respectively. Changes to our brands intangible asset during the years ended December 31, 2013 and 2012 were due to foreign currency translations.
During the years ended December 31, 2013, 2012 and 2011, we recorded no impairment relating to our other intangible assets.
We estimate our future amortization expense for our amortizing intangible assets to be as follows:
Year | (in millions) | |||
2014 |
$ | 315 | ||
2015 |
307 | |||
2016 |
285 | |||
2017 |
239 | |||
2018 |
229 | |||
Thereafter |
828 | |||
|
|
|||
$ | 2,203 | |||
|
|
|
Note 12 : Accounts Payable, Accrued Expenses and Other
Accounts payable, accrued expenses and other were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Accrued employee compensation and benefits |
$ | 547 | $ | 530 | ||||
Accounts payable |
319 | 286 | ||||||
Liability for guest loyalty program, current |
366 | 321 | ||||||
Deposit liabilities |
195 | 169 | ||||||
Deferred revenues, current |
48 | 61 | ||||||
Self-insurance reserves, current |
52 | 47 | ||||||
Other accrued expenses |
552 | 508 | ||||||
|
|
|
|
|||||
$ | 2,079 | $ | 1,922 | |||||
|
|
|
|
Deferred revenues and deposit liabilities are related to our timeshare business and hotel operations. Other accrued expenses consist of taxes, rent, interest and other accrued balances.
|
Note 8: Debt
Long-term Debt
Long-term debt balances, including obligations for capital leases, and associated interest rates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Senior secured term loan facility with a rate of 3.50%, due 2020 |
$ | 5,300 | $ | 6,000 | ||||
Senior notes with a rate of 5.625%, due 2021 |
1,500 | 1,500 | ||||||
Commercial mortgage-backed securities loan with an average rate of 4.05%, due 2018(1) |
3,500 | 3,500 | ||||||
Mortgage loan with a rate of 2.30%, due 2018 |
525 | 525 | ||||||
Mortgage notes with an average rate of 5.17%, due 2016 to 2017 |
196 | 133 | ||||||
Other unsecured notes with a rate of 7.50%, due 2017 |
54 | 53 | ||||||
Capital lease obligations with an average rate of 6.06%, due 2015 to 2097 |
76 | 73 | ||||||
|
|
|
|
|||||
11,151 | 11,784 | |||||||
Less: current maturities of long-term debt |
(3) | (4) | ||||||
Less: unamortized discount on senior secured term loan facility |
(24) | (29) | ||||||
|
|
|
|
|||||
$ | 11,124 | $ | 11,751 | |||||
|
|
|
|
(1) | The initial maturity date of the variable-rate component of this borrowing is November 1, 2015. We assumed all extensions, which are solely at our option, were exercised. |
During the nine months ended September 30, 2014, we made voluntary prepayments of $700 million on our senior secured term loan facility (the “Term Loans”).
As of September 30, 2014, we had $47 million of letters of credit outstanding under our $1.0 billion senior secured revolving credit facility (the “Revolving Credit Facility”), and a borrowing capacity of $953 million.
Under our commercial mortgage-backed securities loan secured by 23 of our U.S. owned real estate assets (the “CMBS Loan”), we are required to deposit with the lender certain cash reserves for restricted uses. As of September 30, 2014 and December 31, 2013, our condensed consolidated balance sheets included $47 million and $29 million, respectively, of restricted cash and cash equivalents related to the CMBS Loan.
Non-recourse Debt
Non-recourse debt, including obligations for capital leases, and associated interest rates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Capital lease obligations of consolidated VIEs with a rate of 6.34%, due 2018 to 2026 |
$ | 239 | $ | 255 | ||||
Non-recourse debt of consolidated VIEs with an average rate of 3.46%, due 2015 to 2018(1) |
37 | 41 | ||||||
Timeshare Facility with a rate of 1.40%, due 2016 |
150 | 450 | ||||||
Securitized Timeshare Debt with an average rate of 1.98%, due 2026 |
511 | 222 | ||||||
|
|
|
|
|||||
937 | 968 | |||||||
Less: current maturities of non-recourse debt |
(124) | (48) | ||||||
|
|
|
|
|||||
$ | 813 | $ | 920 | |||||
|
|
|
|
(1) | Excludes the non-recourse debt of our VIEs that issued the Securitized Timeshare Debt, as this is presented separately. |
In September 2014, we reduced our total borrowing capacity, as permitted by the loan agreement, under the Timeshare Facility from $450 million to $300 million.
In June 2014, we issued approximately $304 million of 1.77 percent notes and $46 million of 2.07 percent notes due November 2026, which are secured by a pledge of certain assets, consisting primarily of a pool of our timeshare financing receivables that are secured by a first mortgage or first deed of trust on a timeshare interest. We are required to make monthly payments of principal and interest under the notes. A majority of the proceeds from the asset-backed notes were used to reduce the outstanding balance on our Timeshare Facility.
We are required to deposit payments received from customers on the pledged timeshare financing receivables and securitized timeshare financing receivables related to the Timeshare Facility and Securitized Timeshare Debt, respectively, into a depository account maintained by a third party. On a monthly basis, the depository account will first be utilized to make any required principal, interest and other payments due with respect to the Timeshare Facility and Securitized Timeshare Debt. After payment of all amounts due under the respective agreements, any remaining amounts will be remitted to us for use in our operations. The balance in the depository account, totaling $24 million and $20 million as of September 30, 2014 and December 31, 2013, respectively, was included in restricted cash and cash equivalents in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our long-term debt and non-recourse debt as of September 30, 2014 were as follows:
Year | (in millions) | |||
2014 (remaining) |
$ | 34 | ||
2015 |
136 | |||
2016 |
433 | |||
2017 |
164 | |||
2018(1) |
4,097 | |||
Thereafter |
7,224 | |||
|
|
|||
$ | 12,088 | |||
|
|
(1) | The CMBS Loan has three one-year extensions, solely at our option, that effectively extend maturity to November 1, 2018. We assumed all extensions for purposes of calculating maturity dates. |
Note 13: Debt
Long-term Debt
Long-term debt balances, including obligations for capital leases, and associated interest rates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Senior secured term loan facility with a rate of 3.75%, due 2020 |
$ | 6,000 | $ | — | ||||
Senior notes with a rate of 5.625%, due 2021 |
1,500 | — | ||||||
Commercial mortgage-backed securities loan with an average rate of 4.05%, due 2018(1) |
3,500 | — | ||||||
Mortgage loan with a rate of 2.32%, due 2018 |
525 | — | ||||||
Senior mortgage loans with a rate of 2.51%, due 2015(2) |
— | 7,271 | ||||||
Secured mezzanine loans with an average rate of 4.12%, due 2015(2) |
— | 7,697 | ||||||
Secured mezzanine loans with a rate of 4.71%, due 2015(2) |
— | 240 | ||||||
Mortgage notes with an average rate of 6.13%, due 2014 to 2016 |
133 | 134 | ||||||
Other unsecured notes with a rate of 7.50%, due 2017(3) |
53 | 149 | ||||||
Capital lease obligations with an average rate of 5.88%, due 2015 to 2093 |
73 | 83 | ||||||
Contingently convertible notes with a rate of 3.38%, due 2023(4) |
— | 1 | ||||||
|
|
|
|
|||||
11,784 | 15,575 | |||||||
Less: current maturities of long-term debt |
(4) | (392) | ||||||
Less: unamortized discount on senior secured term loan facility |
(29) | — | ||||||
|
|
|
|
|||||
$ | 11,751 | $ | 15,183 | |||||
|
|
|
|
(1) | The initial maturity date of the $875 million variable-rate component of this borrowing is November 1, 2015. We have assumed all extensions, which are solely at our option, were exercised. |
(2) | The rates are as of December 31, 2012, since the senior mortgage and secured mezzanine loans were paid in full on October 25, 2013. |
(3) | The balance as of December 31, 2012, included $96 million of our 8 percent unsecured notes due 2031 that were paid in full on November 25, 2013. |
(4) | The balance was less than $1 million as of December 31, 2013. |
Debt Refinancing
In October 2013, we entered into the following borrowing arrangements:
• | a senior secured credit facility (the “Senior Secured Credit Facility”) consisting of a $1.0 billion senior secured revolving credit facility (the “Revolving Credit Facility”) and a $7.6 billion senior secured term loan facility (the “Term Loans”); |
• | $1.5 billion of 5.625% senior notes due in 2021 (the “Senior Notes”); |
• | a $3.5 billion commercial mortgage-backed securities loan secured by 23 of our U.S. owned real estate assets (the “CMBS Loan”); and |
• | a $525 million mortgage loan secured by our Waldorf Astoria New York property (the “Waldorf Astoria Loan”). |
On October 25, 2013, we used the cash proceeds from the transactions above and available cash to repay in full all $13.4 billion in borrowings outstanding, including accrued interest, under our senior mortgage loans and secured mezzanine loans (together, the “Secured Debt”).
In addition, on October 25, 2013, we issued a notice of redemption to holders of all of the outstanding $96 million aggregate principal amount of our unsecured notes due 2031. These bonds were redeemed in full on November 25, 2013 at a redemption price equal to 100 percent of the principal amount and accrued and unpaid interest on the principal amount, to, but not including November 25, 2013. We refer to the transactions discussed above as the “Debt Refinancing.”
Upon completion of the Debt Refinancing, we recognized a $229 million gain on extinguishment of debt in our consolidated statement of operations as follows:
(in millions) | ||||
Release of interest accrued under the interest method |
$ | 201 | ||
Release of unamortized yield adjustments related to prior debt modifications |
43 | |||
Release of unamortized debt issuance costs |
(15) | |||
|
|
|||
$ | 229 | |||
|
|
We also incurred $189 million of debt issuance costs across the respective arrangements, which will be amortized over the terms of each underlying debt agreement. As of December 31, 2013, the net balance of these debt issuance costs included in our consolidated balance sheet was $168 million.
Senior Secured Credit Facility
On October 25, 2013, we entered into our Senior Secured Credit Facility. Our Revolving Credit Facility, which matures on October 25, 2018, has a capacity of $1.0 billion and allows for up to $150 million to be drawn in the form of letters of credit. As of December 31, 2013, we had $43 million of letters of credit outstanding and $957 million of available borrowings under the Revolving Credit Facility. We are currently required to pay a commitment fee of 0.50 percent per annum under the Revolving Credit Facility in respect of the unused commitments thereunder. The commitment fee can be reduced upon achievement of certain leverage ratios.
The Term Loans, which mature on October 25, 2020, were issued with an original issue discount of 0.50 percent and required quarterly principal payments equal to 0.25 percent of the original principal amount. The Term Loans bear interest at variable rates, at our option, which is payable monthly or quarterly depending upon the variable rate that is chosen.
The obligations of the Senior Secured Credit Facility are unconditionally and irrevocably guaranteed by us and all of our direct or indirect wholly owned material domestic subsidiaries, excluding our subsidiaries that are prohibited from providing guarantees as a result of the agreements governing our Timeshare Facility and/or our Securitized Timeshare Debt and our subsidiaries that secure our CMBS Loan and our Waldorf Astoria Loan. Additionally, none of our foreign subsidiaries or our non-wholly owned domestic subsidiaries guarantee the Senior Secured Credit Facility.
In December 2013, we used the net proceeds of approximately $1,243 million received by us from our IPO and available cash to repay approximately $1,250 million of the Term Loans. Additionally, we have made voluntary prepayments of $350 million on our Term Loans since the date of the Debt Refinancing. As a result of the voluntary prepayments, the quarterly principal payments are no longer required for the remainder of the term of the loan. Additionally, with these repayments on the Term Loans, we paid down one tranche and released the debt issuance costs and unamortized original issue discount allocated to that tranche totaling $23 million, which was included in interest expense in our consolidated statement of operations for the year ended December 31, 2013.
Senior Notes
On October 4, 2013, we issued $1.5 billion aggregate principal of 5.625% Senior Notes due 2021. Interest on the Senior Notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2014. The Senior Notes are guaranteed on a senior unsecured basis by us and certain of our wholly owned subsidiaries.
CMBS Loan
On October 25, 2013, we entered into the $3.5 billion CMBS Loan, which is secured by 23 of our U.S. owned hotels. The CMBS loan has a fixed-rate component in the amount of $2.625 billion bearing interest at 4.47 percent with a term of five years and a $875 million variable-rate component based on one-month LIBOR plus 265 basis points that has an initial term of two years with three one-year extensions solely at our option, for which the rate would increase by 25 basis points during the final extension period. Interest for both components is payable monthly. Under this loan, we are required to deposit with the lender certain cash reserves for restricted uses. As of December 31, 2013, our consolidated balance sheet included $29 million of restricted cash and cash equivalents related to the CMBS Loan.
Waldorf Astoria Loan
On October 25, 2013, we entered into the $525 million Waldorf Astoria Loan, secured by our Waldorf Astoria New York property. The Waldorf Astoria Loan matures on October 25, 2018 and bears interest at a variable-rate based on one-month LIBOR plus 215 basis points that is payable monthly.
Secured Debt
The Secured Debt, which we repaid in full during our Debt Refinancing, totaled $15.2 billion as of December 31, 2012. Interest under the Secured Debt was payable monthly and included both variable and fixed components. The Secured Debt was secured by substantially all of our consolidated assets in which we held an ownership interest and contained significant restrictions on the incurrence of any additional indebtedness by us, including the prohibition of any additional indebtedness for borrowed money evidenced by bonds, debentures, notes or other similar instruments, except for permission to borrow up to $400 million against our timeshare financing receivables pursuant to the Timeshare Facility; see further discussion below. Additionally, under the terms of our Secured Debt, we were restricted from declaring dividends.
We were required to deposit with the lender certain cash reserves that could, upon our request, be used for, among other things, debt service, capital expenditures and general corporate purposes. As of December 31, 2013, we did not have cash reserves on deposit with the lender, as we used the balance previously deposited to repay a portion of our Secured Debt, as permitted by the lender. As of December 31, 2012, the cash reserves on deposit with the lender totaled $147 million and were included in restricted cash and cash equivalents in our consolidated balance sheet as a current asset because we had the ability to access the cash within the 12 months following that date, subject to necessary lender notification.
As a result of our Debt Refinancing, we repaid our outstanding Secured Debt, including accrued interest though the next debt service period, on October 25, 2013, totaling $13.4 billion.
Non-recourse Debt
Non-recourse debt, including obligations for capital leases, and associated interest rates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Capital lease obligations of consolidated VIEs with a rate of 6.34%, due 2018 to 2026 |
$ | 255 | $ | 373 | ||||
Non-recourse debt of consolidated VIEs with an average rate of 3.30%, due 2015 to 2018(1) |
41 | 47 | ||||||
Timeshare Facility with a rate of 1.42%, due 2016 |
450 | — | ||||||
Securitized Timeshare Debt with a rate of 2.28%, due 2026 |
222 | — | ||||||
|
|
|
|
|||||
968 | 420 | |||||||
Less: current maturities of non-recourse debt |
(48) | (15) | ||||||
|
|
|
|
|||||
$ | 920 | $ | 405 | |||||
|
|
|
|
(1) | Excludes the non-recourse debt of our VIE that issued the Securitized Timeshare Debt, as this is presented separately. |
Timeshare Facility
In May 2013, we entered into a receivables loan agreement that is secured by certain of our timeshare financing receivables. See Note 7: “Financing Receivables” for further discussion. Under the terms of the loan agreement we were permitted to borrow up to a maximum amount of approximately $400 million based on the amount and credit quality characteristics of the timeshare financing receivables securing the loan. In August 2013, we repaid $250 million of the outstanding $400 million using proceeds from the Securitized Timeshare Debt issuance. Further, in October 2013, we amended the Timeshare Facility to increase the maximum borrowings to $450 million.
The Timeshare Facility is a non-recourse obligation and is payable solely from the timeshare financing receivables securing the loan and any deposit payments received from customers on the pledged receivables. The loan agreement allows for us to borrow up to the maximum amount until May 2015, and all amounts borrowed must be repaid by May 2016. Interest on the loan, at a variable rate, is payable monthly.
We are required to deposit payments received from customers on the pledged timeshare financing receivables into a depository account maintained by a third party. On a monthly basis, the depository account will first be utilized to make required interest and other payments due under the receivables loan agreement. After payment of all amounts due under the receivables loan agreement, any remaining amounts will be remitted to us for use in our operations. The balance in the depository account, totaling $12 million as of December 31, 2013, was included in restricted cash and cash equivalents in our consolidated balance sheet.
Securitized Timeshare Debt
In August 2013, we completed a securitization of approximately $255 million of gross timeshare financing receivables and issued notes secured by such timeshare receivables with an aggregate principal amount of $250 million. The Securitized Timeshare Debt is backed by a pledge of assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interests. See Note 7: “Financing Receivables” for further discussion. The Securitized Timeshare Debt bears interest at a fixed rate of 2.28 percent per annum and has a stated maturity of January 2026. The Securitized Timeshare Debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the Securitized Timeshare Debt and related assets. The net proceeds from the Securitized Timeshare Debt were used to repay a portion of the Timeshare Facility.
We are required to deposit payments received from customers on the securitized timeshare financing receivables into a depository account maintained by a third party. On a monthly basis, the depository account will first be utilized to make required principal, interest and other payments due with respect to the Securitized Timeshare Debt. After payment of all amounts due with respect to the Securitized Timeshare Debt, any remaining amounts will be remitted to us for use in our operations. The balance in the depository account, totaling $8 million as of December 31, 2013, was included in restricted cash and cash equivalents in our consolidated balance sheet.
Debt Maturities
The contractual maturities of our long-term debt and non-recourse debt as of December 31, 2013 were as follows:
Year | (in millions) | |||
2014 |
$ | 52 | ||
2015 |
69 | |||
2016 |
622 | |||
2017 |
96 | |||
2018(1) |
4,068 | |||
Thereafter |
7,845 | |||
|
|
|||
$ | 12,752 | |||
|
|
(1) | The CMBS Loan has three one-year extensions solely at our option that effectively extend maturity to November 1, 2018. We have assumed all extensions for purposes of calculating maturity dates. |
|
Note 14 : Deferred Revenues
Deferred revenues were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Hilton HHonors points sales |
$ | 597 | $ | — | ||||
Other |
77 | 82 | ||||||
|
|
|
|
|||||
$ | 674 | $ | 82 | |||||
|
|
|
|
Hilton HHonors Points Sales
In October 2013, we sold Hilton HHonors points to American Express Travel Related Services Company, Inc. (“Amex”), and Citibank, N.A. (“Citi”), for $400 million and $250 million, respectively, in cash. Amex and Citi and their respective designees (collectively, the “co-branded card issuers”) may use the points in connection with Hilton HHonors co-branded credit cards and for promotions, rewards and incentive programs or certain other activities as they may establish or engage in from time to time. Upon receipt of the cash, we recognized deferred revenues of $650 million in our consolidated balance sheet, which is reduced as the co-branded card issuers use the points for these activities.
Other
Other deferred revenues is primarily related to our timeshare business and hotel operations.
|
Note 15 : Other Liabilities
Other long-term liabilities were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Program surplus |
$ | 314 | $ | 263 | ||||
Pension obligations |
138 | 262 | ||||||
Other long-term tax liabilities |
344 | 340 | ||||||
Deferred employee compensation and benefits |
147 | 129 | ||||||
Self-insurance reserves |
81 | 80 | ||||||
Guarantee liability |
51 | 57 | ||||||
Other |
74 | 310 | ||||||
|
|
|
|
|||||
$ | 1,149 | $ | 1,441 | |||||
|
|
|
|
Program surplus represents obligations to operate our marketing, sales and brand programs on behalf of our hotel owners. Guarantee liability is related to obligations under our outstanding performance guarantees. Our obligations related to the self-insurance claims are expected to be satisfied, on average, over the next three years.
|
Note 9: Derivative Instruments and Hedging Activities
During the nine months ended September 30, 2014 and 2013, derivatives were used to hedge the interest rate risk associated with variable-rate debt. Certain of our loan agreements require us to hedge interest rate risk using derivative instruments.
Cash Flow Hedges
As of September 30, 2014, we held four interest rate swaps with an aggregate notional amount of $1.45 billion, which swap three-month LIBOR on the Term Loans to a fixed rate of 1.87 percent and expire in October 2018. We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
Non-designated Hedges
As of September 30, 2014, we held one interest rate cap in the notional amount of $875 million, for the variable-rate component of the CMBS Loan, that expires in November 2015 and caps one-month LIBOR at 6.0 percent. We also held one interest rate cap in the notional amount of $525 million that expires in November 2015 and caps one-month LIBOR on a mortgage loan secured by one property at 4.0 percent. We did not elect to designate either of these interest rate caps as hedging instruments.
As of September 30, 2013, we held ten interest rate caps with an aggregate notional amount of $15.2 billion, which matured in November 2013. We did not elect to designate any of these ten interest rate caps as effective hedging instruments.
Fair Value of Derivative Instruments
The effects of our derivative instruments on our condensed consolidated balance sheets were as follows:
September 30, 2014 | December 31, 2013 | |||||||||||
Balance Sheet Classification |
Fair Value | Balance Sheet Classification |
Fair Value | |||||||||
(in millions) | (in millions) | |||||||||||
Cash Flow Hedges: |
||||||||||||
Interest rate swaps |
Other assets | $ | 4 | Other assets | $ | 10 | ||||||
Non-designated Hedges: |
||||||||||||
Interest rate caps |
Other assets | — | Other assets | — |
Earnings Effect of Derivative Instruments
The effects of our derivative instruments on our condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:
Nine Months Ended September 30, |
||||||||||
Classification of Loss Recognized | 2014 | 2013 | ||||||||
Cash Flow Hedges: |
||||||||||
Interest rate swaps(1) |
Other comprehensive loss | $ | (6) | N/A | ||||||
Non-designated Hedges: |
||||||||||
Interest rate caps |
Other gain, net | — | — |
(1) | There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the nine months ended September 30, 2014. |
Note 16: Derivative Instruments and Hedging Activities
During the years ended December 31, 2013, 2012 and 2011, derivatives were used to hedge the interest rate risk associated with variable-rate debt. Under the terms of the CMBS Loan and Waldorf Astoria Loan entered into in connection with the Debt Refinancing, we are required to hedge interest rate risk using derivative instruments. Additionally, under the terms of the Secured Debt, we were required to hedge interest rate risk using derivative instruments with an aggregate notional amount equal to the principal amount of the Secured Debt.
Cash Flow Hedges
Term Loans Interest Rate Swaps
In October 2013, we entered into four interest rate swap agreements with an aggregate notional amount of $1.45 billion that expire in October 2018. These agreements swap three-month LIBOR to a fixed-rate of 1.87 percent. We have elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
Secured Debt Interest Rate Caps
During the year ended December 31, 2011, we held eleven interest rate caps with an aggregate notional amount of $16.2 billion, of which eight interest rate caps with an aggregate notional amount of $14.6 billion were designated as effective hedging instruments, which expired in November 2011.
Non-designated Hedges
CMBS Interest Rate Caps
In October 2013, we entered into an interest rate cap agreement for a notional amount of $875 million for the variable-rate component of the CMBS Loan that expires in November 2015. This agreement caps one-month LIBOR at 6.0 percent. We did not elect to designate this interest rate cap as a hedging instrument.
Waldorf Astoria Interest Rate Cap
In October 2013, we entered into an interest rate cap agreement for a notional amount of $525 million that expires in November 2015. This agreement caps one-month LIBOR at 4.0 percent. We did not elect to designate this interest rate cap as a hedging instrument.
Secured Debt Interest Rate Caps
During the year ended December 31, 2013, we held ten interest rate caps with an aggregate notional amount of $15.2 billion, which were executed in August 2012 and matured in November 2013. We did not elect to designate any of these ten interest rate caps as effective hedging instruments for accounting purposes.
During the year ended December 31, 2012, we held ten interest rate caps with an aggregate notional amount of $15.9 billion, which were executed in October 2011 and matured in November 2012. We did not elect to designate any of these ten interest rate caps as effective hedges for accounting purposes.
As of December 31, 2011, we held ten interest rate caps with an aggregate notional amount of $15.9 billion. We did not elect to designate any of these ten interest rate caps as effective hedges for accounting purposes. The caps were executed in October 2011 to replace our previous portfolio maturing in November 2011, which included eight interest rate caps designated as effective hedging instruments and three interest rate caps with an aggregate notional amount of $1.6 billion, which we did not elect to designate as effective hedges.
Fair Value of Derivative Instruments
The effects of our derivative instruments on our consolidated balance sheets were as follows:
December 31, 2013 | December 31, 2012 | |||||||||||||||
Balance Sheet Classification |
Fair Value | Balance Sheet Classification |
Fair Value | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Cash Flow Hedges |
||||||||||||||||
Interest rate swaps |
Other assets | $ | 10 | N/A | $ | — | ||||||||||
Non-designated Hedges |
||||||||||||||||
Interest rate caps(1) |
Other assets | — | Other assets | — |
(1) | The fair values of our interest rate caps were immaterial as of December 31, 2013 and 2012. |
Earnings Effect of Derivative Instruments
The effects of our derivative instruments on our consolidated statements of operations and consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:
Classification of Gain (Loss) Recognized |
Amount of Gain (Loss) Recognized in Income | |||||||||||||
2013 | 2012 | 2011 | ||||||||||||
(in millions) | ||||||||||||||
Cash Flow Hedges |
||||||||||||||
Interest rate swaps(1) |
Other comprehensive income (loss) | $ | 10 | $ | — | $ | — | |||||||
Interest rate caps(2) |
Other gain, net | — | — | (2) | ||||||||||
Non-designated Hedges |
||||||||||||||
Interest rate caps(3) |
Other gain, net | — | (1) | (1) |
(1) | There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the year ended December 31, 2013. |
(2) | Relates to hedge ineffectiveness on the eight designated Secured Debt interest rate caps that were outstanding during the year ended December 31, 2011. No amounts were excluded from hedge effectiveness testing. |
(3) | An immaterial loss was recorded during the year ended December 31, 2013. |
|
Note 10: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities, including related current portions, were as follows:
September 30, 2014 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 290 | $ | — | $ | 290 | $ | — | ||||||||
Restricted cash equivalents |
97 | — | 97 | — | ||||||||||||
Timeshare financing receivables |
1,002 | — | — | 1,004 | ||||||||||||
Interest rate swaps |
4 | — | 4 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(2) |
11,051 | 1,606 | — | 9,592 | ||||||||||||
Non-recourse debt(3) |
661 | — | — | 657 |
December 31, 2013 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 309 | $ | — | $ | 309 | $ | — | ||||||||
Restricted cash equivalents |
107 | — | 107 | — | ||||||||||||
Timeshare financing receivables |
994 | — | — | 996 | ||||||||||||
Interest rate swaps |
10 | — | 10 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1) |
11,682 | 57 | 1,560 | 10,358 | ||||||||||||
Non-recourse debt(3) |
672 | — | — | 670 |
(1) | Excludes capital lease obligations with a carrying value of $76 million and $73 million as of September 30, 2014 and December 31, 2013, respectively. |
(2) | As of September 30, 2014, the classification of certain long-term debt with a carrying value of $1,500 million changed from Level 2 to Level 1 upon the availability of active market pricing data. |
(3) | Excludes capital lease obligations of consolidated VIEs with a carrying value of $239 million and $255 million as of September 30, 2014 and December 31, 2013, respectively, and non-recourse debt of consolidated VIEs with a carrying value of $37 million and $41 million as of September 30, 2014 and December 31, 2013, respectively. |
We believe the carrying amounts of our current financial assets and liabilities and other financing receivables approximated fair value as of September 30, 2014 and December 31, 2013. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. 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.
Cash equivalents and restricted cash equivalents primarily consisted of short-term interest-bearing money market funds with maturities of less than 90 days, time deposits and commercial paper. The estimated fair values were based on available market pricing information of similar financial instruments.
The estimated fair values of our timeshare financing receivables were based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rates would result in a decrease in the fair values.
We measure our interest rate swaps at fair value, which were estimated using an income approach. The primary inputs into our fair value estimate include interest rates and yield curves based on observable market inputs of similar instruments.
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 2 long-term debt were based on bid prices in a non-active debt market. The estimated fair values of our Level 3 fixed-rate long-term debt were estimated based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these estimates is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rates would result in a decrease in the fair values. The carrying amounts of our Level 3 variable-rate long-term debt and non-recourse debt approximated fair value as the interest rates under the loan agreements approximated current market rates. The estimated fair values of our Level 3 fixed-rate non-recourse debt were primarily based on indicative quotes received for similar issuances.
As a result of our acquisition of the remaining ownership interest in certain equity method investments, which occurred during the nine months ended September 30, 2014, we measured financial and nonfinancial assets and liabilities at fair value on a nonrecurring basis (see Note 3: “Acquisitions”), as follows:
Fair Value(1) | ||||
(in millions) | ||||
Property and equipment |
$ | 144 | ||
Long-term debt |
64 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
We estimated the fair value of the property and equipment using discounted cash flow analyses, with an estimated stabilized growth rate of 2 percent to 3 percent, discounted cash flow terms ranging from 11 years to 13 years, a terminal capitalization rate of 10 percent to 11 percent and a discount rate of 9 percent to 11 percent. The discount and terminal capitalization rates used for the fair value of the assets reflect the risk profile of the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole.
The fair value of the long-term debt assumed approximated the carrying amount as the interest rate under the loan agreement approximated current market rates.
Note 17: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities, which included related current portions, were as follows:
December 31, 2013 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 309 | $ | — | $ | 309 | $ | — | ||||||||
Restricted cash equivalents |
107 | — | 107 | — | ||||||||||||
Timeshare financing receivables |
994 | — | — | 996 | ||||||||||||
Interest rate swaps |
10 | — | 10 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(3) |
11,682 | 57 | 1,560 | 10,358 | ||||||||||||
Non-recourse debt(2)(3) |
672 | — | — | 670 |
December 31, 2012 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 561 | $ | — | $ | 561 | $ | — | ||||||||
Restricted cash equivalents |
322 | — | 322 | — | ||||||||||||
Timeshare financing receivables |
984 | — | — | 987 | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(3) |
15,492 | 152 | — | 15,716 |
(1) | Excludes capital lease obligations with a carrying value of $73 million and $83 million as of December 31, 2013 and 2012, respectively. |
(2) | Represents the Securitized Timeshare Debt and the Timeshare Facility. |
(3) | Includes current maturities. |
We believe the carrying amounts of our current financial assets and liabilities and other financing receivables approximated fair value as of December 31, 2013 and 2012. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair value. 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.
Cash equivalents and restricted cash equivalents primarily comprise short-term interest-bearing money market funds with maturities of less than 90 days, time deposits and commercial paper. The estimated fair values were based on available market pricing information of similar financial instruments.
The estimated fair value of our timeshare financing receivables were based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these estimates is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rate would result in a decrease in the fair value.
We measure our interest rate swaps at fair value which were estimated using an income approach. The primary inputs into our fair value estimate include interest rates and yield curves based on observable market inputs of similar instruments.
The estimated fair value of our Level 1 long-term debt was based on prices in active debt markets. The estimated fair value of our Level 2 long-term debt was based on bid prices in a non-active debt market. The estimated fair values of our Level 3 fixed-rate long-term debt were estimated based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these estimates is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rate would result in a decrease in the fair value. The estimated fair values of our Level 3 fixed-rate non-recourse debt were primarily based on indicative quotes received for similar issuances.
As of December 31, 2013, the carrying amounts of certain of our Level 3 variable-rate long-term debt and non-recourse debt approximated fair value as the interest rates under the loan agreements approximated current market rates. As of December 31, 2012, the estimated fair value of our Level 3 variable-rate long-term debt was based on estimates of market spreads when quoted market values did not exist, on the current rates offered to us for debt of the same maturities or quoted market prices for the same or similar issues. In determining the current market rate for the fixed rate debt, a market spread was added to the quoted yields on federal government treasury securities with similar maturity dates. The primary sensitivity in these estimates is based on the selection of appropriate market spreads. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the market spread would result in a decrease in the fair value.
No financial or nonfinancial assets were measured at fair value on a nonrecurring basis as of December 31, 2013. The estimated fair values of our financial and nonfinancial assets that were measured at fair value on a nonrecurring basis as a result of impairment losses were as follows:
Year Ended December 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Fair Value(1) | Impairment Losses |
Fair Value(1) | Impairment Losses |
|||||||||||||
(in millions) | ||||||||||||||||
Property and equipment, net |
$ | 24 | $ | 53 | $ | 5 | $ | 20 | ||||||||
Investments in affiliates |
29 | 20 | 205 | 141 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
During the years ended December 31, 2012 and 2011, property and equipment, net with a carrying value of $77 million and $25 million before impairment, respectively, was reduced to its estimated fair value, resulting in impairment losses of $53 million and $20 million, respectively. Using estimates of undiscounted net cash flows, we concluded that the carrying values of the assets were not fully recoverable. We estimated the fair value of the assets using discounted cash flow analyses, with estimated stabilized growth rates ranging from 2 percent to 3 percent, a discounted cash flow term of 10 years, terminal capitalization rates ranging from 8 percent to 9 percent and discount rates ranging from 9 percent to 12 percent. The discount and terminal capitalization rates used for the fair value of the assets reflect the risk profile of the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole.
During the years ended December 31, 2012 and 2011, investments in affiliates with a carrying value of $49 million and $346 million before impairment, respectively, were reduced to their estimated fair value, resulting in impairment losses of $20 million and $141 million, respectively, related to our investments in entities that own or lease hotels. We estimated the fair value of the investments using discounted cash flow analyses, with estimated stabilized growth rates ranging from 3 percent to 7 percent, a discounted cash flow term of 10 years, terminal capitalization rates ranging from 8 percent to 12 percent and discount rates ranging from 10 percent to 22 percent. The discount and terminal capitalization rates used for the fair value of our investments reflect the risk profile of the individual markets where the assets subject to our investment are located, and are not necessarily indicative of our investment portfolio as a whole.
|
Note 18 : Leases
We lease hotel properties, land, equipment and corporate office space under operating and capital leases. As of December 31, 2013 and 2012, we leased 70 hotels and 71 hotels, respectively, under operating leases and five hotels and seven hotels, respectively, under capital leases. As of December 31, 2013 and 2012, 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 2014 through 2196, with varying renewal options, and the majority expire before 2026.
Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rent payments equal to the greater of a minimum rent or contingent rent. In addition, we may be required to pay some, or all, of the capital costs for property and equipment in the hotel during the term of the lease.
The future minimum rent payments, under non-cancelable leases, due in each of the next five years and thereafter as of December 31, 2013, were as follows:
Operating Leases |
Capital Leases |
Non-Recourse Capital Leases |
||||||||||
Year | (in millions) | |||||||||||
2014 |
$ | 264 | $ | 8 | $ | 26 | ||||||
2015 |
251 | 16 | 26 | |||||||||
2016 |
243 | 6 | 26 | |||||||||
2017 |
230 | 6 | 26 | |||||||||
2018 |
223 | 6 | 26 | |||||||||
Thereafter |
2,075 | 106 | 272 | |||||||||
|
|
|
|
|
|
|||||||
Total minimum rent payments |
$ | 3,286 | 148 | 402 | ||||||||
|
|
|||||||||||
Less: amount representing interest |
(75) | (147) | ||||||||||
|
|
|
|
|||||||||
Present value of net minimum rent payments |
$ | 73 | $ | 255 | ||||||||
|
|
|
|
Amortization of assets recorded under capital leases is recorded in depreciation and amortization in our consolidated statements of operations and is recognized over the lease term.
Rent expense for all operating leases was as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Minimum rentals |
$ | 271 | $ | 286 | $ | 264 | ||||||
Contingent rentals |
148 | 161 | 175 | |||||||||
|
|
|
|
|
|
|||||||
$ | 419 | $ | 447 | $ | 439 | |||||||
|
|
|
|
|
|
During the year ended December 31, 2013, we purchased the land and building associated with the Hilton Bradford, which we previously leased under a capital lease. As a result of the acquisition, we released our capital lease obligation of $17 million as of the acquisition date. For further discussion, see Note 3: “Acquisitions.”
During the year ended December 31, 2012, we acquired the remaining ownership interest in one of our consolidated VIEs located in Japan, as well as restructured the lease agreement for the Hilton Odawara. In conjunction with the lease restructuring, we executed a binding purchase agreement with the owner to purchase the building and surrounding land at the end of the extended lease term. The Hilton Odawara lease, which was previously accounted for as an operating lease, was recorded as a capital lease asset and obligation of $15 million as of December 31, 2012. See Note 3: “Acquisitions” for discussion regarding the acquisition of the VIE.
|
Note 11: Income Taxes
At the end of each quarter we estimate the effective tax rate expected to be applied for the full year. The effective income tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, foreign, state and local income taxes and reflects income tax expense or benefit resulting from our significant operations outside of the U.S. The lower effective tax rate, as compared to our statutory tax rate, for the nine months ended September 30, 2013, was largely affected by net decreases in unrecognized tax benefits.
Our total unrecognized tax benefits as of September 30, 2014 and December 31, 2013 were $378 million and $435 million, respectively. We had accrued balances of approximately $18 million and $45 million for the payment of interest and penalties as of September 30, 2014 and December 31, 2013, respectively. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. The net decrease to unrecognized tax benefits of $57 million and accrued interest and penalties of $27 million relates to a reduction to uncertain tax positions for calendar years 2006 and 2007 that were effectively settled during the nine months ended September 30, 2014 in connection with the receipt of a Revenue Agent Report from the Internal Revenue Service (“IRS”).
As a result of the expected resolution of examination issues with federal, state and foreign tax authorities, we believe it is reasonably possible that during the next 12 months the amount of unrecognized tax benefits will decrease up to $1 million. Included in the balance of unrecognized tax benefits as of September 30, 2014 and December 31, 2013 were $342 million and $340 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective tax rate.
We file income tax returns, including returns for our subsidiaries, with federal, state and foreign jurisdictions. We are under regular and recurring audit by the 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 state, local, federal and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. We are no longer subject to U.S. federal income tax examination for years through 2004. As of September 30, 2014, we remain subject to federal examinations from 2005-2013, state examinations from 1999-2013 and foreign examinations of our income tax returns for the years 1996 through 2013. With respect to 2005 through October 2007 tax years, the IRS has completed its examination and the disputed assessments proposed by the IRS exam team have now been submitted to the IRS Appeals Office for review, during which we will have the opportunity to defend our position. 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 notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after filing the respective tax return.
Note 19: Income Taxes
Our tax provision (benefit) includes federal, state and foreign income taxes payable. The domestic and foreign components of income before income taxes were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
U.S. income before tax |
$ | 502 | $ | 435 | $ | 48 | ||||||
Foreign income before tax |
196 | 138 | 148 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 698 | $ | 573 | $ | 196 | ||||||
|
|
|
|
|
|
The components of our provision (benefit) for income taxes were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Current: |
||||||||||||
Federal |
$ | 94 | $ | 71 | $ | 50 | ||||||
State |
15 | 13 | 8 | |||||||||
Foreign |
64 | 57 | 70 | |||||||||
|
|
|
|
|
|
|||||||
Total current |
173 | 141 | 128 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
160 | 63 | (190) | |||||||||
State |
4 | 2 | (8) | |||||||||
Foreign |
(99) | 8 | 11 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred |
65 | 73 | (187) | |||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) for income taxes |
$ | 238 | $ | 214 | $ | (59) | ||||||
|
|
|
|
|
|
During 2013, based on our consideration of all available positive and negative evidence, we determined that it was more likely than not we would be able to realize the benefit of various foreign deferred tax assets and state net operating losses. Accordingly, as of December 31, 2013, we released valuation allowances of $109 million and $12 million, respectively, against our deferred tax assets related to our foreign deferred tax assets and state net operating losses.
During 2011, based on our consideration of all then-available positive and negative evidence, we believed that it was more likely than not we would be able to realize the benefit of our U.S. federal foreign tax credits. Accordingly, as of December 31, 2011, we released valuation allowances of $182 million against our deferred tax assets related to our U.S. foreign tax credits.
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, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Statutory U.S. federal income tax provision |
$ | 244 | $ | 201 | $ | 69 | ||||||
State income taxes, net of U.S. federal tax benefit |
31 | 10 | 6 | |||||||||
Foreign income tax expense |
74 | 18 | 50 | |||||||||
Foreign losses not subject to U.S. tax |
(24) | (24) | (26) | |||||||||
Tax credits |
(67) | (67) | (58) | |||||||||
Change in deferred tax asset valuation allowance |
(121) | 56 | (160) | |||||||||
Change in basis difference in foreign subsidiaries |
24 | 18 | 20 | |||||||||
Provision for uncertain tax positions |
(19) | (2) | 35 | |||||||||
Non-deductible equity based compensation |
94 | — | — | |||||||||
Other, net |
2 | 4 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Provision (benefit) for income taxes |
$ | 238 | $ | 214 | $ | (59) | ||||||
|
|
|
|
|
|
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The composition of net deferred tax balances were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Deferred income tax assets—current |
$ | 23 | $ | 76 | ||||
Deferred income tax assets—non-current |
193 | 104 | ||||||
Deferred income tax liabilities—current(1) |
— | (1) | ||||||
Deferred income tax liabilities—non-current |
(5,053) | (4,948) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,837) | $ | (4,769) | ||||
|
|
|
|
(1) | Included in the accounts payable, accrued expenses and other in our consolidated balance sheet. |
The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Deferred tax assets: |
||||||||
Foreign tax credits |
$ | 20 | $ | 227 | ||||
Net operating loss carryforwards |
573 | 570 | ||||||
Compensation |
187 | 245 | ||||||
Deferred transaction costs |
15 | 25 | ||||||
Investments |
56 | — | ||||||
Other reserves |
90 | 198 | ||||||
Capital lease obligations |
133 | 188 | ||||||
Self-insurance reserves |
51 | 44 | ||||||
System funds |
42 | 23 | ||||||
Other tax credits |
3 | 48 | ||||||
Other |
105 | 72 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
1,275 | 1,640 | ||||||
Less: valuation allowance |
(503) | (769) | ||||||
|
|
|
|
|||||
Deferred tax assets |
$ | 772 | $ | 871 | ||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment |
$ | (2,075) | $ | (2,025) | ||||
Brands |
(1,910) | (1,916) | ||||||
Amortizable intangible |
(616) | (659) | ||||||
Unrealized foreign currency gains |
(279) | (301) | ||||||
Investments |
— | (70) | ||||||
Investment in foreign subsidiaries |
(81) | (93) | ||||||
Deferred income |
(648) | (576) | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
(5,609) | (5,640) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,837) | $ | (4,769) | ||||
|
|
|
|
As of December 31, 2013, we had state and foreign net operating loss carryforwards of $806 million and $2.0 billion, respectively, which resulted in deferred tax assets of $40 million for state jurisdictions and $533 million for foreign jurisdictions. Approximately $59 million of our deferred tax assets as of December 31, 2013 related to net operating loss carryforwards that will expire between 2014 and 2033 with $1 million of that amount expiring in 2014. Approximately $514 million of our deferred tax assets as of December 31, 2013 resulted from net operating loss carryforwards that are not subject to expiration. We believe that it is more likely than not that the benefit from certain state and foreign net operating loss carryforwards will not be realized. In recognition of this assessment, we provided a valuation allowance of $3 million and $440 million as of December 31, 2013 on the deferred tax assets relating to these state and foreign net operating loss carryforwards, respectively. Our valuation allowance decreased $266 million during the year ended December 31, 2013.
We classify reserves for tax uncertainties within current income taxes payable and other long-term liabilities in our consolidated balance sheets. Reconciliations of the beginning and ending amount of unrecognized tax benefits were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Balance at beginning of year |
$ | 469 | $ | 436 | $ | 405 | ||||||
Additions for tax positions related to the prior year |
1 | 71 | 60 | |||||||||
Additions for tax positions related to the current year |
5 | 5 | 5 | |||||||||
Reductions for tax positions for prior years |
(2) | (23) | (6) | |||||||||
Settlements |
(35) | (14) | (27) | |||||||||
Lapse of statute of limitations |
(2) | (6) | (2) | |||||||||
Currency translation adjustment |
(1) | — | 1 | |||||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
$ | 435 | $ | 469 | $ | 436 | ||||||
|
|
|
|
|
|
The changes to our unrecognized tax benefits during the years ended December 31, 2013 and 2012 were primarily the result of items identified, resolved, and settled as part of our ongoing U.S. federal audit. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense. We accrued approximately $4 million, $8 million, and $6 million during the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, we had accrued approximately $45 million and $42 million, respectively, for the payment of interest and penalties. Included in the balance of uncertain tax positions as of December 31, 2013 and 2012 were $340 million and $374 million, respectively, associated with positions that if favorably resolved would provide a benefit to our effective tax rate. As a result of the expected resolution of examination issues with federal, state, and foreign tax authorities, we believe it is reasonably possible that during the next 12 months the amount of unrecognized tax benefits will decrease up to $15 million.
We file income tax returns, including returns for our subsidiaries, with federal, state and foreign jurisdictions. We are under regular and recurring audit by the Internal Revenue Service (“IRS”) on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. We are no longer subject to U.S. federal income tax examination for years through 2004. As of December 31, 2013, we remain subject to federal examinations from 2005-2012, state examinations from 1999-2012 and foreign examinations of our income tax returns for the years 1996 through 2012. During 2009, the IRS commenced its audit of our predecessor’s consolidated U.S. income tax returns for the 2006 through October 2007 tax years. In 2013, we received Notices of Proposed Adjustment from the IRS for such years primarily relating to assertions by the IRS that: (1) certain foreign currency-denominated, intercompany loans from our foreign subsidiaries to certain U.S. subsidiaries should be recharacterized as equity for U.S. federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S. subsidiaries; (2) in calculating the amount of U.S. taxable income resulting from our Hilton HHonors guest loyalty program, we should not reduce gross income by the estimated costs of future redemptions, but rather such costs would be deductible at the time the points are redeemed; and (3) certain foreign-currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is the U.S. dollar, 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 U.S. dollars. In total, the proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $696 million, excluding interest and penalties and potential state income taxes. The portion of this amount related to our Hilton HHonors guest loyalty program would result in a decrease to our future tax liability when the points are redeemed. We disagree with the IRS’s position on each of these assertions and intend to vigorously contest them. We plan to pursue all available administrative remedies, and if we are not able to resolve these matters administratively, we plan to pursue judicial remedies. Accordingly, as of December 31, 2013, no accrual has been made for these amounts.
State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return; however, the state impact of any federal tax return changes remains subject to examination by various states for a period generally of up to one year after formal notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after filing the respective tax return.
On September 13, 2013, Treasury and the IRS issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce or improve tangible property, as well as dispositions of such property, and are generally effective for tax years beginning on or after January 1, 2014. We have evaluated these regulations and determined they will not have a material effect on our consolidated results of operations, cash flows or financial position.
|
Note 12: 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. We also have multiple employee benefit plans that cover many of our international employees. These include a plan that covers workers in the United Kingdom (the “U.K. Plan”), which was frozen to further accruals in November 2013, and a number of smaller plans that cover workers in various other countries around the world (the “International Plans”).
The components of net periodic pension cost (credit) for the Domestic Plan, U.K. Plan and International Plans were as follows:
Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Domestic Plan |
U.K. Plan |
International Plans |
Domestic Plan |
U.K. Plan |
International Plans |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost |
$ | 5 | $ | 1 | $ | 2 | $ | 3 | $ | 4 | $ | 2 | ||||||||||||
Interest cost |
13 | 13 | 3 | 13 | 12 | 3 | ||||||||||||||||||
Expected return on plan assets |
(14) | (19) | (3) | (14) | (17) | (3) | ||||||||||||||||||
Amortization of prior service cost (credit) |
3 | — | — | 3 | (2) | — | ||||||||||||||||||
Amortization of net loss |
1 | 1 | — | 2 | 3 | 1 | ||||||||||||||||||
Settlement losses |
2 | — | — | — | — | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net periodic pension cost (credit) |
$ | 10 | $ | (4) | $ | 2 | $ | 7 | $ | — | $ | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
We have an outstanding bond of $76 million under a class action lawsuit against Hilton and the Domestic Plan to support potential future plan contributions from us. We funded an account, which is classified as restricted cash and cash equivalents in our condensed consolidated balance sheets, to support this requirement. If the U.S. District Court for the District of Columbia approves of our compliance with the requirements of the ruling from the class action lawsuit, then the bond may be released in 2014.
Note 20: 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. Plan assets will be used to pay benefits due to employees for service through December 31, 1996. As employees have not accrued additional benefits since that time, we do not utilize salary or pension inflation assumptions in calculating our benefit obligation for the Domestic Plan. The annual measurement date for the Domestic Plan is December 31.
We also have multiple employee benefit plans that cover many of our international employees. These include a plan that covers workers in the United Kingdom (the “U.K. Plan”) which was frozen to further accruals on November 30, 2013, and 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 (the difference between the fair value of plan assets and the projected benefit obligations) of our pension plans in our consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive loss, net of tax.
The following table presents the projected benefit obligation, 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 | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Change in Projected Benefit Obligation: |
||||||||||||||||||||||||
Benefit obligation at beginning of year |
$ | 491 | $ | 449 | $ | 365 | $ | 312 | $ | 125 | $ | 119 | ||||||||||||
Service cost |
— | — | 5 | 5 | 3 | 4 | ||||||||||||||||||
Interest cost |
18 | 21 | 16 | 16 | 4 | 5 | ||||||||||||||||||
Employee contributions |
— | — | 2 | 2 | — | — | ||||||||||||||||||
Actuarial loss (gain) |
(51) | 43 | (3) | 28 | (6) | 9 | ||||||||||||||||||
Settlements and curtailments |
— | — | — | — | (2) | — | ||||||||||||||||||
Effect of foreign exchange rates |
— | — | 8 | 14 | (4) | (2) | ||||||||||||||||||
Benefits paid |
(45) | (22) | (13) | (12) | (8) | (10) | ||||||||||||||||||
Other(1) |
11 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Benefit obligation at end of year |
$ | 424 | $ | 491 | $ | 380 | $ | 365 | $ | 112 | $ | 125 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
||||||||||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 273 | $ | 249 | $ | 363 | $ | 318 | $ | 85 | $ | 83 | ||||||||||||
Actual return on plan assets, net of expenses |
32 | 31 | 20 | 34 | 9 | 4 | ||||||||||||||||||
Employer contribution |
40 | 15 | 5 | 7 | 6 | 10 | ||||||||||||||||||
Employee contributions |
— | — | 2 | 2 | — | — | ||||||||||||||||||
Effect of foreign exchange rates |
— | — | 8 | 14 | (4) | (2) | ||||||||||||||||||
Benefits paid |
(45) | (22) | (13) | (12) | (7) | (10) | ||||||||||||||||||
Settlements |
— | — | — | — | (2) | — | ||||||||||||||||||
Other(1) |
20 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fair value of plan assets at end of year |
320 | 273 | 385 | 363 | 87 | 85 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Funded status at end of year (overfunded/(underfunded)) |
(104) | (218) | 5 | (2) | (25) | (40) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Accumulated benefit obligation |
$ | 424 | $ | 491 | $ | 380 | $ | 365 | $ | 112 | $ | 125 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes projected benefit obligations of $11 million and plan assets of $20 million related to certain employees of former Hilton affiliates that were assumed during the year ended December 31, 2013. |
Amounts recognized in the consolidated balance sheets consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Non-current asset |
$ | 2 | $ | — | $ | 8 | $ | — | $ | 5 | $ | 3 | ||||||||||||
Current liability |
— | — | — | — | (1) | (1) | ||||||||||||||||||
Non-current liability |
(106) | (218) | (3) | (2) | (29) | (42) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amount recognized |
$ | (104) | $ | (218) | $ | 5 | $ | (2) | $ | (25) | $ | (40) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Net actuarial loss (gain) |
$ | (67) | $ | 29 | $ | 8 | $ | — | $ | 17 | $ | 21 | $ | (12) | $ | 9 | $ | 2 | ||||||||||||||||||
Prior service cost (credit) |
(12) | (4) | (4) | 3 | 16 | 3 | — | — | (4) | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
(3) | 1 | (4) | (4) | (3) | (1) | (2) | (1) | (2) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net amount recognized |
$ | (82) | $ | 26 | $ | — | $ | (1) | $ | 30 | $ | 23 | $ | (14) | $ | 8 | $ | (4) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated unrecognized net losses and prior service cost (credit) that will be amortized into net periodic pension cost over the next fiscal year were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Unrecognized net losses |
$ | 1 | $ | 4 | $ | 6 | $ | 1 | $ | 4 | $ | 3 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
Unrecognized prior service cost (credit) |
4 | 4 | 4 | — | (3) | (16) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Amount unrecognized |
$ | 5 | $ | 8 | $ | 10 | $ | 1 | $ | 1 | $ | (13) | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic pension cost was as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Service cost |
$ | 4 | $ | — | $ | — | $ | 5 | $ | 5 | $ | 4 | $ | 4 | $ | 4 | $ | 4 | ||||||||||||||||||
Interest cost |
17 | 21 | 23 | 17 | 16 | 17 | 4 | 5 | 5 | |||||||||||||||||||||||||||
Expected return on plan assets |
(18) | (17) | (17) | (23) | (21) | (21) | (4) | (4) | (4) | |||||||||||||||||||||||||||
Amortization of prior service cost (credit) |
4 | 4 | 4 | (3) | (16) | (3) | — | — | — | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
3 | (1) | 4 | 4 | 3 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net periodic pension cost (credit) |
10 | 7 | 14 | — | (13) | (2) | 5 | 6 | 6 | |||||||||||||||||||||||||||
Settlement losses |
— | — | — | — | — | — | — | — | 1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net pension cost (credit) |
$ | 10 | $ | 7 | $ | 14 | $ | — | $ | (13) | $ | (2) | $ | 5 | $ | 6 | $ | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used to determine benefit obligations were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Discount rate |
4.7% | 3.9% | 4.7 | % | 4.7 | % | 4.3 | % | 3.8 | % | ||||||||||||||
Salary inflation |
N/A | N/A | 1.9 | % | 1.9 | % | 2.3 | % | 2.2 | % | ||||||||||||||
Pension inflation |
N/A | N/A | 3.0 | % | 2.8 | % | 1.9 | % | 2.0 | % |
The weighted-average assumptions used to determine net periodic pension cost (credit) were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
Discount rate |
3.9% | 4.9% | 5.4% | 4.7% | 5.0% | 5.7% | 3.8% | 4.6% | 5.0% | |||||||||||||||||||||||||||
Expected return on plan assets |
7.5% | 6.8% | 6.8% | 6.5% | 6.5% | 6.5% | 6.3% | 6.2% | 6.2% | |||||||||||||||||||||||||||
Salary inflation |
N/A | N/A | N/A | 1.9% | 1.7% | 2.6% | 2.2% | 2.8% | 3.3% | |||||||||||||||||||||||||||
Pension inflation |
N/A | N/A | N/A | 2.8% | 2.9% | 3.0% | 2.0% | 1.8% | 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 Company stock. Asset allocations are reviewed periodically.
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, 2013 and 2012 was 60 percent and 50 percent, respectively, in funds that invest in equity securities, and 40 percent and 50 percent, respectively, in funds that invest in debt securities. The U.K. Plan and International Plans target asset allocation as a percentage of total plan assets as of December 31, 2013 was 65 percent in funds that invest in equity and debt securities and 35 percent in bond funds. As of December 31, 2012, the U.K. Plan and International Plans target asset allocations as a percentage of total plan assets was 36 percent in funds that invest in equity securities, 50 percent in funds that invest in debt securities, and 14 percent in property funds.
The following table presents the fair value hierarchy of total plan assets measured at fair value by asset category. The fair value of Level 2 assets were based on available market pricing information of similar financial instruments.
December 31, 2013 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 10 | $ | — | $ | — | ||||||||||||||||||
Equity funds |
70 | — | — | — | — | — | 5 | 9 | — | |||||||||||||||||||||||||||
Debt securities |
10 | 97 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Bond funds |
— | — | — | — | — | — | — | 16 | — | |||||||||||||||||||||||||||
Real estate funds |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
Common collective trusts |
— | 143 | — | — | 385 | — | — | 45 | — | |||||||||||||||||||||||||||
Other |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 80 | $ | 240 | $ | — | $ | — | $ | 385 | $ | — | $ | 15 | $ | 72 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 12 | $ | — | $ | — | ||||||||||||||||||
Equity funds |
54 | — | — | — | — | — | 4 | 9 | — | |||||||||||||||||||||||||||
Debt securities |
16 | 103 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Bond funds |
— | — | — | — | — | — | — | 15 | — | |||||||||||||||||||||||||||
Common collective trusts |
— | 100 | — | — | 363 | — | — | 44 | — | |||||||||||||||||||||||||||
Other |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 70 | $ | 203 | $ | — | $ | — | $ | 363 | $ | — | $ | 16 | $ | 69 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to contribute approximately $9 million, $1 million and $6 million to the Domestic Plan, the U.K. Plan and the International Plans, respectively, in 2014.
As of December 31, 2013, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter were as follows:
Domestic Plan | U.K. Plan | International Plans |
||||||||||
(in millions) | ||||||||||||
Year |
||||||||||||
2014 |
$ | 87 | $ | 14 | $ | 11 | ||||||
2015 |
26 | 14 | 9 | |||||||||
2016 |
25 | 14 | 9 | |||||||||
2017 |
25 | 14 | 8 | |||||||||
2018 |
25 | 15 | 8 | |||||||||
2019 - 2023 |
125 | 76 | 43 | |||||||||
|
|
|
|
|
|
|||||||
$ | 313 | $ | 147 | $ | 88 | |||||||
|
|
|
|
|
|
Domestic Plan
As of January 1, 2007, the frozen 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, 2013, the multiple employer plan had combined assets of $342 million and a projected benefit obligation of $446 million.
A class action lawsuit was filed in 1998 against Hilton and the Domestic Plan claiming that the Domestic Plan did not calculate benefit obligations in accordance with the terms of the plan nor were vesting rules followed in accordance with the plan. In May 2009, the U.S. District Court for the District of Columbia (the “District Court”) found in favor of the plaintiff in a summary judgment and required that we and the plaintiff enter into mediation to reach agreement on the amounts necessary for recognition of service and benefits for plan participants and in August 2011, the District Court issued a final order with respect to this lawsuit. We recorded an increase to our minimum additional pension obligation of $109 million as of December 31, 2012 to reflect the expected increase in benefit obligation relating to this case. The additional obligation will be recognized as additional pension expense, which will be amortized over the average remaining life expectancy of the plan participants as determined by our actuaries, with the unamortized portion of the obligation having been recognized in accumulated other comprehensive loss as an adjustment of the pension liability. As of December 31, 2013, the remaining unpaid projected benefit obligation related to this case was $86 million.
In November 2013, the District Court issued final administrative orders in regard to the lawsuit, which allowed Hilton to adopt an amendment to the Domestic Plan required by the Court. The adoption of the amendment required us to make a contribution of $31 million in November 2013, prior to the amendment to comply with minimum legal funding obligations of the Domestic Plan. We expect to commence benefit payments under the new plan document in early 2014, in accordance with the requirements of the court order. In February 2012, the District Court ordered us to post bond of $76 million under the litigation to support potential future plan contributions. We funded an account, which is classified as restricted cash and cash equivalents, with this amount to support this requirement, and expect that the bond will be released upon the commencement of benefit payments being made under the amended plan document in 2014.
U.K. Plan
In March 2012, we, along with the trustees of the U.K. Plan, adopted an agreement to freeze the defined benefit plan for enrollment to new employees effective immediately, and to freeze the accrual of benefits to existing employees, which was implemented on November 30, 2013. A defined contribution plan has been put in place for the affected employees. We recognized an acceleration of prior service credit of $13 million related to the adoption of this agreement during the year ended December 31, 2012.
In May 2011, we, along with the trustees for the U.K. Plan, reached a tentative agreement on the funded status and security for the U.K. Plan. This agreement extended our GBP 15 million guarantee (equivalent to $25 million as of December 31, 2013) to March 2014 and included a one-time voluntary cash contribution of GBP 5 million (equivalent to approximately $8 million) by us to the plan, which was funded during the year ended December 31, 2011.
Other Benefit Plans
We also have plans covering qualifying employees and non-officer directors (the “Supplemental Plans”). Benefits for the Supplemental Plans are based upon years of service and compensation. Since December 31, 1996, employees and non-officer directors have not accrued additional benefits under the Supplemental Plans. These plans are self-funded by us and, therefore, have no plan assets isolated to pay benefits due to employees. As of December 31, 2013 and 2012, these plans had benefit obligations of $14 million and $13 million, respectively, which were fully accrued in our consolidated balance sheets. Expense incurred under the Supplemental Plans for the years ended December 31, 2013, 2012 and 2011 was not significant.
We have various employee defined contribution investment plans whereby we contribute matching percentages of employee contributions. The aggregate expense under these plans totaled $20 million for the year ended December 31, 2013 and $18 million for each of the years ended December 31, 2012 and 2011.
Multi-Employer Pension Plans
Certain employees are covered by union sponsored multi-employer pension plans pursuant to agreements between us and various unions. Our participation in these plans is outlined in the table below:
EIN/
Pension Plan Number |
Pension
Protection Act Zone Status |
Contributions | ||||||||||||||||||||||
Pension Fund |
2013 | 2012 | 2013 | 2012 | 2011 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund |
13-1764242 | Pending | Yellow | $ | 14 | $ | 13 | $ | 13 | |||||||||||||||
Other plans |
12 | 11 | 9 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total contributions |
$ | 26 | $ | 24 | $ | 22 | ||||||||||||||||||
|
|
|
|
|
|
Eligible employees at our owned hotels in New York City participate in the New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund (“New York Pension Fund”). Our contributions are based on a percentage of all union employee wages as dictated by the collective bargaining agreement that expires on June 30, 2019. Our contributions exceeded 5 percent of the total contributions to the New York Pension Fund in 2012, as indicated in the New York Pension Fund’s Annual Return/Report of Employee Benefit Plan on IRS Form 5500 for the year ended December 31, 2012. The New York Pension Fund has implemented a funding improvement plan, and we have not paid a surcharge.
|
Note 15: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Cash Flow Hedge Adjustment |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance as of December 31, 2013 |
$ | (136) | $ | (134) | $ | 6 | $ | (264) | ||||||||
Other comprehensive loss before reclassifications |
(129) | — | (4) | (133) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
(4) | 3 | — | (1) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(133) | 3 | (4) | (134) | ||||||||||||
Equity contribution to consolidated variable interest entities |
(6) | — | — | (6) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2014 |
$ | (275) | $ | (131) | $ | 2 | $ | (404) | ||||||||
|
|
|
|
|
|
|
|
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Total | ||||||||||
(in millions) | ||||||||||||
Balance as of December 31, 2012 |
$ | (212) | $ | (194) | $ | (406) | ||||||
Other comprehensive income (loss) before reclassifications |
(21) | 6 | (15) | |||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 4 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Net current period other comprehensive income (loss) |
(21) | 10 | (11) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2013 |
$ | (233) | $ | (184) | $ | (417) | ||||||
|
|
|
|
|
|
(1) | Includes net investment hedges. |
The following table presents additional information about reclassifications out of accumulated other comprehensive loss:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Currency translation adjustment: |
||||||||
Sale and liquidation of foreign assets(1) |
$ | 3 | $ | (1) | ||||
Gains on net investment hedges(2) |
1 | 1 | ||||||
Tax benefit(3)(4) |
— | — | ||||||
|
|
|
|
|||||
Total currency translation adjustment reclassifications for the period, net of taxes |
4 | — | ||||||
|
|
|
|
|||||
Pension liability adjustment: |
||||||||
Amortization of prior service cost(5) |
(3) | (1) | ||||||
Amortization of net loss(5) |
(2) | (6) | ||||||
Tax benefit(3) |
2 | 3 | ||||||
Total pension liability adjustment reclassifications for the period, net of taxes |
(3) | (4) | ||||||
|
|
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 1 | $ | (4) | ||||
|
|
|
|
(1) | Reclassified out of accumulated other comprehensive loss to other gain, net in our condensed consolidated statements of operations. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
(2) | Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in our condensed consolidated statements of operations. |
(3) | Reclassified out of accumulated other comprehensive loss to income tax expense in our condensed consolidated statements of operations. |
(4) | The respective tax benefit was less than $1 million for the nine months ended September 30, 2014 and 2013. |
(5) | Reclassified out of accumulated other comprehensive loss to general, administrative and other in the condensed consolidated statements of operations. These amounts were included in the computation of net periodic pension cost (credit). See Note 12: “Employee Benefit Plans” for additional information. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
Note 23: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Cash Flow Hedge Adjustment |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance as of December 31, 2010 |
$ (257) | $ (140) | $ (1) | $ (398) | ||||||||||||
Other comprehensive loss before reclassifications |
(79) | (21) | — | (100) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 8 | 1 | 9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(79) | (13) | 1 | (91) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2011 |
(336) | (153) | — | (489) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
124 | (35) | — | 89 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | (6) | — | (6) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
124 | (41) | — | 83 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2012 |
(212) | (194) | — | (406) | ||||||||||||
Other comprehensive income before reclassifications |
67 | 54 | 6 | 127 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
9 | 6 | — | 15 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income |
76 | 60 | 6 | 142 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2013 |
$ (136) | $ (134) | $ 6 | $ (264) | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Includes net investment hedges. |
The following table presents additional information about reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2013:
(in millions) | ||||
Currency translation adjustment: |
||||
Sale and liquidation of foreign assets(1) |
$ | (15) | ||
Gains on net investment hedges(2) |
1 | |||
Tax benefit(3) |
5 | |||
|
|
|||
Total currency translation adjustment reclassifications for the period, net of taxes |
(9) | |||
|
|
|||
Pension liability adjustment: |
||||
Amortization of prior service cost(4) |
(1) | |||
Amortization of net loss(4) |
(8) | |||
Tax benefit(3) |
3 | |||
|
|
|||
Total pension liability adjustment reclassifications for the period, net of taxes |
(6) | |||
|
|
|||
Total reclassifications for the period, net of tax |
$ | (15) | ||
|
|
(1) | Reclassified out of accumulated other comprehensive loss to other gain, net in the consolidated statement of operations. Amounts in parentheses indicate a loss in our consolidated statement of operations. |
(2) | Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in our consolidated statement of operations. |
(3) | Reclassified out of accumulated other comprehensive loss to income tax benefit (expense) in our consolidated statement of operations. |
(4) | Reclassified out of accumulated other comprehensive loss to general, administrative and other in the consolidated statement of operations. These amounts were included in the computation of net periodic pension cost. See Note 20: “Employee Benefit Plans” for additional information. Amounts in parentheses indicate a loss in our consolidated statement of operations. |
|
Note 16: Business Segments
We are a diversified hospitality company with operations organized in three distinct operating segments: ownership, management and franchise and timeshare. Each segment is managed separately because of its distinct economic characteristics.
The ownership segment includes all hotels that we wholly own or lease, as well as consolidated non-wholly owned entities and consolidated VIEs. As of September 30, 2014, this segment included 122 wholly owned and leased hotels and resorts, three non-wholly owned hotel properties and three hotels of consolidated VIEs. While we do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment revenues, we manage these investments in our ownership segment. Our unconsolidated affiliates are primarily investments in entities that owned or leased 16 hotels and one condominium management company as of September 30, 2014.
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 under one of our proprietary brand names of our brand portfolio. As of September 30, 2014, this segment included 524 managed hotels and 3,552 franchised hotels. This segment also earns fees for managing properties in our ownership and timeshare segments.
The timeshare segment includes the development of vacation ownership clubs and resorts, marketing and selling of timeshare intervals, providing timeshare customer financing and resort operations. This segment also provides assistance to third-party developers in selling their timeshare inventory. As of September 30, 2014, this segment included 44 timeshare properties.
Corporate and other represents revenues and related operating expenses generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels and other rental income, as well as corporate assets and related expenditures.
The performance of our operating segments is evaluated primarily based on Adjusted EBITDA. We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) furniture, fixtures and equipment (“FF&E”) replacement reserves required under certain lease agreements; (vi) reorganization costs; (vii) share-based and certain other compensation expenses prior to and in connection with our initial public offering; (viii) severance, relocation and other expenses; and (ix) other items.
The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Revenues |
||||||||
Ownership(1)(2) |
$ | 3,165 | $ | 3,003 | ||||
Management and franchise(3) |
1,085 | 938 | ||||||
Timeshare |
850 | 809 | ||||||
|
|
|
|
|||||
Segment revenues |
5,100 | 4,750 | ||||||
Other revenues from managed and franchised properties |
2,653 | 2,433 | ||||||
Other revenues(4) |
70 | 48 | ||||||
Intersegment fees elimination(1)(2)(3)(4) |
(149) | (139) | ||||||
|
|
|
|
|||||
Total revenues |
$ | 7,674 | $ | 7,092 | ||||
|
|
|
|
|||||
Adjusted EBITDA |
||||||||
Ownership(1)(2)(3)(4)(5) |
$ | 730 | $ | 672 | ||||
Management and franchise(3) |
1,085 | 938 | ||||||
Timeshare(1)(3) |
232 | 205 | ||||||
Corporate and other(2)(4) |
(207) | (208) | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 1,840 | $ | 1,607 | ||||
|
|
|
|
(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which were eliminated in our condensed consolidated financial statements. These charges totaled $21 million and $19 million for the nine months ended September 30, 2014 and 2013, respectively. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the ownership segment and a cost to timeshare Adjusted EBITDA. |
(2) | Includes other intercompany charges of $3 million and $2 million for the nine months ended September 30, 2014 and 2013, respectively. |
(3) | Includes management, royalty and intellectual property fees of $86 million and $71 million for the nine months ended September 30, 2014 and 2013, respectively. These fees are charged to consolidated owned and leased properties and were eliminated in our condensed consolidated financial statements. Also includes a licensing fee of $33 million and $40 million for the nine months ended September 30, 2014 and 2013, respectively, which is charged to our timeshare segment by our management and franchise segment and was eliminated in our condensed consolidated financial statements. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the management and franchise segment and a cost to ownership Adjusted EBITDA and timeshare Adjusted EBITDA. |
(4) | Includes charges to consolidated owned and leased properties for services provided by our wholly owned laundry business of $6 million and $7 million for the nine months ended September 30, 2014 and 2013, respectively. These charges were eliminated in our condensed consolidated financial statements. |
(5) | Includes unconsolidated affiliate Adjusted EBITDA. |
The following table provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholders:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Adjusted EBITDA |
$ | 1,840 | $ | 1,607 | ||||
Net income attributable to noncontrolling interests |
(8) | (9) | ||||||
Gain (loss) on foreign currency transactions |
41 | (43) | ||||||
FF&E replacement reserve |
(32) | (29) | ||||||
Share-based compensation expense |
(25) | (5) | ||||||
Other gain, net |
38 | 5 | ||||||
Other adjustment items |
(41) | (56) | ||||||
|
|
|
|
|||||
EBITDA |
1,813 | 1,470 | ||||||
Interest expense |
(467) | (401) | ||||||
Interest expense included in equity in earnings from unconsolidated affiliates |
(8) | (10) | ||||||
Income tax expense |
(331) | (192) | ||||||
Depreciation and amortization |
(470) | (455) | ||||||
Depreciation and amortization included in equity in earnings from unconsolidated affiliates |
(22) | (23) | ||||||
|
|
|
|
|||||
Net income attributable to Hilton stockholders |
$ | 515 | $ | 389 | ||||
|
|
|
|
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Assets: |
||||||||
Ownership |
$ | 11,769 | $ | 11,936 | ||||
Management and franchise |
10,626 | 11,016 | ||||||
Timeshare |
1,757 | 1,871 | ||||||
Corporate and other |
2,172 | 1,739 | ||||||
|
|
|
|
|||||
$ | 26,324 | $ | 26,562 | |||||
|
|
|
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Capital expenditures for property and equipment: |
||||||||
Ownership |
$ | 173 | $ | 158 | ||||
Timeshare |
5 | 4 | ||||||
Corporate and other |
6 | 5 | ||||||
|
|
|
|
|||||
$ | 184 | $ | 167 | |||||
|
|
|
|
Note 24: Business Segments
We are a diversified hospitality company with operations organized in three distinct operating segments: ownership, management and franchise and timeshare. Each segment is managed separately because of its distinct economic characteristics.
The ownership segment includes all hotels that we wholly own or lease, as well as consolidated non-wholly owned entities and consolidated VIEs. As of December 31, 2013, this segment included 118 wholly owned and leased hotels and resorts, three non-wholly owned hotel properties and three hotels of consolidated VIEs. While we do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment revenues, we manage these investments in our ownership segment.
Our unconsolidated affiliates are primarily investments in entities that owned or leased 30 hotels and one condominium management company as of December 31, 2013.
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 under one of our proprietary brand names of our brand portfolio. As of December 31, 2013, this segment included 498 managed hotels and 3,420 franchised hotels. This segment also earns fees for managing properties in our ownership segment.
The timeshare segment includes the development of vacation ownership clubs and resorts, marketing and selling of timeshare intervals, providing timeshare customer financing and resort operations. This segment also provides assistance to third-party developers in selling their timeshare inventory. As of December 31, 2013, this segment included 42 timeshare properties.
Corporate and other represents revenues and related operating expenses generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels and other rental income, as well as corporate assets and related expenditures.
The performance of our operating segments is evaluated primarily on Adjusted earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), which should not be considered an alternative to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. EBITDA, presented herein, is a non-GAAP financial measure that reflects net income attributable to Hilton stockholders, excluding interest expense, a provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to gains, losses and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) furniture fixtures, and equipment (“FF&E”) replacement reserves required under certain lease agreements; (vi) reorganization costs; (vii) share-based and certain other compensation expenses prior to and in connection with our IPO; (viii) severance, relocation and other expenses; and (ix) other items.
The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Revenues: |
||||||||||||
Ownership(1)(4) |
$ | 4,075 | $ | 4,006 | $ | 3,926 | ||||||
Management and franchise(2) |
1,271 | 1,180 | 1,095 | |||||||||
Timeshare |
1,109 | 1,085 | 944 | |||||||||
|
|
|
|
|
|
|||||||
Segment revenues |
6,455 | 6,271 | 5,965 | |||||||||
Other revenues from managed and franchised properties |
3,405 | 3,124 | 2,927 | |||||||||
Other revenues(3) |
69 | 66 | 58 | |||||||||
Intersegment fees elimination(1)(2)(3)(4) |
(194) | (185) | (167) | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 9,735 | $ | 9,276 | $ | 8,783 | ||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA: |
||||||||||||
Ownership(1)(2)(3)(4)(5) |
$ | 926 | $ | 793 | $ | 725 | ||||||
Management and franchise(2) |
1,271 | 1,180 | 1,095 | |||||||||
Timeshare(1)(2) |
297 | 252 | 207 | |||||||||
Corporate and other(3)(4) |
(284) | (269) | (274) | |||||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA |
$ | 2,210 | $ | 1,956 | $ | 1,753 | ||||||
|
|
|
|
|
|
(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which are eliminated in our consolidated financial statements. These charges totaled $26 million, $24 million and $27 million for the years ended December 31, 2013, 2012 and 2011, respectively. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the ownership segment and a cost to timeshare Adjusted EBITDA. |
(2) | Includes management, royalty and intellectual property fees of $100 million, $96 million and $88 million for the years ended December 31, 2013, 2012 and 2011, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our consolidated financial statements. Also includes a licensing fee of $56 million, $52 million and $43 million for the years ended December 31, 2013, 2012 and 2011, respectively, which is charged to our timeshare segment by our management and franchise segment and is eliminated in our consolidated financial statements. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the management and franchise segment and a cost to ownership Adjusted EBITDA and timeshare Adjusted EBITDA. |
(3) | Includes charges to consolidated owned and leased properties for services provided by our wholly owned laundry business of $9 million, $10 million and $9 million for the years ended December 31, 2013, 2012 and 2011, respectively. These charges are eliminated in our consolidated financial statements. |
(4) | Includes various other intercompany charges of $3 million for the years ended December 31, 2013 and 2012. |
(5) | Includes unconsolidated affiliate Adjusted EBITDA. |
The table below provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholders:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Adjusted EBITDA |
$ | 2,210 | $ | 1,956 | $ | 1,753 | ||||||
Net income attributable to noncontrolling interests |
(45) | (7) | (2) | |||||||||
Gain (loss) on foreign currency transactions |
(45) | 23 | (21) | |||||||||
FF&E replacement reserve |
(46) | (68) | (57) | |||||||||
Share-based compensation expense |
(313) | (50) | (19) | |||||||||
Impairment losses |
— | (54) | (20) | |||||||||
Impairment losses included in equity in earnings (losses) from unconsolidated affiliates |
— | (19) | (141) | |||||||||
Gain on debt extinguishment |
229 | — | — | |||||||||
Other gain, net |
7 | 15 | 19 | |||||||||
Other adjustment items(1) |
(76) | (64) | (51) | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
1,921 | 1,732 | 1,461 | |||||||||
Interest expense |
(620) | (569) | (643) | |||||||||
Interest expense included in equity in earnings (losses) from unconsolidated affiliates |
(13) | (13) | (12) | |||||||||
Income tax benefit (expense) |
(238) | (214) | 59 | |||||||||
Depreciation and amortization |
(603) | (550) | (564) | |||||||||
Depreciation and amortization included in equity in earnings (losses) from unconsolidated affiliates |
(32) | (34) | (48) | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Hilton stockholders |
$ | 415 | $ | 352 | $ | 253 | ||||||
|
|
|
|
|
|
(1) | Represents adjustments for legal expenses, severance and other items. |
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Assets: |
||||||||
Ownership |
$ | 11,936 | $ | 12,476 | ||||
Management and franchise |
11,016 | 11,650 | ||||||
Timeshare |
1,871 | 1,911 | ||||||
Corporate and other |
1,739 | 1,029 | ||||||
|
|
|
|
|||||
$ | 26,562 | $ | 27,066 | |||||
|
|
|
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Capital expenditures for property and equipment: |
||||||||||||
Ownership |
$ | 240 | $ | 396 | $ | 368 | ||||||
Timeshare |
8 | 28 | 12 | |||||||||
Corporate and other |
6 | 9 | 9 | |||||||||
|
|
|
|
|
|
|||||||
$ | 254 | $ | 433 | $ | 389 | |||||||
|
|
|
|
|
|
Revenues by country were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
U.S. |
$ | 7,262 | $ | 6,743 | $ | 6,293 | ||||||
All other |
2,473 | 2,533 | 2,490 | |||||||||
|
|
|
|
|
|
|||||||
$ | 9,735 | $ | 9,276 | $ | 8,783 | |||||||
|
|
|
|
|
|
Other than the U.S., there were no countries that individually represented more than 10 percent of total revenues for the years ended December 31, 2013, 2012 and 2011.
Property and equipment, net by country were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
U.S. |
$ | 8,204 | $ | 8,252 | ||||
All other |
854 | 945 | ||||||
|
|
|
|
|||||
$ | 9,058 | $ | 9,197 | |||||
|
|
|
|
Other than the U.S. there were no countries that individually represented over 10 percent of total property and equipment, net as of December 31, 2013 and 2012.
|
Note 17: Commitments and Contingencies
As of September 30, 2014, we had outstanding guarantees of $27 million, with remaining terms ranging from four months to nine years, for debt and other obligations of third parties. We have two letters of credit for a total of $27 million that have been pledged as collateral for two of these guarantees. Although we believe it is unlikely that material payments will be required under these guarantees or letters of credit, there can be no assurance that this will be the case.
We have also provided performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of September 30, 2014, we had six contracts containing performance guarantees, with expirations ranging from 2018 to 2030, and possible cash outlays totaling approximately $140 million. Our obligations under these guarantees in future periods are dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of September 30, 2014 and December 31, 2013, we recorded current liabilities of approximately $8 million and $9 million, respectively, and non-current liabilities of approximately $41 million and $51 million, respectively, in our condensed consolidated balance sheets for obligations under our outstanding performance guarantees that are related to certain VIEs for which we are not the primary beneficiary.
As of September 30, 2014, we had outstanding commitments under third-party contracts of approximately $120 million for capital expenditures at certain owned and leased properties, including our consolidated VIEs. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
We have entered into an agreement with a developer in Las Vegas, Nevada, whereby we have agreed to purchase residential units from the developer that we will convert to timeshare units to be marketed and sold under our Hilton Grand Vacations brand. Subject to certain conditions, we are required to purchase approximately $92 million of inventory ratably over a maximum period of four years, which is equivalent to purchases of approximately $6 million per quarter. We began purchasing inventory during the quarter ended March 31, 2013, and as of September 30, 2014, we had purchased $58 million of inventory under this agreement. As of September 30, 2014, our contractual obligations pursuant to this agreement for the remainder of 2014 and the years ended December 31, 2015 and 2016 were $6 million, $24 million and $4 million, respectively.
During 2010, an affiliate of our Sponsor settled a $75 million liability on our behalf in conjunction with a lawsuit settlement by entering into service contracts with the plaintiff. We recorded the portion settled by this affiliate as a capital contribution. Additionally, as part of the settlement, we entered into a guarantee with the plaintiff to pay any shortfall that this affiliate does not fund related to those service contracts up to the value of the settlement amount made by the affiliate. The remaining potential exposure under this guarantee as of September 30, 2014 was approximately $35 million. We have not accrued a liability for this guarantee as we believe the likelihood of any material funding to be remote.
We are involved in other litigation arising from the normal course of business, some of which includes claims for substantial sums. Accruals are recorded when the outcome is probable and can be reasonably estimated in accordance with applicable accounting requirements regarding accounting for contingencies. 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 September 30, 2014 will not have a material effect on our condensed consolidated results of operations, financial position or cash flows.
Note 25: Commitments and Contingencies
As of December 31, 2013, we had outstanding guarantees of $27 million, with remaining terms ranging from ten months to nine years, for debt and other obligations of third parties. We have two letters of credit, one supported by restricted cash and cash equivalents and the other under the Revolving Credit Facility, for a total of $27 million that have been pledged as collateral for two of these guarantees. Although we believe it is unlikely that material payments will be required under these guarantees or letters of credit, there can be no assurance that this will be the case.
We have also provided performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of December 31, 2013, we had six contracts containing performance guarantees, with expirations ranging from 2018 to 2030, and possible cash outlays totaling approximately $150 million. Our obligations under these guarantees in future periods is dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of December 31, 2013 and 2012, we recorded current liabilities of approximately $9 million and $30 million, respectively, and non-current liabilities of approximately $51 million and $57 million, respectively, in our consolidated balance sheets for obligations under our outstanding performance guarantees that are related to certain VIEs for which we are not the primary beneficiary.
As of December 31, 2013, we had outstanding commitments under third-party contracts of approximately $121 million for capital expenditures at certain owned and leased properties, including our consolidated VIEs. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
We have entered into an agreement with a developer in Las Vegas, Nevada, whereby we have agreed to purchase residential units from the developer that we will convert to timeshare units to be marketed and sold under our Hilton Grand Vacations brand. Subject to certain conditions, we are required to purchase approximately $92 million of inventory ratably over a maximum period of four years, which is equivalent to purchases of approximately $6 million per quarter. We began purchasing inventory during the quarter ended March 31, 2013, and during the year ended December 31, 2013, we purchased $35 million of inventory under this agreement. As of December 31, 2013, our contractual obligations for the years ending December 31, 2014, 2015 and 2016, respectively, were $24 million, $24 million and $9 million.
During 2010, an affiliate of our Sponsor settled a $75 million liability on our behalf in conjunction with a lawsuit settlement by entering into service contracts with the plaintiff. We recorded the portion settled by this affiliate as a capital contribution. Additionally, as part of the settlement, we entered into a guarantee with the plaintiff to pay any shortfall that this affiliate does not fund related to those service contracts up to the value of the settlement amount made by the affiliate. The remaining potential exposure under this guarantee as of December 31, 2013 was approximately $48 million. We have not accrued a liability for this guarantee as we believe the likelihood of any material funding to be remote.
We are involved in other litigation arising from the normal course of business, some of which includes claims for substantial sums. Accruals are recorded when the outcome is probable and can be reasonably estimated in accordance with applicable accounting requirements regarding accounting for contingencies. 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, 2013 will not have a material effect on our consolidated results of operations, financial position or cash flows.
|
Note 26 : Related Party Transactions
Investment in Affiliates
We hold investments in affiliates that own or lease properties that we manage or franchise. We recognized management and franchise fee revenue of $31 million, $29 million and $32 million for the years ended December 31, 2013, 2012 and 2011, respectively, related to our agreements for these properties. We recognized reimbursements and reimbursable costs for these hotels, primarily related to payroll and marketing expenses, of $174 million, $172 million and $148 million in other revenues and expenses from managed and franchised properties in our consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, we had accounts receivable due from these properties related to these management and franchise fees and reimbursements of $21 million. Additionally, in certain cases we incur costs to acquire management contracts with our unconsolidated affiliates or provide loans or guarantees on behalf of these entities. We incurred immaterial contract acquisition costs for the year ended December 31, 2013, no contract acquisition costs for the year ended December 31, 2012 and $18 million for the year ended December 31, 2011 related to such contracts. As of December 31, 2013 and 2012, we had unamortized acquisition costs of $18 million recorded in management and franchise contracts, net in our consolidated balance sheets. As of December 31, 2013 and 2012, we had other financing receivables, net related to these properties of $15 million and $17 million, respectively. We recorded interest income on these other financing receivables of $3 million for the years ended December 31, 2013, 2012 and 2011. We generally own between 10 percent and 50 percent of these equity method investments. See Note 2: “Basis of Presentation and Summary of Significant Accounting Policies,” for further discussion.
The Blackstone Group
Blackstone directly and indirectly owns hotels that we manage or franchise and for which we receive fees in connection with the management and franchise agreements. We recognized management and franchise fee revenue of $42 million, $29 million and $23 million for the years ended December 31, 2013, 2012 and 2011, respectively, related to our agreements for these hotels. We recognized reimbursements and reimbursable costs for these hotels, primarily related to payroll and marketing expenses, of $174 million, $135 million and $101 million in other revenues and expenses from managed and franchised properties in our consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, we had accounts receivable due from these hotels related to these management and franchise fees and reimbursements of $26 million and $28 million, respectively. Additionally, in certain cases, we incur costs to acquire management and franchise contracts with hotels owned by Blackstone. We incurred contract acquisition costs of $15 million and $5 million for the years ended December 31, 2013 and 2011 related to these contracts. Contract acquisition costs for the year ended December 31, 2012 related to these contracts were less than $1 million. As of December 31, 2013 and 2012, we had unamortized acquisition costs of $20 million and $6 million, respectively, recorded in management and franchise contracts, net in our consolidated balance sheets. As of December 31, 2013 and 2012, we had $14 million and $5 million, respectively, accrued in accounts payable, accrued expenses and other in our consolidated balance sheet related to contract acquisition costs for these hotels. Our maximum exposure to loss related to these hotels is limited to the amounts discussed above; therefore, our involvement with these hotels does not expose us to additional variability or risk of loss.
On January 14, 2014, we executed a Purchase and Sale Agreement with an affiliate of Blackstone for the sale of certain land and easement rights at the Hilton Hawaiian Village in connection with a timeshare project, for a total purchase price of approximately $25 million. See Note 30: “Subsequent Events” for additional details.
We also purchase products and services from entities affiliated with or owned by Blackstone. The fees paid for these products and services were $24 million, $26 million and $23 million during the years ended December 31, 2013, 2012 and 2011, respectively.
|
Note 27 : Supplemental Disclosures of Cash Flow Information
Interest paid during the years ended December 31, 2013, 2012 and 2011, was $535 million, $486 million and $470 million, respectively.
Income taxes, net of refunds, paid during the years ended December 31, 2013, 2012 and 2011 were $233 million, $103 million and $114 million, respectively.
In connection with our IPO in 2013, we incurred net underwriting discounts and commissions of $27 million and other offering expenses of $12 million, which are included in net proceeds from issuance of common stock in our consolidated statement of cash flows.
The following non-cash investing and financing activities were excluded from the consolidated statements of cash flows:
• | In 2013, one of our consolidated VIEs restructured the terms of its capital lease resulting in a reduction in our capital lease asset and obligation of $44 million and $48 million, respectively. See Note 9: “Consolidated Variable Interest Entities” for further discussion. |
• | In 2013, we incurred $189 million of debt issuance costs related to the Debt Refinancing, of which $9 million had not been paid as of December 31, 2013 and were included in accounts payable, accrued expenses and other in our consolidated balance sheet. See Note 13: “Debt” for further discussion. |
• | In 2012, we executed a capital lease in conjunction with the acquisition of OHC, for which we recorded a capital lease asset and obligation of $15 million as of December 31, 2012. See Note 3: “Acquisitions” for further discussion. |
• | In 2011, two of our consolidated VIEs restructured their debt resulting in a reduction of our capital lease assets and obligations of $76 million and $73 million, respectively, as of December 31, 2011. See Note 9: “Consolidated Variable Interest Entities” for further discussion. |
|
Note 28 : Selected Quarterly Financial Information (unaudited)
The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results. Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.
2013 | ||||||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Year | ||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||
Revenues |
$ | 2,263 | $ | 2,380 | $ | 2,449 | $ | 2,643 | $ | 9,735 | ||||||||||
Operating income |
252 | 404 | 357 | 89 | 1,102 | |||||||||||||||
Net income |
38 | 157 | 203 | 62 | 460 | |||||||||||||||
Net income attributable to Hilton stockholders |
34 | 155 | 200 | 26 | 415 | |||||||||||||||
Basic and diluted earnings per share |
$ | 0.03 | $ | 0.17 | $ | 0.22 | $ | 0.03 | $ | 0.45 | ||||||||||
2012 | ||||||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Year | ||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||
Revenues |
$ | 2,131 | $ | 2,390 | $ | 2,417 | $ | 2,338 | $ | 9,276 | ||||||||||
Operating income |
194 | 298 | 345 | 263 | 1,100 | |||||||||||||||
Net income |
47 | 69 | 179 | 64 | 359 | |||||||||||||||
Net income attributable to Hilton stockholders |
48 | 66 | 177 | 61 | 352 | |||||||||||||||
Basic and diluted earnings per share |
$ | 0.05 | $ | 0.07 | $ | 0.19 | $ | 0.07 | $ | 0.38 |
|
Note 18: Condensed Consolidating Guarantor Financial Information
In October 2013, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (the “Subsidiary Issuers”), entities formed in August 2013 which are 100% owned by Hilton Worldwide Holdings Inc. (the “Parent”), issued $1.5 billion of 5.625% senior notes due in 2021 (the “Senior Notes”). The obligations of the Subsidiary Issuers are guaranteed jointly and severally on a senior unsecured basis by the Parent, and certain of the Parent’s 100% owned domestic restricted subsidiaries (the “Guarantors”). The indenture that governs the Senior Notes provides that any subsidiary of the Company that provides a guarantee of the Senior Secured Credit Facility will guarantee the Senior Notes. None of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations, our non-wholly owned subsidiaries, our subsidiaries that secure the CMBS Loan and $589 million in mortgage loans, or certain of our special purpose subsidiaries formed in connection with our Timeshare Facility and Securitized Timeshare Debt guarantee the Senior Notes (collectively, the “Non-Guarantors”).
The guarantees are full and unconditional, subject to certain customary release provisions. The indenture that governs the Senior Notes provides that any Guarantor may be released from its guarantee so long as: (a) the subsidiary is sold or sells all of its assets; (b) the subsidiary is released from its guaranty under the Senior Secured Credit Facility; (c) the subsidiary is declared “unrestricted” for covenant purposes; or (d) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.
The following schedules present the condensed consolidated financial information as of September 30, 2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013, for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 235 | $ | 308 | $ | — | $ | 543 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 196 | 92 | — | 288 | ||||||||||||||||||
Accounts receivable, net |
— | — | 478 | 384 | — | 862 | ||||||||||||||||||
Inventories |
— | — | 326 | 24 | — | 350 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 37 | 19 | — | 56 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 64 | — | 64 | ||||||||||||||||||
Prepaid expenses |
— | — | 34 | 138 | — | 172 | ||||||||||||||||||
Other |
— | — | 29 | 27 | — | 56 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,341 | 1,073 | — | 2,414 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 323 | 8,801 | — | 9,124 | ||||||||||||||||||
Financing receivables, net |
— | — | 235 | 146 | — | 381 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 433 | — | 433 | ||||||||||||||||||
Investments in affiliates |
— | — | 123 | 51 | — | 174 | ||||||||||||||||||
Investments in subsidiaries |
4,961 | 11,708 | 5,269 | — | (21,938) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,338 | — | 6,185 | ||||||||||||||||||
Brands |
— | — | 4,405 | 582 | — | 4,987 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,039 | 307 | — | 1,346 | ||||||||||||||||||
Other intangible assets, net |
— | — | 475 | 220 | — | 695 | ||||||||||||||||||
Deferred income tax assets |
22 | — | — | 195 | (22) | 195 | ||||||||||||||||||
Other |
— | 95 | 124 | 171 | — | 390 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,983 | 11,803 | 15,840 | 13,244 | (21,960) | 23,910 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,983 | $ | 11,803 | $ | 17,181 | $ | 14,317 | $ | (21,960) | $ | 26,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 64 | $ | 1,246 | $ | 693 | $ | — | $ | 2,003 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 3 | — | 3 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 124 | — | 124 | ||||||||||||||||||
Income taxes payable |
— | — | — | 10 | — | 10 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 64 | 1,246 | 830 | — | 2,140 | ||||||||||||||||||
Long-term debt |
— | 6,776 | 54 | 4,294 | — | 11,124 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 813 | — | 813 | ||||||||||||||||||
Deferred revenues |
— | — | 540 | 4 | — | 544 | ||||||||||||||||||
Deferred income tax liabilities |
— | 2 | 2,241 | 2,916 | (22) | 5,137 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 637 | — | — | 637 | ||||||||||||||||||
Other |
193 | — | 755 | 231 | — | 1,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
193 | 6,842 | 5,473 | 9,088 | (22) | 21,574 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,790 | 4,961 | 11,708 | 5,269 | (21,938) | 4,790 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (40) | — | (40) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,790 | 4,961 | 11,708 | 5,229 | (21,938) | 4,750 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,983 | $ | 11,803 | $ | 17,181 | $ | 14,317 | $ | (21,960) | $ | 26,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 194 | 72 | — | 266 | ||||||||||||||||||
Accounts receivable, net |
— | — | 426 | 305 | — | 731 | ||||||||||||||||||
Inventories |
— | — | 370 | 26 | — | 396 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 38 | 56 | — | 94 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 27 | — | 27 | ||||||||||||||||||
Prepaid expenses |
— | — | 15 | 133 | — | 148 | ||||||||||||||||||
Other |
— | — | 101 | 26 | (23) | 104 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,479 | 927 | (23) | 2,383 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 341 | 8,717 | — | 9,058 | ||||||||||||||||||
Financing receivables, net |
— | — | 199 | 436 | — | 635 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 194 | — | 194 | ||||||||||||||||||
Investments in affiliates |
— | — | 210 | 50 | — | 260 | ||||||||||||||||||
Investments in subsidiaries |
4,528 | 11,942 | 5,253 | — | (21,723) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,373 | — | 6,220 | ||||||||||||||||||
Brands |
— | — | 4,405 | 608 | — | 5,013 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,143 | 309 | — | 1,452 | ||||||||||||||||||
Other intangible assets, net |
— | — | 511 | 240 | — | 751 | ||||||||||||||||||
Deferred income tax assets |
21 | — | — | 193 | (21) | 193 | ||||||||||||||||||
Other |
— | 121 | 133 | 149 | — | 403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,549 | 12,063 | 16,042 | 13,269 | (21,744) | 24,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 60 | $ | 1,335 | $ | 684 | $ | — | $ | 2,079 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 4 | — | 4 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 48 | — | 48 | ||||||||||||||||||
Income taxes payable |
— | — | 3 | 31 | (23) | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 60 | 1,338 | 767 | (23) | 2,142 | ||||||||||||||||||
Long-term debt |
— | 7,470 | 54 | 4,227 | — | 11,751 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 920 | — | 920 | ||||||||||||||||||
Deferred revenues |
— | — | 674 | — | — | 674 | ||||||||||||||||||
Deferred income tax liabilities |
— | 5 | 2,298 | 2,771 | (21) | 5,053 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 597 | — | — | 597 | ||||||||||||||||||
Other |
186 | — | 618 | 345 | — | 1,149 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
186 | 7,535 | 5,579 | 9,030 | (44) | 22,286 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,363 | 4,528 | 11,942 | 5,253 | (21,723) | 4,363 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (87) | — | (87) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,363 | 4,528 | 11,942 | 5,166 | (21,723) | 4,276 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 163 | $ | 2,999 | $ | (21) | $ | 3,141 | ||||||||||||
Management and franchise fees and other |
— | — | 575 | 546 | (91) | 1,030 | ||||||||||||||||||
Timeshare |
— | — | 777 | 73 | — | 850 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,515 | 3,618 | (112) | 5,021 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 2,991 | 300 | (638) | 2,653 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 4,506 | 3,918 | (750) | 7,674 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 116 | 2,359 | (55) | 2,420 | ||||||||||||||||||
Timeshare |
— | — | 590 | 14 | (40) | 564 | ||||||||||||||||||
Depreciation and amortization |
— | — | 227 | 243 | — | 470 | ||||||||||||||||||
General, administrative and other |
— | — | 275 | 91 | (17) | 349 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,208 | 2,707 | (112) | 3,803 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 2,991 | 300 | (638) | 2,653 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 4,199 | 3,007 | (750) | 6,456 | ||||||||||||||||||
Operating income |
— | — | 307 | 911 | — | 1,218 | ||||||||||||||||||
Interest income |
— | — | 6 | 2 | — | 8 | ||||||||||||||||||
Interest expense |
— | (255) | (42) | (170) | — | (467) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 13 | 3 | — | 16 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 248 | (207) | — | 41 | ||||||||||||||||||
Other gain, net |
— | — | 6 | 32 | — | 38 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
— | (255) | 538 | 571 | — | 854 | ||||||||||||||||||
Income tax benefit (expense) |
(5) | 98 | (213) | (211) | — | (331) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
(5) | (157) | 325 | 360 | — | 523 | ||||||||||||||||||
Equity in earnings from subsidiaries |
520 | 677 | 352 | — | (1,549) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
515 | 520 | 677 | 360 | (1,549) | 523 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (8) | — | (8) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 515 | $ | 520 | $ | 677 | $ | 352 | $ | (1,549) | $ | 515 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 381 | $ | 516 | $ | 697 | $ | 212 | $ | (1,415) | $ | 391 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (10) | — | (10) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 381 | $ | 516 | $ | 697 | $ | 202 | $ | (1,415) | $ | 381 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 146 | $ | 2,855 | $ | (19) | $ | 2,982 | ||||||||||||
Management and franchise fees and other |
— | — | 425 | 546 | (103) | 868 | ||||||||||||||||||
Timeshare |
— | — | 779 | 30 | — | 809 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,350 | 3,431 | (122) | 4,659 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 2,792 | 247 | (606) | 2,433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 4,142 | 3,678 | (728) | 7,092 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 110 | 2,258 | (41) | 2,327 | ||||||||||||||||||
Timeshare |
— | — | 594 | 8 | (57) | 545 | ||||||||||||||||||
Depreciation and amortization |
— | — | 208 | 247 | — | 455 | ||||||||||||||||||
General, administrative and other |
— | — | 229 | 114 | (24) | 319 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,141 | 2,627 | (122) | 3,646 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 2,792 | 247 | (606) | 2,433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 3,933 | 2,874 | (728) | 6,079 | ||||||||||||||||||
Operating income |
— | — | 209 | 804 | — | 1,013 | ||||||||||||||||||
Interest income |
217 | — | 3 | 2 | (217) | 5 | ||||||||||||||||||
Interest expense |
— | — | (575) | (43) | 217 | (401) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 9 | 2 | — | 11 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 4 | (47) | — | (43) | ||||||||||||||||||
Other gain, net |
— | — | — | 5 | — | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
217 | — | (350) | 723 | — | 590 | ||||||||||||||||||
Income tax benefit (expense) |
(84) | — | 141 | (249) | — | (192) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
133 | — | (209) | 474 | — | 398 | ||||||||||||||||||
Equity in earnings from subsidiaries |
256 | — | 465 | — | (721) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
389 | — | 256 | 474 | (721) | 398 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (9) | — | (9) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 389 | $ | — | $ | 256 | $ | 465 | $ | (721) | $ | 389 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 378 | $ | — | $ | 261 | $ | 472 | $ | (710) | $ | 401 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (23) | — | (23) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 378 | $ | — | $ | 261 | $ | 449 | $ | (710) | $ | 378 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non-Guarantors | Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 605 | $ | 501 | $ | (207) | $ | 899 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (13) | (171) | — | (184) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 16 | 2 | — | 18 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | — | (1) | — | (1) | ||||||||||||||||||
Investments in affiliates |
— | — | (6) | — | — | (6) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 30 | 2 | — | 32 | ||||||||||||||||||
Proceeds from asset dispositions |
— | — | 6 | 34 | — | 40 | ||||||||||||||||||
Contract acquisition costs |
— | — | (13) | (41) | — | (54) | ||||||||||||||||||
Software capitalization costs |
— | — | (45) | — | — | (45) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (25) | (175) | — | (200) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 350 | — | 350 | ||||||||||||||||||
Repayment of debt |
— | (700) | — | (375) | — | (1,075) | ||||||||||||||||||
Debt issuance costs |
— | (6) | — | (3) | — | (9) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | — | (19) | — | (19) | ||||||||||||||||||
Intercompany transfers |
— | 706 | (674) | (32) | — | — | ||||||||||||||||||
Dividends paid to Guarantors |
— | — | — | (207) | 207 | — | ||||||||||||||||||
Capital contribution |
— | — | — | 13 | — | 13 | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (674) | (276) | 207 | (743) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (7) | — | (7) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (94) | 43 | — | (51) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 329 | 265 | — | 594 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 235 | $ | 308 | $ | — | $ | 543 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non-Guarantors | Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 592 | $ | 432 | $ | — | $ | 1,024 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (15) | (152) | — | (167) | ||||||||||||||||||
Acquisitions |
— | — | — | (30) | — | (30) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 3 | — | — | 3 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (6) | (2) | — | (8) | ||||||||||||||||||
Investments in affiliates |
— | — | (4) | — | — | (4) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 16 | — | — | 16 | ||||||||||||||||||
Contract acquisition costs |
— | — | (2) | (10) | — | (12) | ||||||||||||||||||
Software capitalization costs |
— | — | (50) | — | — | (50) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (58) | (194) | — | (252) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 702 | — | 702 | ||||||||||||||||||
Repayment of debt |
— | — | (1,279) | (323) | — | (1,602) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 140 | (26) | — | 114 | ||||||||||||||||||
Intercompany transfers |
— | — | 566 | (566) | — | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (573) | (216) | — | (789) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (14) | — | (14) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (39) | 8 | — | (31) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 542 | 213 | — | 755 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 503 | $ | 221 | $ | — | $ | 724 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 29: Condensed Consolidating Guarantor Financial Information
In October 2013, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (the “Subsidiary Issuers”), entities formed in August 2013 which are 100% owned by Hilton Worldwide Holdings Inc. (the “Parent”), issued the Senior Notes. The obligations of the Subsidiary Issuers are guaranteed jointly and severally on a senior unsecured basis by the Parent, and certain of the Parent’s 100% owned domestic restricted subsidiaries (the “Guarantors”). The indenture that governs the Senior Notes provides that any subsidiary of the Company that provides a guarantee of the Senior Secured Credit Facility will guarantee the Senior Notes. None of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations, our non-wholly owned subsidiaries, our subsidiaries that secure the CMBS Loan and Waldorf Astoria Loan or certain of our special purpose subsidiaries formed in connection with our Timeshare Facility and Securitized Timeshare Debt guarantee the Senior Notes (collectively, the “Non-Guarantors”).
The guarantees are full and unconditional, subject to certain customary release provisions. The indenture that governs the Senior Notes provides that any Guarantor may be released from its guarantee so long as: (a) the subsidiary is sold or sells all of its assets; (b) the subsidiary is released from its guaranty under the Senior Secured Credit Facility; (c) the subsidiary is declared “unrestricted” for covenant purposes; or (d) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.
The following schedules present the condensed consolidated financial information as of December 31, 2013 and 2012, and the years ended December 31, 2013, 2012 and 2011, for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 194 | 72 | — | 266 | ||||||||||||||||||
Accounts receivable, net |
— | — | 426 | 305 | — | 731 | ||||||||||||||||||
Inventories |
— | — | 370 | 26 | — | 396 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 38 | 56 | — | 94 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 27 | — | 27 | ||||||||||||||||||
Prepaid expenses |
— | — | 15 | 133 | — | 148 | ||||||||||||||||||
Other |
— | — | 101 | 26 | (23) | 104 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,479 | 927 | (23) | 2,383 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 341 | 8,717 | — | 9,058 | ||||||||||||||||||
Financing receivables, net |
— | — | 199 | 436 | — | 635 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 194 | — | 194 | ||||||||||||||||||
Investments in affiliates |
— | — | 210 | 50 | — | 260 | ||||||||||||||||||
Investments in subsidiaries |
4,528 | 11,942 | 5,253 | — | (21,723) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,373 | — | 6,220 | ||||||||||||||||||
Brands |
— | — | 4,405 | 608 | — | 5,013 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,143 | 309 | — | 1,452 | ||||||||||||||||||
Other intangible assets, net |
— | — | 511 | 240 | — | 751 | ||||||||||||||||||
Deferred income tax assets |
21 | — | — | 193 | (21) | 193 | ||||||||||||||||||
Other |
— | 121 | 133 | 149 | — | 403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,549 | 12,063 | 16,042 | 13,269 | (21,744) | 24,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 60 | $ | 1,335 | $ | 684 | $ | — | $ | 2,079 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 4 | — | 4 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 48 | — | 48 | ||||||||||||||||||
Income taxes payable |
— | — | 3 | 31 | (23) | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 60 | 1,338 | 767 | (23) | 2,142 | ||||||||||||||||||
Long-term debt |
— | 7,470 | 54 | 4,227 | — | 11,751 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 920 | — | 920 | ||||||||||||||||||
Deferred revenues |
— | — | 674 | — | — | 674 | ||||||||||||||||||
Deferred income tax liabilities |
— | 5 | 2,298 | 2,771 | (21) | 5,053 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 597 | — | — | 597 | ||||||||||||||||||
Other |
186 | — | 618 | 345 | — | 1,149 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
186 | 7,535 | 5,579 | 9,030 | (44) | 22,286 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,363 | 4,528 | 11,942 | 5,253 | (21,723) | 4,363 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (87) | — | (87) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,363 | 4,528 | 11,942 | 5,166 | (21,723) | 4,276 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 542 | $ | 213 | $ | — | $ | 755 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 496 | 54 | — | 550 | ||||||||||||||||||
Accounts receivable, net |
— | — | 414 | 305 | — | 719 | ||||||||||||||||||
Intercompany interest receivable(1) |
98 | — | — | — | (98 | ) | — | |||||||||||||||||
Inventories |
— | — | 395 | 20 | — | 415 | ||||||||||||||||||
Deferred income tax assets |
— | — | 64 | 12 | — | 76 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 119 | — | — | 119 | ||||||||||||||||||
Prepaid expenses |
— | — | 22 | 131 | — | 153 | ||||||||||||||||||
Other |
— | — | 51 | 12 | (23 | ) | 40 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
98 | — | 2,103 | 747 | (121 | ) | 2,827 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 359 | 8,838 | — | 9,197 | ||||||||||||||||||
Financing receivables, net |
— | — | 806 | 9 | — | 815 | ||||||||||||||||||
Intercompany notes receivable(1) |
3,787 | — | — | — | (3,787 | ) | — | |||||||||||||||||
Investments in affiliates |
— | — | 244 | 47 | — | 291 | ||||||||||||||||||
Investments in subsidiaries |
— | — | 9,364 | — | (9,364 | ) | — | |||||||||||||||||
Goodwill |
— | — | 3,847 | 2,350 | — | 6,197 | ||||||||||||||||||
Brands |
— | — | 4,405 | 624 | — | 5,029 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,285 | 315 | — | 1,600 | ||||||||||||||||||
Other intangible assets, net |
— | — | 512 | 232 | — | 744 | ||||||||||||||||||
Deferred income tax assets |
— | — | — | 104 | — | 104 | ||||||||||||||||||
Other |
— | — | 159 | 103 | — | 262 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
3,787 | — | 20,981 | 12,622 | (13,151) | 24,239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 3,885 | $ | — | $ | 23,084 | $ | 13,369 | $ | (13,272) | $ | 27,066 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | — | $ | 1,253 | $ | 669 | $ | — | $ | 1,922 | ||||||||||||
Intercompany interest payable(1) |
— | — | 98 | — | (98 | ) | — | |||||||||||||||||
Current maturities of long-term debt |
— | — | 357 | 35 | — | 392 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 15 | — | 15 | ||||||||||||||||||
Income taxes payable |
— | — | — | 43 | (23 | ) | 20 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | — | 1,708 | 762 | (121 | ) | 2,349 | |||||||||||||||||
Long-term debt |
— | — | 15,001 | 182 | — | 15,183 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 405 | — | 405 | ||||||||||||||||||
Intercompany notes payable(1) |
— | — | 3,787 | — | (3,787 | ) | — | |||||||||||||||||
Investments in subsidiaries |
1,389 | — | — | — | (1,389 | ) | — | |||||||||||||||||
Deferred revenues |
— | — | 82 | — | — | 82 | ||||||||||||||||||
Deferred income tax liabilities |
8 | — | 2,495 | 2,445 | — | 4,948 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 503 | — | — | 503 | ||||||||||||||||||
Other |
187 | — | 897 | 357 | — | 1,441 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,584 | — | 24,473 | 4,151 | (5,297 | ) | 24,911 | |||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
2,301 | — | (1,389) | 9,364 | (7,975 | ) | 2,301 | |||||||||||||||||
Noncontrolling interests |
— | — | — | (146) | — | (146) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
2,301 | — | (1,389) | 9,218 | (7,975 | ) | 2,155 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 3,885 | $ | — | $ | 23,084 | $ | 13,369 | $ | (13,272 | ) | $ | 27,066 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Prior to June 30, 2013, a Guarantor had intercompany notes payable to the Parent (the “Notes Payable to Parent”). Interest under the Notes Payable to Parent was accrued and added to the principal balance through the date of maturity. On June 30, 2013, the Parent made a non-cash contribution of the Notes Payable to Parent, including the accrued interest, to the Guarantor, resulting in an increase to the Guarantor’s equity. |
Year Ended December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 190 | $ | 3,882 | $ | (26) | $ | 4,046 | ||||||||||||
Management and franchise fees and other |
— | — | 587 | 733 | (145) | 1,175 | ||||||||||||||||||
Timeshare |
— | — | 1,052 | 57 | — | 1,109 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,829 | 4,672 | (171) | 6,330 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,869 | 351 | (815) | 3,405 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,698 | 5,023 | (986) | 9,735 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 148 | 3,058 | (59) | 3,147 | ||||||||||||||||||
Timeshare |
— | — | 797 | 12 | (79) | 730 | ||||||||||||||||||
Depreciation and amortization |
— | — | 277 | 326 | — | 603 | ||||||||||||||||||
General, administrative and other |
— | — | 620 | 161 | (33) | 748 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,842 | 3,557 | (171) | 5,228 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,869 | 351 | (815) | 3,405 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 5,711 | 3,908 | (986) | 8,633 | ||||||||||||||||||
Operating income (loss) |
— | — | (13) | 1,115 | — | 1,102 | ||||||||||||||||||
Interest income |
217 | — | 7 | 2 | (217) | 9 | ||||||||||||||||||
Interest expense |
— | (105) | (642) | (90) | 217 | (620) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 13 | 3 | — | 16 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 35 | (80) | — | (45) | ||||||||||||||||||
Gain on debt extinguishment |
— | — | 229 | — | — | 229 | ||||||||||||||||||
Other gain, net |
— | — | 2 | 5 | — | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
217 | (105) | (369) | 955 | — | 698 | ||||||||||||||||||
Income tax benefit (expense) |
(84) | 40 | 48 | (242) | — | (238) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
133 | (65) | (321) | 713 | — | 460 | ||||||||||||||||||
Equity in earnings from subsidiaries |
282 | 347 | 668 | — | (1,297) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
415 | 282 | 347 | 713 | (1,297) | 460 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (45) | — | (45) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 415 | $ | 282 | $ | 347 | $ | 668 | $ | (1,297) | $ | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 557 | $ | 288 | $ | 417 | $ | 797 | $ | (1,439) | $ | 620 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (63) | — | (63) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 557 | $ | 288 | $ | 417 | $ | 734 | $ | (1,439) | $ | 557 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 181 | $ | 3,821 | $ | (23) | $ | 3,979 | ||||||||||||
Management and franchise fees and other |
— | — | 459 | 762 | (133) | 1,088 | ||||||||||||||||||
Timeshare |
— | — | 1,081 | 4 | — | 1,085 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,721 | 4,587 | (156) | 6,152 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,643 | 295 | (814) | 3,124 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,364 | 4,882 | (970) | 9,276 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 142 | 3,141 | (53) | 3,230 | ||||||||||||||||||
Timeshare |
— | — | 827 | 4 | (73) | 758 | ||||||||||||||||||
Depreciation and amortization |
— | — | 251 | 299 | — | 550 | ||||||||||||||||||
Impairment losses |
— | — | 13 | 41 | — | 54 | ||||||||||||||||||
General, administrative and other |
— | — | 342 | 148 | (30) | 460 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,575 | 3,633 | (156) | 5,052 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,643 | 295 | (814) | 3,124 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 5,218 | 3,928 | (970) | 8,176 | ||||||||||||||||||
Operating income |
— | — | 146 | 954 | — | 1,100 | ||||||||||||||||||
Interest income |
403 | — | 7 | 8 | (403) | 15 | ||||||||||||||||||
Interest expense |
— | — | (916) | (56) | 403 | (569) | ||||||||||||||||||
Equity in earnings (losses) from unconsolidated affiliates |
— | — | (12) | 1 | — | (11) | ||||||||||||||||||
Gain on foreign currency transactions |
— | — | 12 | 11 | — | 23 | ||||||||||||||||||
Other gain, net |
— | — | 6 | 9 | — | 15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
403 | — | (757) | 927 | — | 573 | ||||||||||||||||||
Income tax benefit (expense) |
(155) | — | 312 | (371) | — | (214) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
248 | — | (445) | 556 | — | 359 | ||||||||||||||||||
Equity in earnings from subsidiaries |
104 | — | 549 | — | (653) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
352 | — | 104 | 556 | (653) | 359 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (7) | — | (7) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 352 | $ | — | $ | 104 | $ | 549 | $ | (653) | $ | 352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 435 | $ | — | $ | 126 | $ | 631 | $ | (736) | $ | 456 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (21) | — | (21) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 435 | $ | — | $ | 126 | $ | 610 | $ | (736) | $ | 435 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 171 | $ | 3,751 | $ | (24) | $ | 3,898 | ||||||||||||
Management and franchise fees and other |
— | — | 383 | 756 | (125) | 1,014 | ||||||||||||||||||
Timeshare |
— | — | 940 | 4 | — | 944 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,494 | 4,511 | (149) | 5,856 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,521 | 196 | (790) | 2,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,015 | 4,707 | (939) | 8,783 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 140 | 3,124 | (51) | 3,213 | ||||||||||||||||||
Timeshare |
— | — | 731 | 4 | (67) | 668 | ||||||||||||||||||
Depreciation and amortization |
— | — | 246 | 318 | — | 564 | ||||||||||||||||||
Impairment losses |
— | — | 8 | 12 | — | 20 | ||||||||||||||||||
General, administrative and other |
— | — | 301 | 146 | (31) | 416 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,426 | 3,604 | (149) | 4,881 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,521 | 196 | (790) | 2,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 4,947 | 3,800 | (939) | 7,808 | ||||||||||||||||||
Operating income |
— | — | 68 | 907 | — | 975 | ||||||||||||||||||
Interest income |
359 | — | 7 | 4 | (359) | 11 | ||||||||||||||||||
Interest expense |
— | — | (948) | (54) | 359 | (643) | ||||||||||||||||||
Equity in losses from unconsolidated affiliates |
— | — | (133) | (12) | — | (145) | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | (26) | 5 | — | (21) | ||||||||||||||||||
Other gain, net |
— | — | 14 | 5 | — | 19 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
359 | — | (1,018) | 855 | — | 196 | ||||||||||||||||||
Income tax benefit (expense) |
(137) | — | 397 | (201) | — | 59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
222 | — | (621) | 654 | — | 255 | ||||||||||||||||||
Equity in earnings from subsidiaries |
31 | — | 652 | — | (683) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
253 | — | 31 | 654 | (683) | 255 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (2) | — | (2) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 253 | $ | — | $ | 31 | $ | 652 | $ | (683) | $ | 253 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 162 | $ | — | $ | 30 | $ | 561 | $ | (592) | $ | 161 | ||||||||||||
Comprehensive loss attributable to noncontrolling interests |
— | — | — | 1 | — | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 162 | $ | — | $ | 30 | $ | 562 | $ | (592) | $ | 162 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 1,574 | $ | 630 | $ | (103) | $ | 2,101 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (23) | (231) | — | (254) | ||||||||||||||||||
Acquisitions |
— | — | — | (30) | — | (30) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 4 | 1 | — | 5 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (6) | (4) | — | (10) | ||||||||||||||||||
Investments in affiliates |
— | — | (4) | — | — | (4) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 33 | — | — | 33 | ||||||||||||||||||
Contract acquisition costs |
— | — | (14) | (30) | — | (44) | ||||||||||||||||||
Software capitalization costs |
— | — | (78) | — | — | (78) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (88) | (294) | — | (382) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Net proceeds from issuance of common stock |
1,243 | — | — | — | — | 1,243 | ||||||||||||||||||
Borrowings |
— | 9,062 | — | 5,026 | — | 14,088 | ||||||||||||||||||
Repayment of debt |
— | (1,600) | (15,245) | (358) | — | (17,203) | ||||||||||||||||||
Debt issuance costs |
— | (123) | — | (57) | — | (180) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 222 | (29) | — | 193 | ||||||||||||||||||
Intercompany transfers |
(1,243) | (7,339) | 13,324 | (4,742) | — | — | ||||||||||||||||||
Dividends paid to Guarantors |
— | — | — | (103) | 103 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (4) | — | (4) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (1,699) | (267) | 103 | (1,863) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (17) | — | (17) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (213) | 52 | — | (161) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 542 | 213 | — | 755 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 271 | $ | 853 | $ | (14) | $ | 1,110 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (57) | (376) | — | (433) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 5 | 3 | — | 8 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (1) | (3) | — | (4) | ||||||||||||||||||
Investments in affiliates |
— | — | (3) | — | — | (3) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 8 | — | — | 8 | ||||||||||||||||||
Contract acquisition costs |
— | — | (28) | (3) | — | (31) | ||||||||||||||||||
Software capitalization costs |
— | — | (103) | — | — | (103) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (179) | (379) | — | (558) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 96 | — | 96 | ||||||||||||||||||
Repayment of debt |
— | — | (735) | (119) | — | (854) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 193 | (6) | — | 187 | ||||||||||||||||||
Intercompany transfers |
— | — | 449 | (463) | 14 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (4) | — | (4) | ||||||||||||||||||
Acquisition of noncontrolling interests |
— | — | — | (1) | — | (1) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (93) | (497) | 14 | (576) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (2) | — | (2) | ||||||||||||||||||
Net decrease in cash and cash equivalents |
— | — | (1) | (25) | — | (26) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 543 | 238 | — | 781 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 542 | $ | 213 | $ | — | $ | 755 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 359 | $ | 812 | $ | (4) | $ | 1,167 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (43) | (346) | — | (389) | ||||||||||||||||||
Acquisitions |
— | — | — | (12) | — | (12) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 6 | 1 | — | 7 | ||||||||||||||||||
Investments in affiliates |
— | — | (11) | — | — | (11) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | — | 23 | — | 23 | ||||||||||||||||||
Proceeds from asset dispositions |
— | — | 65 | — | — | 65 | ||||||||||||||||||
Contract acquisition costs |
— | — | (23) | (30) | — | (53) | ||||||||||||||||||
Software capitalization costs |
— | — | (93) | — | — | (93) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (99) | (364) | — | (463) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | 24 | 16 | — | 40 | ||||||||||||||||||
Repayment of debt |
— | — | (697) | (29) | — | (726) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | (19) | (6) | — | (25) | ||||||||||||||||||
Intercompany transfers |
— | — | 422 | (426) | 4 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (270) | (448) | 4 | (714) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (5) | — | (5) | ||||||||||||||||||
Net decrease in cash and cash equivalents |
— | — | (10) | (5) | — | (15) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 553 | 243 | — | 796 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 543 | $ | 238 | $ | — | $ | 781 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19: Subsequent Events
Sale of the Waldorf Astoria New York
In October 2014, we entered into a purchase and sale agreement to sell the Waldorf Astoria New York hotel for $1.95 billion, which is payable in cash at closing and is subject to customary pro rations and adjustments. At closing, we will enter into a management agreement with a 100-year term with the buyer, pursuant to which we will continue to operate the hotel under our “Waldorf Astoria Hotels & Resorts” brand. The buyer has provided a $100 million cash deposit, which is being held in escrow as earnest money and the completion of the transaction is subject to customary closing conditions. Subject to specified terms and conditions, the closing is scheduled for December 31, 2014, but the parties have the right to adjourn closing to March 31, 2015, subject to certain additional limited adjournments. At closing, we expect that our existing approximately $525 million mortgage loan secured by the Waldorf Astoria New York will be repaid in full from other sources of liquidity.
Debt Repayment
In October 2014, we made a voluntary prepayment of $100 million on our Term Loans.
Note 30: Subsequent Events
HGV Grand Islander
In January 2014, we executed a Purchase and Sale Agreement (“PSA”) with an affiliate of Blackstone for the sale of certain land and easement rights at the Hilton Hawaiian Village in connection with a timeshare project, for a total purchase price of approximately $25 million. Additionally, the PSA provides for Blackstone to purchase from us the name, plans, contracts and other documents related to the timeshare project through reimbursement of certain costs already incurred by us and those incurred through the closing date. Blackstone will then develop and construct the timeshare property for which we expect to provide services through a sales and marketing agreement. The closing date is expected to occur in March 2014, subject to the satisfaction of the conditions of the agreement.
Share-based Compensation
In February 2014, our board of directors approved a share-based payment award consisting of restricted stock units under our 2013 Omnibus Incentive Plan that will vest over one to two years based on service conditions to certain non-executive employees that had participated in an existing cash-based, long-term incentive plan. As this replacement award is in lieu of a cash payment that would have been made under the cash-based plan, the amount accrued as of December 31, 2013 will be reversed and is expected to result in a reduction of compensation expense of approximately $25 million during the first quarter of 2014. We expect the compensation expense incurred during 2014 resulting from the new share-based compensation awards to offset the reduction of compensation expense from the reversal of the replaced long- term incentive plan accrual, and the awards will not result in a material change to compensation expense in future years.
|
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 beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or have a controlling general partner interest of a partnership, assuming the absence of other factors determining control, including the ability of noncontrolling owners to participate in or block certain decisions. As of December 31, 2013, we consolidated six non-wholly owned entities in which we own more than 50 percent of the voting shares of the entities or we have determined we are the primary beneficiary of VIEs.
All material intercompany transactions and balances have been eliminated in consolidation. References in these financial statements to net income attributable to Hilton stockholders and Hilton stockholders’ equity do not include noncontrolling interests, which represent the outside ownership interests of our six consolidated, non-wholly owned entities and are reported separately.
Use of Estimates
The preparation of financial statements in conformity with United States of America (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to current presentation.
Revenue Recognition
Revenues are primarily derived from the following sources and are generally recognized as services are rendered and when collectibility is reasonably assured. Amounts received in advance of revenue recognition are deferred as liabilities.
• | Owned and leased hotel revenues primarily consist of room rentals and food and beverage sales from owned, leased and consolidated non-wholly owned hotel properties. Revenues are recorded when rooms are occupied or goods and services have been delivered or rendered. |
• | Management fees represent fees earned from hotels and timeshare properties that we manage, usually under long-term contracts with the property owner. Management fees from hotels usually include a base fee, which is generally a percentage of hotel revenues, and an incentive fee, which is typically based on a fixed or variable percentage of hotel profits and in some cases may be subject to a stated return threshold to the owner, normally over a one-calendar year period. Additionally, we receive one-time upfront fees upon execution of certain management contracts. We recognize base fees as revenue when earned in accordance with the terms of the management agreement. For incentive fees, we recognize those amounts that would be due if the contract was terminated at the financial statement date. One-time, upfront fees are recognized when all conditions have been substantially performed or satisfied by us. Management fees from timeshare properties are generally a fixed percent as stated in the management agreement and are recognized as the services are performed. |
• | Franchise fees represent fees earned in connection with the licensing of one of our hotel brands, usually under long-term contracts with the hotel owner. We charge a monthly franchise royalty fee, generally based on a percentage of room revenue, as well as application and initiation fees for new hotels entering the system. Royalty fees for our full-service brands may also include a percentage of gross food and beverage revenues and other revenues, where applicable. We recognize franchise fee revenue as the fees are earned, which is when all material services or conditions have been performed or satisfied. |
• | Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels and other rental income. This includes any revenues received for vendor rebate arrangements we participate in as a manager of hotel and timeshare properties. |
• |
Timeshare revenues consist of revenues generated from our Hilton Grand Vacations timeshare business. Timeshare revenues are principally generated from the sale and financing of timeshare intervals. Revenue from a deeded timeshare sale is recognized when the customer has executed a binding sales contract, a minimum ten percent down payment has been received, certain minimum sales thresholds for a timeshare project have been attained, the purchaser’s period to cancel for a refund has expired and the related receivable is deemed to be collectible. We defer revenue recognition for sales that do not meet these criteria. During periods of construction, revenue from timeshare sales is recognized under the percentage-of-completion method. One of our timeshare products is accounted for as a long-term lease with a reversionary interest, rather than the sale of a deeded interest in real estate. In this case, sales revenue is recognized on a straight-line basis over the term of the lease. Revenue from the financing of timeshare sales is recognized on the accrual method as earned based on the outstanding principal, interest rate and terms stated in each individual financing agreement. See “Financing Receivables” section below for further discussion of the policies applicable to our timeshare financing receivables. Additionally, we receive sales commissions from certain third-party developers that we assist in selling their timeshare inventory. We recognize revenue from commissions on these sales as intervals are sold and we fulfill the service requirements under the respective sales agreements with the developers. We also generate revenues from enrollment and other fees, rentals of timeshare units, food and beverage sales and other ancillary services at our timeshare properties that are recognized when units are rented or goods and services are delivered or rendered. |
• | Other revenues from managed and franchised properties represent payroll and related costs, certain other operating costs of the managed and franchised properties’ operations, marketing expenses and other expenses associated with our brands and shared services that are contractually reimbursed to us by the property owners or paid from fees collected in advance from these properties. The corresponding expenses are presented as other expenses from managed and franchised properties in our consolidated statements of operations, resulting in no effect on operating income (loss) or net income (loss). |
We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a 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.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash balances established as security for certain guarantees, lender reserves, ground rent and property tax escrows, reserves statutorily required to be held by our captive insurance subsidiary and advance deposits received on timeshare sales that are held in escrow until the contract is closed. For purposes of our consolidated statements of cash flows, changes in restricted cash and cash equivalents caused by changes in lender reserves due to restrictions under our loan agreements are shown as financing activities. The remaining changes in restricted cash and cash equivalents are the result of our normal operations, and, as such, are reflected in operating activities.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided on accounts receivable when losses are probable based on historical collection activity and current business conditions.
Inventories
Inventories comprise unsold timeshare intervals at our timeshare properties, as well as hotel inventories consisting of operating supplies that have a period of consumption of one year or less, guest room items and food and beverage items.
Timeshare inventory is carried at the lower of cost or market, based on the relative sales value or net realizable value. Capital expenditures associated with our non-lease timeshare products are reflected as inventory until the timeshare intervals are sold. Consistent with industry practice, timeshare inventory is classified as a current asset despite an operating cycle that exceeds 12 months. The majority of sales and marketing costs incurred to sell timeshare intervals are expensed when incurred. Certain direct and incremental selling and marketing costs are deferred on a contract until revenue from the interval sale has been recognized.
In accordance with the accounting standards for costs and the initial rental operations of real estate projects, we use the relative sales value method of costing our timeshare sales and relieving inventory. In addition, we continually assess our timeshare inventory and, if necessary, impose pricing adjustments to accelerate sales pace. It is possible that any future changes in our development and sales strategies could have a material effect on the carrying value of certain projects and inventory. We monitor our projects and inventory on an ongoing basis and complete an evaluation each reporting period to ensure that the inventory is stated at the lower of cost or market.
Hotel inventories are generally valued at the lower of cost (using “first-in, first-out”, or FIFO) or market.
Property and Equipment
Property and equipment are recorded at cost and interest applicable to major construction or development projects is capitalized. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.
Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements (8 to 40 years), furniture and equipment (3 to 8 years) and computer equipment and acquired software (3 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the lives estimates above, or the lease term.
We evaluate the carrying value of our property and equipment if there are indicators of potential impairment. We perform an analysis to determine the recoverability of the asset’s carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset using discount and capitalization rates deemed reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.
If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset.
Financing Receivables
We define financing receivables as financing arrangements that represent a contractual right to receive money either on demand or on fixed or determinable dates, which are recognized as an asset in our consolidated balance sheets. We record all financing receivables at amortized cost in current and long-term financing receivables. We recognize interest income as earned and provide an allowance for cancellations and defaults. We have divided our financing receivables into two portfolio segments based on the level of aggregation at which we develop and document a systematic methodology to determine the allowance for credit losses. Based on their initial measurement, risk characteristics and our method for monitoring and assessing credit risk, we have determined the classes of financing receivables to correspond to our identified portfolio segments as follows:
• |
Timeshare financing receivables comprise loans related to our financing of timeshare interval sales and secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare financing receivables as earned. The interest rate charged on the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase that is financed, among other factors. We record an estimate of uncollectibility as a reduction of sales revenue at the time revenue is recognized on a timeshare interval sale. We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing receivables, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. With the exception of the financing provided to customers of our timeshare business, we do not normally require collateral or other security to support credit sales. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our timeshare financing receivables. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Once a note is 90 days past due or is determined to be uncollectible prior to 90 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees, late charges, interest and principal. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 90 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 120 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. |
• | Other financing receivables primarily comprise individual loans and other types of unsecured financing arrangements provided to hotel owners. We individually assess all financing receivables in this portfolio for collectibility and impairment. We measure loan impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For impaired loans, we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows. We do not recognize interest income on unsecured financing to hotel owners for notes that are greater than 90 days past due and only resume interest recognition if the financing receivable becomes current. We fully reserve unsecured financing to hotel owners when we determine that the receivables are uncollectible and when all commercially reasonable means of recovering the receivable balances have been exhausted. |
Investments in Affiliates
We hold investments in affiliates that primarily own or lease hotels under one of our nine distinct hotel brands. If the entity does not meet the definition of a VIE, we evaluate our voting interest or general partnership interest to determine if we have a controlling financial interest in the entity. Investments in affiliates over which we exercise significant influence, but lack a controlling financial interest, are accounted for using the equity method. We account for investments using the equity method when we own more than a minimal investment, but have no more than a 50 percent voting interest or do not otherwise control the investment. Investments in affiliates over which we are not able to exercise significant influence are accounted for under the cost method.
Our proportionate share of earnings (losses) from our equity method investments is presented as equity in earnings (losses) from unconsolidated affiliates in our consolidated statements of operations. Distributions from investments in unconsolidated entities are presented as an operating activity in our consolidated statements of cash flows when such distributions are a return on investment. Distributions from unconsolidated affiliates are recorded as an investing activity in our consolidated statements of cash flows when such distributions are a return of investment.
We assess the recoverability of our equity method and cost method investments if there are indicators of potential impairment. If an identified event or change in circumstances requires an evaluation to determine if an investment may have an other-than-temporary impairment, we assess the fair value of the investment based on accepted valuation methodologies, which include discounted cash flows, estimates of sales proceeds and external appraisals. If an investment’s fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in earnings (losses) from unconsolidated affiliates for equity method investments or impairment losses for cost method investments in our consolidated statements of operations.
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.
We review the carrying value of our goodwill 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 24: “Business Segments”. We perform this evaluation annually or at an interim date if indicators of impairment exist. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process. In the first step, we determine the fair value of each of our reporting units. The valuation is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its estimated fair value, then the second step must be performed. In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Brands
We own, operate and franchise hotels under our portfolio of brands. There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these brands and, accordingly, the useful lives of these brands are considered to be indefinite. Our hotel brand portfolio includes Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton (including DoubleTree Suites by Hilton), Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn (including Hampton Inn & Suites and, outside of the U.S., Hampton by Hilton), Homewood Suites by Hilton and Home2 Suites by Hilton. In addition, we also develop and operate timeshare properties under our Hilton Grand Vacations brand.
At the time of the Merger, our brands were assigned a fair value based on a common valuation technique known as the relief from royalty approach. Home2 Suites by Hilton was launched post-Merger and, as such, it was not assigned a fair value. 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 a brand’s estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value at the time of the Merger. These intangible assets consist of management agreements, franchise contracts, leases, certain proprietary technologies and our guest loyalty program, Hilton HHonors. Additionally, we capitalize management and franchise contract acquisition costs as finite-lived intangible assets. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives.
We capitalize costs incurred to develop internal-use computer software. Internal and external costs incurred in connection with development of upgrades or enhancements that result in additional functionality are also capitalized. These capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. These capitalized costs are recorded in other intangible assets in our consolidated balance sheets.
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the fair value in our consolidated statements of operations.
Hilton HHonors
Hilton HHonors is a guest loyalty program provided to hotels. Most of our owned, leased, managed and franchised hotels and timeshare properties participate in the Hilton HHonors program. Hilton HHonors members earn points based on their spending at our participating hotel and timeshare properties and through participation in affiliated partner programs. When points are earned by Hilton HHonors members, the property or affiliated partner pays Hilton HHonors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication, administration and the estimated cost of award redemptions. Hilton HHonors member points are accumulated and may be redeemed for certificates that entitle the holder to the right to stay at participating properties, as well as other opportunities with third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining. We provide Hilton HHonors as a marketing program to participating hotels, with the objective of operating the program on a break-even basis to us.
Hilton HHonors defers revenue received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of “breakage” (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of reimbursing hotels and other third parties in respect to other redemption opportunities available to members. Revenue is recognized by participating hotels and resorts only when points that have been redeemed for hotel stay certificates are used by members or their designees at the respective properties. Additionally, when members of the Hilton HHonors loyalty program redeem award certificates at our owned and leased hotels, we recognize room rental revenue.
Fair Value Measurements—Valuation Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions 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.
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 instruments. Under the terms of our loan agreements, we are required to maintain derivative financial instruments to manage interest rates. We do not enter into derivative financial instruments for trading or speculative purposes.
We record all derivatives at fair value. On the date the derivative contract is entered, we 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), a hedge of our foreign currency exposure (net investment hedge) or an undesignated hedge instrument. 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. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows. Cash flows from undesignated derivative financial instruments are included as an investing activity in the consolidated statements of cash flows.
If we determine that we qualify for and will designate a derivative as a hedging instrument, at the designation date we formally document all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions, linking all derivatives designated as fair value hedges to specific assets and liabilities in our consolidated balance sheets, and determining the foreign currency exposure of 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 via use of the Hypothetical Derivative Method. This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions. Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument. We discontinue hedge accounting prospectively, when the derivative is not highly effective as a hedge, the underlying hedged 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 equity. Income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to 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 reported as a component of gain (loss) on foreign currency transactions in our consolidated statements of operations.
Self-Insurance
We are self-insured for various levels of general liability, auto liability, workers’ compensation and employee health insurance coverage at our owned properties. Additionally, the majority of employees at managed hotels, of which we are the employer, participate in our workers’ compensation and employee health insurance coverage. Also, a number of our managed hotels participate in our general liability, auto liability, excess liability and property insurance programs. We purchase insurance coverage for claim amounts that exceed our self-insured retentions. Our insurance reserves are accrued based on estimates of the ultimate cost of claims that occurred during the covered period, which includes claims incurred but not reported. 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. Our provision for insured events for the years ended December 31, 2013, 2012 and 2011 was $38 million, $27 million and $33 million, respectively. Our insured claims and adjustments paid for the years ended December 31, 2013, 2012 and 2011 were $36 million, $37 million and $33 million, respectively.
Share-based Compensation
We recognize the cost of services received in a share-based payment transaction with an employee as services are received and recognize either a corresponding increase in equity or a liability, 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 compensation cost for an award classified as an equity instrument is recognized ratably over the requisite service period, including an estimate of forfeitures. The requisite service period is the period during which an employee is required to provide service in exchange for an award.
Liability awards under a share-based payment arrangement 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 cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period, including an estimate of forfeitures.
Compensation cost for awards with performance conditions is recognized over the requisite service period if it is probable that the performance condition will be satisfied. If such performance conditions are not considered probable until they occur, no compensation 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, to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit carry forwards. 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 carry forwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carry forwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.
We use a prescribed recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11 (“ASU 2013-11”), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. The provisions of ASU 2013-11 were effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption of this ASU resulted in the reclassification of $108 million of unrecognized tax benefits against deferred income tax assets.
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11 (“ASU 2013-11”), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. The provisions of ASU 2013-11 are effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to materially affect our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05 (“ASU 2013-05”),Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. The provisions of ASU 2013-05 were effective, prospectively, for reporting periods beginning after December 15, 2013. The adoption did not have a material effect on our condensed consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05 (“ASU 2013-05”), Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. The provisions of ASU 2013-05 are effective for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-05 is not expected to materially affect our consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU amends existing guidance by requiring companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income in the same reporting period. For amounts which are not required to be reclassified in their entirety to net income in the same reporting period, companies are required to cross reference other disclosures that provide information about those amounts. The provisions of ASU 2013-02 were effective, prospectively, for reporting periods beginning after December 15, 2012. The adoption of this ASU resulted in additional disclosures within Note 23: “Accumulated Other Comprehensive Loss.”
In July 2012, the FASB issued ASU No. 2012-02 (“ASU 2012-02”), Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This ASU was effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 14, 2012. The adoption of ASU 2012-02 did not have a material effect on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU requires management to assess and evaluate whether conditions or events exist, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements issue date. The provisions of ASU 2014-15 are effective for annual periods beginning after December 15, 2016 and for annual and interim periods thereafter; early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
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 in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The provisions of ASU 2014-09 are effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and are to be applied retrospectively; early application is not permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08 (“ASU 2014-08”), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU amends guidance on reporting discontinued operations only if the disposal of a component of an entity or group of components of an entity represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The provisions of ASU 2014-08 should be applied prospectively for all disposals of components of an entity and for all businesses that, on acquisition, are classified as held for sale that occurred within annual periods beginning on or after December 15, 2014, and interim periods within. We have elected, as permitted by the standard, to early adopt ASU 2014-08 effective for components disposed of or held for sale on or after October 1, 2014. The adoption is not expected to have a material effect on our consolidated financial statements.
|
The following is a listing of all 11 hotels involved in this exchange, including pre-exchange and post-exchange ownership percentages:
Property |
Pre-Exchange Ownership % |
Post-Exchange Ownership % |
||||||
Embassy Suites Atlanta—Perimeter Center |
50 | % | 100 | % | ||||
Embassy Suites Kansas City—Overland Park |
50 | % | 100 | % | ||||
Embassy Suites Kansas City—Plaza |
50 | % | 100 | % | ||||
Embassy Suites Parsippany |
50 | % | 100 | % | ||||
Embassy Suites San Rafael—Marin County |
50 | % | 100 | % | ||||
Embassy Suites Austin—Central |
50 | % | — | % | ||||
Embassy Suites Chicago—Lombard/Oak Brook |
50 | % | — | % | ||||
Embassy Suites Raleigh—Crabtree |
50 | % | — | % | ||||
Embassy Suites San Antonio—International Airport |
50 | % | — | % | ||||
Embassy Suites San Antonio—NW I-10 |
50 | % | — | % | ||||
DoubleTree Guest Suites Austin |
10 | % | — | % |
The fair value of the assets and liabilities acquired as a result of the exchange were as follows:
(in millions) | ||||
Cash and cash equivalents |
$ | 2 | ||
Property and equipment |
144 | |||
Other intangible assets |
1 | |||
Long-term debt |
(64) | |||
|
|
|||
Net assets acquired |
$ | 83 | ||
|
|
|
Inventories were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Timeshare |
$ | 371 | $ | 389 | ||||
Hotel |
25 | 26 | ||||||
|
|
|
|
|||||
$ | 396 | $ | 415 | |||||
|
|
|
|
|
Property and equipment were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Land |
$ | 4,115 | $ | 4,098 | ||||
Buildings and leasehold improvements |
5,706 | 5,511 | ||||||
Furniture and equipment |
1,203 | 1,172 | ||||||
Construction-in-progress |
97 | 67 | ||||||
|
|
|
|
|||||
11,121 | 10,848 | |||||||
Accumulated depreciation and amortization |
(1,997) | (1,790) | ||||||
|
|
|
|
|||||
$ | 9,124 | $ | 9,058 | |||||
|
|
|
|
Property and equipment were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Land |
$ | 4,098 | $ | 4,090 | ||||
Buildings and leasehold improvements |
5,511 | 5,450 | ||||||
Furniture and equipment |
1,172 | 1,111 | ||||||
Construction-in-progress |
67 | 88 | ||||||
|
|
|
|
|||||
10,848 | 10,739 | |||||||
Accumulated depreciation and amortization |
(1,790) | (1,542) | ||||||
|
|
|
|
|||||
$ | 9,058 | $ | 9,197 | |||||
|
|
|
|
The following table details the impairment losses recognized on our assets included in property and equipment, by property type, for the years ended December 31, 2012 and 2011:
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Owned and leased hotels |
$ | 42 | $ | 17 | ||||
Timeshare properties |
— | 3 | ||||||
Corporate office facilities |
11 | — | ||||||
|
|
|
|
|||||
$ | 53 | $ | 20 | |||||
|
|
|
|
|
Financing receivables were as follows:
September 30, 2014 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 459 | $ | 412 | $ | 24 | $ | 895 | ||||||||
Less: allowance |
(26) | (54) | (1) | (81) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
433 | 358 | 23 | 814 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
68 | 63 | 2 | 133 | ||||||||||||
Less: allowance |
(4) | (9) | — | (13) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
64 | 54 | 2 | 120 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 497 | $ | 412 | $ | 25 | $ | 934 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 205 | $ | 654 | $ | 49 | $ | 908 | ||||||||
Less: allowance |
(11) | (67) | (1) | (79) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
194 | 587 | 48 | 829 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
29 | 106 | — | 135 | ||||||||||||
Less: allowance |
(2) | (12) | — | (14) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27 | 94 | — | 121 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 221 | $ | 681 | $ | 48 | $ | 950 | ||||||||
|
|
|
|
|
|
|
|
Financing receivables were as follows:
December 31, 2013 | ||||||||||||||||
Securitized Timeshare |
Unsecuritized Timeshare |
Other | Total | |||||||||||||
(in millions) | ||||||||||||||||
Financing receivables |
$ | 205 | $ | 654 | $ | 49 | $ | 908 | ||||||||
Less: allowance |
(11) | (67) | (1) | (79) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
194 | 587 | 48 | 829 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current portion of financing receivables |
29 | 106 | — | 135 | ||||||||||||
Less: allowance |
(2) | (12) | — | (14) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27 | 94 | — | 121 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financing receivables |
$ | 221 | $ | 681 | $ | 48 | $ | 950 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||
Unsecuritized Timeshare |
Other | Total | ||||||||||
(in millions) | ||||||||||||
Financing receivables |
$ | 853 | $ | 44 | $ | 897 | ||||||
Less: allowance |
(81) | (1) | (82) | |||||||||
|
|
|
|
|
|
|||||||
772 | 43 | 815 | ||||||||||
|
|
|
|
|
|
|||||||
Current portion of financing receivables |
131 | — | 131 | |||||||||
Less: allowance |
(12) | — | (12) | |||||||||
|
|
|
|
|
|
|||||||
119 | — | 119 | ||||||||||
|
|
|
|
|
|
|||||||
Total financing receivables |
$ | 891 | $ | 43 | $ | 934 | ||||||
|
|
|
|
|
|
The changes in our allowance for uncollectible timeshare financing receivables were as follows:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Beginning balance |
$ | 92 | $ | 93 | ||||
Write-offs |
(24) | (19) | ||||||
Provision for uncollectibles on sales |
25 | 20 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 93 | $ | 94 | ||||
|
|
|
|
The changes in our allowance for uncollectible timeshare financing receivables were as follows:
(in millions) | ||||
Balance as of December 31, 2010 |
$ | 101 | ||
Write-offs |
(36) | |||
Provision for uncollectibles on sales |
32 | |||
|
|
|||
Balance as of December 31, 2011 |
97 | |||
Write-offs |
(33) | |||
Provision for uncollectibles on sales |
29 | |||
|
|
|||
Balance as of December 31, 2012 |
93 | |||
Write-offs |
(25) | |||
Provision for uncollectibles on sales |
24 | |||
|
|
|||
Balance as of December 31, 2013 |
$ | 92 | ||
|
|
Our timeshare financing receivables as of September 30, 2014 mature as follows:
Securitized Timeshare |
Unsecuritized Timeshare |
|||||||
Year | (in millions) | |||||||
2014 (remaining) |
$ | 17 | $ | 27 | ||||
2015 |
68 | 48 | ||||||
2016 |
71 | 51 | ||||||
2017 |
73 | 52 | ||||||
2018 |
72 | 52 | ||||||
Thereafter |
226 | 245 | ||||||
|
|
|
|
|||||
527 | 475 | |||||||
Less: allowance |
(30) | (63) | ||||||
|
|
|
|
|||||
$ | 497 | $ | 412 | |||||
|
|
|
|
Our timeshare financing receivables as of December 31, 2013 mature as follows:
Securitized Timeshare |
Unsecuritized Timeshare |
|||||||
Year | (in millions) | |||||||
2014 |
$ | 29 | $ | 106 | ||||
2015 |
29 | 87 | ||||||
2016 |
30 | 90 | ||||||
2017 |
30 | 92 | ||||||
2018 |
30 | 89 | ||||||
Thereafter |
86 | 296 | ||||||
|
|
|
|
|||||
234 | 760 | |||||||
Less: allowance |
(13) | (79) | ||||||
|
|
|
|
|||||
$ | 221 | $ | 681 | |||||
|
|
|
|
The following table details an aged analysis of our gross timeshare financing receivables balance:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Current |
$ | 958 | $ | 948 | ||||
30 - 89 days past due |
13 | 14 | ||||||
90 - 119 days past due |
3 | 4 | ||||||
120 days and greater past due |
28 | 28 | ||||||
|
|
|
|
|||||
$ | 1,002 | $ | 994 | |||||
|
|
|
|
The following table details an aged analysis of our gross timeshare financing receivables balance:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Current |
$ | 948 | $ | 940 | ||||
30 - 89 days past due |
14 | 14 | ||||||
90 - 119 days past due |
4 | 4 | ||||||
120 days and greater past due |
28 | 26 | ||||||
|
|
|
|
|||||
$ | 994 | $ | 984 | |||||
|
|
|
|
|
Investments in affiliates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Equity investments |
$ | 157 | $ | 245 | ||||
Other investments |
17 | 15 | ||||||
|
|
|
|
|||||
$ | 174 | $ | 260 | |||||
|
|
|
|
Investments in affiliates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Equity investments |
$ | 245 | $ | 276 | ||||
Other investments |
15 | 15 | ||||||
|
|
|
|
|||||
$ | 260 | $ | 291 | |||||
|
|
|
|
|
Our goodwill balances, by reporting unit, were as follows:
Ownership | Management and Franchise |
Total | ||||||||||
(in millions) | ||||||||||||
Goodwill |
$ | 4,555 | $ | 5,147 | $ | 9,702 | ||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2011 |
1,028 | 5,147 | 6,175 | |||||||||
Foreign currency translation |
4 | 18 | 22 | |||||||||
Goodwill |
4,559 | 5,165 | 9,724 | |||||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2012 |
1,032 | 5,165 | 6,197 | |||||||||
Foreign currency translation |
4 | 19 | 23 | |||||||||
Goodwill |
4,563 | 5,184 | 9,747 | |||||||||
Accumulated impairment losses |
(3,527) | — | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2013 |
$ | 1,036 | $ | 5,184 | $ | 6,220 | ||||||
|
|
|
|
|
|
|
Other intangible assets were as follows:
December 31, 2013 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management and franchise agreements |
$ | 2,573 | $ | (1,121) | $ | 1,452 | ||||||
Leases |
436 | (132) | 304 | |||||||||
Other(1) |
727 | (280) | 447 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,736 | $ | (1,533) | $ | 2,203 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,013 | $ | — | $ | 5,013 |
December 31, 2012 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management and franchise agreements |
$ | 2,542 | $ | (942) | $ | 1,600 | ||||||
Leases |
408 | (107) | 301 | |||||||||
Other(1) |
646 | (203) | 443 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,596 | $ | (1,252) | $ | 2,344 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,029 | $ | — | $ | 5,029 |
(1) |
Includes capitalized software with a net balance of $218 million and $191 million as of December 31, 2013 and 2012, respectively, and the Hilton HHonors intangible with a net balance of $215 million and $236 million as of December 31, 2013 and 2012, respectively. We recorded amortization expense on capitalized software of $52 million, $30 million and $15 million for the years ended December 31, 2013, 2012 and 2011, respectively, and amortization expense on the Hilton HHonors intangible of $22 million for the years ended December 31, 2013, 2012 and 2011. |
We estimate our future amortization expense for our amortizing intangible assets to be as follows:
Year | (in millions) | |||
2014 |
$ | 315 | ||
2015 |
307 | |||
2016 |
285 | |||
2017 |
239 | |||
2018 |
229 | |||
Thereafter |
828 | |||
|
|
|||
$ | 2,203 | |||
|
|
|
Accounts payable, accrued expenses and other were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Accrued employee compensation and benefits |
$ | 547 | $ | 530 | ||||
Accounts payable |
319 | 286 | ||||||
Liability for guest loyalty program, current |
366 | 321 | ||||||
Deposit liabilities |
195 | 169 | ||||||
Deferred revenues, current |
48 | 61 | ||||||
Self-insurance reserves, current |
52 | 47 | ||||||
Other accrued expenses |
552 | 508 | ||||||
|
|
|
|
|||||
$ | 2,079 | $ | 1,922 | |||||
|
|
|
|
|
Long-term debt balances, including obligations for capital leases, and associated interest rates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Senior secured term loan facility with a rate of 3.50%, due 2020 |
$ | 5,300 | $ | 6,000 | ||||
Senior notes with a rate of 5.625%, due 2021 |
1,500 | 1,500 | ||||||
Commercial mortgage-backed securities loan with an average rate of 4.05%, due 2018(1) |
3,500 | 3,500 | ||||||
Mortgage loan with a rate of 2.30%, due 2018 |
525 | 525 | ||||||
Mortgage notes with an average rate of 5.17%, due 2016 to 2017 |
196 | 133 | ||||||
Other unsecured notes with a rate of 7.50%, due 2017 |
54 | 53 | ||||||
Capital lease obligations with an average rate of 6.06%, due 2015 to 2097 |
76 | 73 | ||||||
|
|
|
|
|||||
11,151 | 11,784 | |||||||
Less: current maturities of long-term debt |
(3) | (4) | ||||||
Less: unamortized discount on senior secured term loan facility |
(24) | (29) | ||||||
|
|
|
|
|||||
$ | 11,124 | $ | 11,751 | |||||
|
|
|
|
(1) | The initial maturity date of the variable-rate component of this borrowing is November 1, 2015. We assumed all extensions, which are solely at our option, were exercised. |
Long-term debt balances, including obligations for capital leases, and associated interest rates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Senior secured term loan facility with a rate of 3.75%, due 2020 |
$ | 6,000 | $ | — | ||||
Senior notes with a rate of 5.625%, due 2021 |
1,500 | — | ||||||
Commercial mortgage-backed securities loan with an average rate of 4.05%, due 2018(1) |
3,500 | — | ||||||
Mortgage loan with a rate of 2.32%, due 2018 |
525 | — | ||||||
Senior mortgage loans with a rate of 2.51%, due 2015(2) |
— | 7,271 | ||||||
Secured mezzanine loans with an average rate of 4.12%, due 2015(2) |
— | 7,697 | ||||||
Secured mezzanine loans with a rate of 4.71%, due 2015(2) |
— | 240 | ||||||
Mortgage notes with an average rate of 6.13%, due 2014 to 2016 |
133 | 134 | ||||||
Other unsecured notes with a rate of 7.50%, due 2017(3) |
53 | 149 | ||||||
Capital lease obligations with an average rate of 5.88%, due 2015 to 2093 |
73 | 83 | ||||||
Contingently convertible notes with a rate of 3.38%, due 2023(4) |
— | 1 | ||||||
|
|
|
|
|||||
11,784 | 15,575 | |||||||
Less: current maturities of long-term debt |
(4) | (392) | ||||||
Less: unamortized discount on senior secured term loan facility |
(29) | — | ||||||
|
|
|
|
|||||
$ | 11,751 | $ | 15,183 | |||||
|
|
|
|
(1) | The initial maturity date of the $875 million variable-rate component of this borrowing is November 1, 2015. We have assumed all extensions, which are solely at our option, were exercised. |
(2) | The rates are as of December 31, 2012, since the senior mortgage and secured mezzanine loans were paid in full on October 25, 2013. |
(3) | The balance as of December 31, 2012, included $96 million of our 8 percent unsecured notes due 2031 that were paid in full on November 25, 2013. |
(4) | The balance was less than $1 million as of December 31, 2013. |
Upon completion of the Debt Refinancing, we recognized a $229 million gain on extinguishment of debt in our consolidated statement of operations as follows:
(in millions) | ||||
Release of interest accrued under the interest method |
$ | 201 | ||
Release of unamortized yield adjustments related to prior debt modifications |
43 | |||
Release of unamortized debt issuance costs |
(15) | |||
|
|
|||
$ | 229 | |||
|
|
Non-recourse debt, including obligations for capital leases, and associated interest rates were as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Capital lease obligations of consolidated VIEs with a rate of 6.34%, due 2018 to 2026 |
$ | 239 | $ | 255 | ||||
Non-recourse debt of consolidated VIEs with an average rate of 3.46%, due 2015 to 2018(1) |
37 | 41 | ||||||
Timeshare Facility with a rate of 1.40%, due 2016 |
150 | 450 | ||||||
Securitized Timeshare Debt with an average rate of 1.98%, due 2026 |
511 | 222 | ||||||
|
|
|
|
|||||
937 | 968 | |||||||
Less: current maturities of non-recourse debt |
(124) | (48) | ||||||
|
|
|
|
|||||
$ | 813 | $ | 920 | |||||
|
|
|
|
(1) | Excludes the non-recourse debt of our VIEs that issued the Securitized Timeshare Debt, as this is presented separately. |
Non-recourse debt, including obligations for capital leases, and associated interest rates were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Capital lease obligations of consolidated VIEs with a rate of 6.34%, due 2018 to 2026 |
$ | 255 | $ | 373 | ||||
Non-recourse debt of consolidated VIEs with an average rate of 3.30%, due 2015 to 2018(1) |
41 | 47 | ||||||
Timeshare Facility with a rate of 1.42%, due 2016 |
450 | — | ||||||
Securitized Timeshare Debt with a rate of 2.28%, due 2026 |
222 | — | ||||||
|
|
|
|
|||||
968 | 420 | |||||||
Less: current maturities of non-recourse debt |
(48) | (15) | ||||||
|
|
|
|
|||||
$ | 920 | $ | 405 | |||||
|
|
|
|
(1) | Excludes the non-recourse debt of our VIE that issued the Securitized Timeshare Debt, as this is presented separately. |
The contractual maturities of our long-term debt and non-recourse debt as of September 30, 2014 were as follows:
Year | (in millions) | |||
2014 (remaining) |
$ | 34 | ||
2015 |
136 | |||
2016 |
433 | |||
2017 |
164 | |||
2018(1) |
4,097 | |||
Thereafter |
7,224 | |||
|
|
|||
$ | 12,088 | |||
|
|
(1) | The CMBS Loan has three one-year extensions, solely at our option, that effectively extend maturity to November 1, 2018. We assumed all extensions for purposes of calculating maturity dates. |
The contractual maturities of our long-term debt and non-recourse debt as of December 31, 2013 were as follows:
Year | (in millions) | |||
2014 |
$ | 52 | ||
2015 |
69 | |||
2016 |
622 | |||
2017 |
96 | |||
2018(1) |
4,068 | |||
Thereafter |
7,845 | |||
|
|
|||
$ | 12,752 | |||
|
|
(1) | The CMBS Loan has three one-year extensions solely at our option that effectively extend maturity to November 1, 2018. We have assumed all extensions for purposes of calculating maturity dates. |
|
Deferred revenues were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Hilton HHonors points sales |
$ | 597 | $ | — | ||||
Other |
77 | 82 | ||||||
|
|
|
|
|||||
$ | 674 | $ | 82 | |||||
|
|
|
|
|
Other long-term liabilities were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Program surplus |
$ | 314 | $ | 263 | ||||
Pension obligations |
138 | 262 | ||||||
Other long-term tax liabilities |
344 | 340 | ||||||
Deferred employee compensation and benefits |
147 | 129 | ||||||
Self-insurance reserves |
81 | 80 | ||||||
Guarantee liability |
51 | 57 | ||||||
Other |
74 | 310 | ||||||
|
|
|
|
|||||
$ | 1,149 | $ | 1,441 | |||||
|
|
|
|
|
The effects of our derivative instruments on our condensed consolidated balance sheets were as follows:
September 30, 2014 | December 31, 2013 | |||||||||||
Balance Sheet Classification |
Fair Value | Balance Sheet Classification |
Fair Value | |||||||||
(in millions) | (in millions) | |||||||||||
Cash Flow Hedges: |
||||||||||||
Interest rate swaps |
Other assets | $ | 4 | Other assets | $ | 10 | ||||||
Non-designated Hedges: |
||||||||||||
Interest rate caps |
Other assets | — | Other assets | — |
The effects of our derivative instruments on our consolidated balance sheets were as follows:
December 31, 2013 | December 31, 2012 | |||||||||||||||
Balance Sheet Classification |
Fair Value | Balance Sheet Classification |
Fair Value | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Cash Flow Hedges |
||||||||||||||||
Interest rate swaps |
Other assets | $ | 10 | N/A | $ | — | ||||||||||
Non-designated Hedges |
||||||||||||||||
Interest rate caps(1) |
Other assets | — | Other assets | — |
(1) | The fair values of our interest rate caps were immaterial as of December 31, 2013 and 2012. |
Earnings Effect of Derivative Instruments
The effects of our derivative instruments on our condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:
Nine Months Ended September 30, |
||||||||||
Classification of Loss Recognized | 2014 | 2013 | ||||||||
Cash Flow Hedges: |
||||||||||
Interest rate swaps(1) |
Other comprehensive loss | $ | (6) | N/A | ||||||
Non-designated Hedges: |
||||||||||
Interest rate caps |
Other gain, net | — | — |
(1) | There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the nine months ended September 30, 2014. |
The effects of our derivative instruments on our consolidated statements of operations and consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:
Classification of Gain (Loss) Recognized |
Amount of Gain (Loss) Recognized in Income | |||||||||||||
2013 | 2012 | 2011 | ||||||||||||
(in millions) | ||||||||||||||
Cash Flow Hedges |
||||||||||||||
Interest rate swaps(1) |
Other comprehensive income (loss) | $ | 10 | $ | — | $ | — | |||||||
Interest rate caps(2) |
Other gain, net | — | — | (2) | ||||||||||
Non-designated Hedges |
||||||||||||||
Interest rate caps(3) |
Other gain, net | — | (1) | (1) |
(1) | There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the year ended December 31, 2013. |
(2) | Relates to hedge ineffectiveness on the eight designated Secured Debt interest rate caps that were outstanding during the year ended December 31, 2011. No amounts were excluded from hedge effectiveness testing. |
(3) | An immaterial loss was recorded during the year ended December 31, 2013. |
|
The carrying amounts and estimated fair values of our financial assets and liabilities, including related current portions, were as follows:
September 30, 2014 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 290 | $ | — | $ | 290 | $ | — | ||||||||
Restricted cash equivalents |
97 | — | 97 | — | ||||||||||||
Timeshare financing receivables |
1,002 | — | — | 1,004 | ||||||||||||
Interest rate swaps |
4 | — | 4 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(2) |
11,051 | 1,606 | — | 9,592 | ||||||||||||
Non-recourse debt(3) |
661 | — | — | 657 |
December 31, 2013 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 309 | $ | — | $ | 309 | $ | — | ||||||||
Restricted cash equivalents |
107 | — | 107 | — | ||||||||||||
Timeshare financing receivables |
994 | — | — | 996 | ||||||||||||
Interest rate swaps |
10 | — | 10 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1) |
11,682 | 57 | 1,560 | 10,358 | ||||||||||||
Non-recourse debt(3) |
672 | — | — | 670 |
(1) | Excludes capital lease obligations with a carrying value of $76 million and $73 million as of September 30, 2014 and December 31, 2013, respectively. |
(2) | As of September 30, 2014, the classification of certain long-term debt with a carrying value of $1,500 million changed from Level 2 to Level 1 upon the availability of active market pricing data. |
(3) | Excludes capital lease obligations of consolidated VIEs with a carrying value of $239 million and $255 million as of September 30, 2014 and December 31, 2013, respectively, and non-recourse debt of consolidated VIEs with a carrying value of $37 million and $41 million as of September 30, 2014 and December 31, 2013, respectively. |
The carrying amounts and estimated fair values of our financial assets and liabilities, which included related current portions, were as follows:
December 31, 2013 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 309 | $ | — | $ | 309 | $ | — | ||||||||
Restricted cash equivalents |
107 | — | 107 | — | ||||||||||||
Timeshare financing receivables |
994 | — | — | 996 | ||||||||||||
Interest rate swaps |
10 | — | 10 | — | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(3) |
11,682 | 57 | 1,560 | 10,358 | ||||||||||||
Non-recourse debt(2)(3) |
672 | — | — | 670 |
December 31, 2012 | ||||||||||||||||
Hierarchy Level | ||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
(in millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 561 | $ | — | $ | 561 | $ | — | ||||||||
Restricted cash equivalents |
322 | — | 322 | — | ||||||||||||
Timeshare financing receivables |
984 | — | — | 987 | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt(1)(3) |
15,492 | 152 | — | 15,716 |
(1) | Excludes capital lease obligations with a carrying value of $73 million and $83 million as of December 31, 2013 and 2012, respectively. |
(2) | Represents the Securitized Timeshare Debt and the Timeshare Facility. |
(3) | Includes current maturities. |
As a result of our acquisition of the remaining ownership interest in certain equity method investments, which occurred during the nine months ended September 30, 2014, we measured financial and nonfinancial assets and liabilities at fair value on a nonrecurring basis (see Note 3: “Acquisitions”), as follows:
Fair Value(1) | ||||
(in millions) | ||||
Property and equipment |
$ | 144 | ||
Long-term debt |
64 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
The estimated fair values of our financial and nonfinancial assets that were measured at fair value on a nonrecurring basis as a result of impairment losses were as follows:
Year Ended December 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Fair Value(1) | Impairment Losses |
Fair Value(1) | Impairment Losses |
|||||||||||||
(in millions) | ||||||||||||||||
Property and equipment, net |
$ | 24 | $ | 53 | $ | 5 | $ | 20 | ||||||||
Investments in affiliates |
29 | 20 | 205 | 141 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
|
The future minimum rent payments, under non-cancelable leases, due in each of the next five years and thereafter as of December 31, 2013, were as follows:
Operating Leases |
Capital Leases |
Non-Recourse Capital Leases |
||||||||||
Year | (in millions) | |||||||||||
2014 |
$ | 264 | $ | 8 | $ | 26 | ||||||
2015 |
251 | 16 | 26 | |||||||||
2016 |
243 | 6 | 26 | |||||||||
2017 |
230 | 6 | 26 | |||||||||
2018 |
223 | 6 | 26 | |||||||||
Thereafter |
2,075 | 106 | 272 | |||||||||
|
|
|
|
|
|
|||||||
Total minimum rent payments |
$ | 3,286 | 148 | 402 | ||||||||
|
|
|||||||||||
Less: amount representing interest |
(75) | (147) | ||||||||||
|
|
|
|
|||||||||
Present value of net minimum rent payments |
$ | 73 | $ | 255 | ||||||||
|
|
|
|
Rent expense for all operating leases was as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Minimum rentals |
$ | 271 | $ | 286 | $ | 264 | ||||||
Contingent rentals |
148 | 161 | 175 | |||||||||
|
|
|
|
|
|
|||||||
$ | 419 | $ | 447 | $ | 439 | |||||||
|
|
|
|
|
|
|
The domestic and foreign components of income before income taxes were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
U.S. income before tax |
$ | 502 | $ | 435 | $ | 48 | ||||||
Foreign income before tax |
196 | 138 | 148 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 698 | $ | 573 | $ | 196 | ||||||
|
|
|
|
|
|
The components of our provision (benefit) for income taxes were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Current: |
||||||||||||
Federal |
$ | 94 | $ | 71 | $ | 50 | ||||||
State |
15 | 13 | 8 | |||||||||
Foreign |
64 | 57 | 70 | |||||||||
|
|
|
|
|
|
|||||||
Total current |
173 | 141 | 128 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
160 | 63 | (190) | |||||||||
State |
4 | 2 | (8) | |||||||||
Foreign |
(99) | 8 | 11 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred |
65 | 73 | (187) | |||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) for income taxes |
$ | 238 | $ | 214 | $ | (59) | ||||||
|
|
|
|
|
|
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, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Statutory U.S. federal income tax provision |
$ | 244 | $ | 201 | $ | 69 | ||||||
State income taxes, net of U.S. federal tax benefit |
31 | 10 | 6 | |||||||||
Foreign income tax expense |
74 | 18 | 50 | |||||||||
Foreign losses not subject to U.S. tax |
(24) | (24) | (26) | |||||||||
Tax credits |
(67) | (67) | (58) | |||||||||
Change in deferred tax asset valuation allowance |
(121) | 56 | (160) | |||||||||
Change in basis difference in foreign subsidiaries |
24 | 18 | 20 | |||||||||
Provision for uncertain tax positions |
(19) | (2) | 35 | |||||||||
Non-deductible equity based compensation |
94 | — | — | |||||||||
Other, net |
2 | 4 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Provision (benefit) for income taxes |
$ | 238 | $ | 214 | $ | (59) | ||||||
|
|
|
|
|
|
The composition of net deferred tax balances were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Deferred income tax assets—current |
$ | 23 | $ | 76 | ||||
Deferred income tax assets—non-current |
193 | 104 | ||||||
Deferred income tax liabilities—current(1) |
— | (1) | ||||||
Deferred income tax liabilities—non-current |
(5,053) | (4,948) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,837) | $ | (4,769) | ||||
|
|
|
|
(1) | Included in the accounts payable, accrued expenses and other in our consolidated balance sheet. |
The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Deferred tax assets: |
||||||||
Foreign tax credits |
$ | 20 | $ | 227 | ||||
Net operating loss carryforwards |
573 | 570 | ||||||
Compensation |
187 | 245 | ||||||
Deferred transaction costs |
15 | 25 | ||||||
Investments |
56 | — | ||||||
Other reserves |
90 | 198 | ||||||
Capital lease obligations |
133 | 188 | ||||||
Self-insurance reserves |
51 | 44 | ||||||
System funds |
42 | 23 | ||||||
Other tax credits |
3 | 48 | ||||||
Other |
105 | 72 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
1,275 | 1,640 | ||||||
Less: valuation allowance |
(503) | (769) | ||||||
|
|
|
|
|||||
Deferred tax assets |
$ | 772 | $ | 871 | ||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment |
$ | (2,075) | $ | (2,025) | ||||
Brands |
(1,910) | (1,916) | ||||||
Amortizable intangible |
(616) | (659) | ||||||
Unrealized foreign currency gains |
(279) | (301) | ||||||
Investments |
— | (70) | ||||||
Investment in foreign subsidiaries |
(81) | (93) | ||||||
Deferred income |
(648) | (576) | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
(5,609) | (5,640) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,837) | $ | (4,769) | ||||
|
|
|
|
Reconciliations of the beginning and ending amount of unrecognized tax benefits were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Balance at beginning of year |
$ | 469 | $ | 436 | $ | 405 | ||||||
Additions for tax positions related to the prior year |
1 | 71 | 60 | |||||||||
Additions for tax positions related to the current year |
5 | 5 | 5 | |||||||||
Reductions for tax positions for prior years |
(2) | (23) | (6) | |||||||||
Settlements |
(35) | (14) | (27) | |||||||||
Lapse of statute of limitations |
(2) | (6) | (2) | |||||||||
Currency translation adjustment |
(1) | — | 1 | |||||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
$ | 435 | $ | 469 | $ | 436 | ||||||
|
|
|
|
|
|
|
The following table presents the projected benefit obligation, 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 | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Change in Projected Benefit Obligation: |
||||||||||||||||||||||||
Benefit obligation at beginning of year |
$ | 491 | $ | 449 | $ | 365 | $ | 312 | $ | 125 | $ | 119 | ||||||||||||
Service cost |
— | — | 5 | 5 | 3 | 4 | ||||||||||||||||||
Interest cost |
18 | 21 | 16 | 16 | 4 | 5 | ||||||||||||||||||
Employee contributions |
— | — | 2 | 2 | — | — | ||||||||||||||||||
Actuarial loss (gain) |
(51) | 43 | (3) | 28 | (6) | 9 | ||||||||||||||||||
Settlements and curtailments |
— | — | — | — | (2) | — | ||||||||||||||||||
Effect of foreign exchange rates |
— | — | 8 | 14 | (4) | (2) | ||||||||||||||||||
Benefits paid |
(45) | (22) | (13) | (12) | (8) | (10) | ||||||||||||||||||
Other(1) |
11 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Benefit obligation at end of year |
$ | 424 | $ | 491 | $ | 380 | $ | 365 | $ | 112 | $ | 125 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
||||||||||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 273 | $ | 249 | $ | 363 | $ | 318 | $ | 85 | $ | 83 | ||||||||||||
Actual return on plan assets, net of expenses |
32 | 31 | 20 | 34 | 9 | 4 | ||||||||||||||||||
Employer contribution |
40 | 15 | 5 | 7 | 6 | 10 | ||||||||||||||||||
Employee contributions |
— | — | 2 | 2 | — | — | ||||||||||||||||||
Effect of foreign exchange rates |
— | — | 8 | 14 | (4) | (2) | ||||||||||||||||||
Benefits paid |
(45) | (22) | (13) | (12) | (7) | (10) | ||||||||||||||||||
Settlements |
— | — | — | — | (2) | — | ||||||||||||||||||
Other(1) |
20 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fair value of plan assets at end of year |
320 | 273 | 385 | 363 | 87 | 85 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Funded status at end of year (overfunded/(underfunded)) |
(104) | (218) | 5 | (2) | (25) | (40) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Accumulated benefit obligation |
$ | 424 | $ | 491 | $ | 380 | $ | 365 | $ | 112 | $ | 125 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes projected benefit obligations of $11 million and plan assets of $20 million related to certain employees of former Hilton affiliates that were assumed during the year ended December 31, 2013. |
Amounts recognized in the consolidated balance sheets consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Non-current asset |
$ | 2 | $ | — | $ | 8 | $ | — | $ | 5 | $ | 3 | ||||||||||||
Current liability |
— | — | — | — | (1) | (1) | ||||||||||||||||||
Non-current liability |
(106) | (218) | (3) | (2) | (29) | (42) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amount recognized |
$ | (104) | $ | (218) | $ | 5 | $ | (2) | $ | (25) | $ | (40) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Net actuarial loss (gain) |
$ | (67) | $ | 29 | $ | 8 | $ | — | $ | 17 | $ | 21 | $ | (12) | $ | 9 | $ | 2 | ||||||||||||||||||
Prior service cost (credit) |
(12) | (4) | (4) | 3 | 16 | 3 | — | — | (4) | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
(3) | 1 | (4) | (4) | (3) | (1) | (2) | (1) | (2) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net amount recognized |
$ | (82) | $ | 26 | $ | — | $ | (1) | $ | 30 | $ | 23 | $ | (14) | $ | 8 | $ | (4) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated unrecognized net losses and prior service cost (credit) that will be amortized into net periodic pension cost over the next fiscal year were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Unrecognized net losses |
$ | 1 | $ | 4 | $ | 6 | $ | 1 | $ | 4 | $ | 3 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
Unrecognized prior service cost (credit) |
4 | 4 | 4 | — | (3) | (16) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Amount unrecognized |
$ | 5 | $ | 8 | $ | 10 | $ | 1 | $ | 1 | $ | (13) | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic pension cost (credit) for the Domestic Plan, U.K. Plan and International Plans were as follows:
Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Domestic Plan |
U.K. Plan |
International Plans |
Domestic Plan |
U.K. Plan |
International Plans |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost |
$ | 5 | $ | 1 | $ | 2 | $ | 3 | $ | 4 | $ | 2 | ||||||||||||
Interest cost |
13 | 13 | 3 | 13 | 12 | 3 | ||||||||||||||||||
Expected return on plan assets |
(14) | (19) | (3) | (14) | (17) | (3) | ||||||||||||||||||
Amortization of prior service cost (credit) |
3 | — | — | 3 | (2) | — | ||||||||||||||||||
Amortization of net loss |
1 | 1 | — | 2 | 3 | 1 | ||||||||||||||||||
Settlement losses |
2 | — | — | — | — | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net periodic pension cost (credit) |
$ | 10 | $ | (4) | $ | 2 | $ | 7 | $ | — | $ | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic pension cost was as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Service cost |
$ | 4 | $ | — | $ | — | $ | 5 | $ | 5 | $ | 4 | $ | 4 | $ | 4 | $ | 4 | ||||||||||||||||||
Interest cost |
17 | 21 | 23 | 17 | 16 | 17 | 4 | 5 | 5 | |||||||||||||||||||||||||||
Expected return on plan assets |
(18) | (17) | (17) | (23) | (21) | (21) | (4) | (4) | (4) | |||||||||||||||||||||||||||
Amortization of prior service cost (credit) |
4 | 4 | 4 | (3) | (16) | (3) | — | — | — | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
3 | (1) | 4 | 4 | 3 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net periodic pension cost (credit) |
10 | 7 | 14 | — | (13) | (2) | 5 | 6 | 6 | |||||||||||||||||||||||||||
Settlement losses |
— | — | — | — | — | — | — | — | 1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net pension cost (credit) |
$ | 10 | $ | 7 | $ | 14 | $ | — | $ | (13) | $ | (2) | $ | 5 | $ | 6 | $ | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used to determine benefit obligations were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Discount rate |
4.7% | 3.9% | 4.7 | % | 4.7 | % | 4.3 | % | 3.8 | % | ||||||||||||||
Salary inflation |
N/A | N/A | 1.9 | % | 1.9 | % | 2.3 | % | 2.2 | % | ||||||||||||||
Pension inflation |
N/A | N/A | 3.0 | % | 2.8 | % | 1.9 | % | 2.0 | % |
The weighted-average assumptions used to determine net periodic pension cost (credit) were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||
Discount rate |
3.9% | 4.9% | 5.4% | 4.7% | 5.0% | 5.7% | 3.8% | 4.6% | 5.0% | |||||||||||||||||||||||||||
Expected return on plan assets |
7.5% | 6.8% | 6.8% | 6.5% | 6.5% | 6.5% | 6.3% | 6.2% | 6.2% | |||||||||||||||||||||||||||
Salary inflation |
N/A | N/A | N/A | 1.9% | 1.7% | 2.6% | 2.2% | 2.8% | 3.3% | |||||||||||||||||||||||||||
Pension inflation |
N/A | N/A | N/A | 2.8% | 2.9% | 3.0% | 2.0% | 1.8% | 1.8% |
The following table presents the fair value hierarchy of total plan assets measured at fair value by asset category. The fair value of Level 2 assets were based on available market pricing information of similar financial instruments.
December 31, 2013 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 10 | $ | — | $ | — | ||||||||||||||||||
Equity funds |
70 | — | — | — | — | — | 5 | 9 | — | |||||||||||||||||||||||||||
Debt securities |
10 | 97 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Bond funds |
— | — | — | — | — | — | — | 16 | — | |||||||||||||||||||||||||||
Real estate funds |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
Common collective trusts |
— | 143 | — | — | 385 | — | — | 45 | — | |||||||||||||||||||||||||||
Other |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 80 | $ | 240 | $ | — | $ | — | $ | 385 | $ | — | $ | 15 | $ | 72 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 12 | $ | — | $ | — | ||||||||||||||||||
Equity funds |
54 | — | — | — | — | — | 4 | 9 | — | |||||||||||||||||||||||||||
Debt securities |
16 | 103 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Bond funds |
— | — | — | — | — | — | — | 15 | — | |||||||||||||||||||||||||||
Common collective trusts |
— | 100 | — | — | 363 | — | — | 44 | — | |||||||||||||||||||||||||||
Other |
— | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 70 | $ | 203 | $ | — | $ | — | $ | 363 | $ | — | $ | 16 | $ | 69 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter were as follows:
Domestic Plan | U.K. Plan | International Plans |
||||||||||
(in millions) | ||||||||||||
Year |
||||||||||||
2014 |
$ | 87 | $ | 14 | $ | 11 | ||||||
2015 |
26 | 14 | 9 | |||||||||
2016 |
25 | 14 | 9 | |||||||||
2017 |
25 | 14 | 8 | |||||||||
2018 |
25 | 15 | 8 | |||||||||
2019 - 2023 |
125 | 76 | 43 | |||||||||
|
|
|
|
|
|
|||||||
$ | 313 | $ | 147 | $ | 88 | |||||||
|
|
|
|
|
|
Certain employees are covered by union sponsored multi-employer pension plans pursuant to agreements between us and various unions. Our participation in these plans is outlined in the table below:
EIN/
Pension Plan Number |
Pension
Protection Act Zone Status |
Contributions | ||||||||||||||||||||||
Pension Fund |
2013 | 2012 | 2013 | 2012 | 2011 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund |
13-1764242 | Pending | Yellow | $ | 14 | $ | 13 | $ | 13 | |||||||||||||||
Other plans |
12 | 11 | 9 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total contributions |
$ | 26 | $ | 24 | $ | 22 | ||||||||||||||||||
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Cash Flow Hedge Adjustment |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance as of December 31, 2013 |
$ | (136) | $ | (134) | $ | 6 | $ | (264) | ||||||||
Other comprehensive loss before reclassifications |
(129) | — | (4) | (133) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
(4) | 3 | — | (1) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(133) | 3 | (4) | (134) | ||||||||||||
Equity contribution to consolidated variable interest entities |
(6) | — | — | (6) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2014 |
$ | (275) | $ | (131) | $ | 2 | $ | (404) | ||||||||
|
|
|
|
|
|
|
|
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Total | ||||||||||
(in millions) | ||||||||||||
Balance as of December 31, 2012 |
$ | (212) | $ | (194) | $ | (406) | ||||||
Other comprehensive income (loss) before reclassifications |
(21) | 6 | (15) | |||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 4 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Net current period other comprehensive income (loss) |
(21) | 10 | (11) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2013 |
$ | (233) | $ | (184) | $ | (417) | ||||||
|
|
|
|
|
|
(1) | Includes net investment hedges. |
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency Translation Adjustment(1) |
Pension Liability Adjustment |
Cash Flow Hedge Adjustment |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance as of December 31, 2010 |
$ (257) | $ (140) | $ (1) | $ (398) | ||||||||||||
Other comprehensive loss before reclassifications |
(79) | (21) | — | (100) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 8 | 1 | 9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(79) | (13) | 1 | (91) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2011 |
(336) | (153) | — | (489) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
124 | (35) | — | 89 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | (6) | — | (6) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
124 | (41) | — | 83 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2012 |
(212) | (194) | — | (406) | ||||||||||||
Other comprehensive income before reclassifications |
67 | 54 | 6 | 127 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
9 | 6 | — | 15 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income |
76 | 60 | 6 | 142 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2013 |
$ (136) | $ (134) | $ 6 | $ (264) | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Includes net investment hedges. |
The following table presents additional information about reclassifications out of accumulated other comprehensive loss:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Currency translation adjustment: |
||||||||
Sale and liquidation of foreign assets(1) |
$ | 3 | $ | (1) | ||||
Gains on net investment hedges(2) |
1 | 1 | ||||||
Tax benefit(3)(4) |
— | — | ||||||
|
|
|
|
|||||
Total currency translation adjustment reclassifications for the period, net of taxes |
4 | — | ||||||
|
|
|
|
|||||
Pension liability adjustment: |
||||||||
Amortization of prior service cost(5) |
(3) | (1) | ||||||
Amortization of net loss(5) |
(2) | (6) | ||||||
Tax benefit(3) |
2 | 3 | ||||||
Total pension liability adjustment reclassifications for the period, net of taxes |
(3) | (4) | ||||||
|
|
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 1 | $ | (4) | ||||
|
|
|
|
(1) | Reclassified out of accumulated other comprehensive loss to other gain, net in our condensed consolidated statements of operations. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
(2) | Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in our condensed consolidated statements of operations. |
(3) | Reclassified out of accumulated other comprehensive loss to income tax expense in our condensed consolidated statements of operations. |
(4) | The respective tax benefit was less than $1 million for the nine months ended September 30, 2014 and 2013. |
(5) | Reclassified out of accumulated other comprehensive loss to general, administrative and other in the condensed consolidated statements of operations. These amounts were included in the computation of net periodic pension cost (credit). See Note 12: “Employee Benefit Plans” for additional information. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
The following table presents additional information about reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2013:
(in millions) | ||||
Currency translation adjustment: |
||||
Sale and liquidation of foreign assets(1) |
$ | (15) | ||
Gains on net investment hedges(2) |
1 | |||
Tax benefit(3) |
5 | |||
|
|
|||
Total currency translation adjustment reclassifications for the period, net of taxes |
(9) | |||
|
|
|||
Pension liability adjustment: |
||||
Amortization of prior service cost(4) |
(1) | |||
Amortization of net loss(4) |
(8) | |||
Tax benefit(3) |
3 | |||
|
|
|||
Total pension liability adjustment reclassifications for the period, net of taxes |
(6) | |||
|
|
|||
Total reclassifications for the period, net of tax |
$ | (15) | ||
|
|
(1) | Reclassified out of accumulated other comprehensive loss to other gain, net in the consolidated statement of operations. Amounts in parentheses indicate a loss in our consolidated statement of operations. |
(2) | Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in our consolidated statement of operations. |
(3) | Reclassified out of accumulated other comprehensive loss to income tax benefit (expense) in our consolidated statement of operations. |
(4) | Reclassified out of accumulated other comprehensive loss to general, administrative and other in the consolidated statement of operations. These amounts were included in the computation of net periodic pension cost. See Note 20: “Employee Benefit Plans” for additional information. Amounts in parentheses indicate a loss in our consolidated statement of operations. |
|
The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Revenues |
||||||||
Ownership(1)(2) |
$ | 3,165 | $ | 3,003 | ||||
Management and franchise(3) |
1,085 | 938 | ||||||
Timeshare |
850 | 809 | ||||||
|
|
|
|
|||||
Segment revenues |
5,100 | 4,750 | ||||||
Other revenues from managed and franchised properties |
2,653 | 2,433 | ||||||
Other revenues(4) |
70 | 48 | ||||||
Intersegment fees elimination(1)(2)(3)(4) |
(149) | (139) | ||||||
|
|
|
|
|||||
Total revenues |
$ | 7,674 | $ | 7,092 | ||||
|
|
|
|
|||||
Adjusted EBITDA |
||||||||
Ownership(1)(2)(3)(4)(5) |
$ | 730 | $ | 672 | ||||
Management and franchise(3) |
1,085 | 938 | ||||||
Timeshare(1)(3) |
232 | 205 | ||||||
Corporate and other(2)(4) |
(207) | (208) | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 1,840 | $ | 1,607 | ||||
|
|
|
|
(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which were eliminated in our condensed consolidated financial statements. These charges totaled $21 million and $19 million for the nine months ended September 30, 2014 and 2013, respectively. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the ownership segment and a cost to timeshare Adjusted EBITDA. |
(2) | Includes other intercompany charges of $3 million and $2 million for the nine months ended September 30, 2014 and 2013, respectively. |
(3) | Includes management, royalty and intellectual property fees of $86 million and $71 million for the nine months ended September 30, 2014 and 2013, respectively. These fees are charged to consolidated owned and leased properties and were eliminated in our condensed consolidated financial statements. Also includes a licensing fee of $33 million and $40 million for the nine months ended September 30, 2014 and 2013, respectively, which is charged to our timeshare segment by our management and franchise segment and was eliminated in our condensed consolidated financial statements. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the management and franchise segment and a cost to ownership Adjusted EBITDA and timeshare Adjusted EBITDA. |
(4) | Includes charges to consolidated owned and leased properties for services provided by our wholly owned laundry business of $6 million and $7 million for the nine months ended September 30, 2014 and 2013, respectively. These charges were eliminated in our condensed consolidated financial statements. |
(5) | Includes unconsolidated affiliate Adjusted EBITDA. |
The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Revenues: |
||||||||||||
Ownership(1)(4) |
$ | 4,075 | $ | 4,006 | $ | 3,926 | ||||||
Management and franchise(2) |
1,271 | 1,180 | 1,095 | |||||||||
Timeshare |
1,109 | 1,085 | 944 | |||||||||
|
|
|
|
|
|
|||||||
Segment revenues |
6,455 | 6,271 | 5,965 | |||||||||
Other revenues from managed and franchised properties |
3,405 | 3,124 | 2,927 | |||||||||
Other revenues(3) |
69 | 66 | 58 | |||||||||
Intersegment fees elimination(1)(2)(3)(4) |
(194) | (185) | (167) | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 9,735 | $ | 9,276 | $ | 8,783 | ||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA: |
||||||||||||
Ownership(1)(2)(3)(4)(5) |
$ | 926 | $ | 793 | $ | 725 | ||||||
Management and franchise(2) |
1,271 | 1,180 | 1,095 | |||||||||
Timeshare(1)(2) |
297 | 252 | 207 | |||||||||
Corporate and other(3)(4) |
(284) | (269) | (274) | |||||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA |
$ | 2,210 | $ | 1,956 | $ | 1,753 | ||||||
|
|
|
|
|
|
(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which are eliminated in our consolidated financial statements. These charges totaled $26 million, $24 million and $27 million for the years ended December 31, 2013, 2012 and 2011, respectively. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the ownership segment and a cost to timeshare Adjusted EBITDA. |
(2) | Includes management, royalty and intellectual property fees of $100 million, $96 million and $88 million for the years ended December 31, 2013, 2012 and 2011, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our consolidated financial statements. Also includes a licensing fee of $56 million, $52 million and $43 million for the years ended December 31, 2013, 2012 and 2011, respectively, which is charged to our timeshare segment by our management and franchise segment and is eliminated in our consolidated financial statements. While the net effect is zero, our measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the management and franchise segment and a cost to ownership Adjusted EBITDA and timeshare Adjusted EBITDA. |
(3) | Includes charges to consolidated owned and leased properties for services provided by our wholly owned laundry business of $9 million, $10 million and $9 million for the years ended December 31, 2013, 2012 and 2011, respectively. These charges are eliminated in our consolidated financial statements. |
(4) | Includes various other intercompany charges of $3 million for the years ended December 31, 2013 and 2012. |
(5) | Includes unconsolidated affiliate Adjusted EBITDA. |
The following table provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholders:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Adjusted EBITDA |
$ | 1,840 | $ | 1,607 | ||||
Net income attributable to noncontrolling interests |
(8) | (9) | ||||||
Gain (loss) on foreign currency transactions |
41 | (43) | ||||||
FF&E replacement reserve |
(32) | (29) | ||||||
Share-based compensation expense |
(25) | (5) | ||||||
Other gain, net |
38 | 5 | ||||||
Other adjustment items |
(41) | (56) | ||||||
|
|
|
|
|||||
EBITDA |
1,813 | 1,470 | ||||||
Interest expense |
(467) | (401) | ||||||
Interest expense included in equity in earnings from unconsolidated affiliates |
(8) | (10) | ||||||
Income tax expense |
(331) | (192) | ||||||
Depreciation and amortization |
(470) | (455) | ||||||
Depreciation and amortization included in equity in earnings from unconsolidated affiliates |
(22) | (23) | ||||||
|
|
|
|
|||||
Net income attributable to Hilton stockholders |
$ | 515 | $ | 389 | ||||
|
|
|
|
The table below provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholders:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Adjusted EBITDA |
$ | 2,210 | $ | 1,956 | $ | 1,753 | ||||||
Net income attributable to noncontrolling interests |
(45) | (7) | (2) | |||||||||
Gain (loss) on foreign currency transactions |
(45) | 23 | (21) | |||||||||
FF&E replacement reserve |
(46) | (68) | (57) | |||||||||
Share-based compensation expense |
(313) | (50) | (19) | |||||||||
Impairment losses |
— | (54) | (20) | |||||||||
Impairment losses included in equity in earnings (losses) from unconsolidated affiliates |
— | (19) | (141) | |||||||||
Gain on debt extinguishment |
229 | — | — | |||||||||
Other gain, net |
7 | 15 | 19 | |||||||||
Other adjustment items(1) |
(76) | (64) | (51) | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
1,921 | 1,732 | 1,461 | |||||||||
Interest expense |
(620) | (569) | (643) | |||||||||
Interest expense included in equity in earnings (losses) from unconsolidated affiliates |
(13) | (13) | (12) | |||||||||
Income tax benefit (expense) |
(238) | (214) | 59 | |||||||||
Depreciation and amortization |
(603) | (550) | (564) | |||||||||
Depreciation and amortization included in equity in earnings (losses) from unconsolidated affiliates |
(32) | (34) | (48) | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Hilton stockholders |
$ | 415 | $ | 352 | $ | 253 | ||||||
|
|
|
|
|
|
(1) | Represents adjustments for legal expenses, severance and other items. |
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
September 30, 2014 |
December 31, 2013 |
|||||||
(in millions) | ||||||||
Assets: |
||||||||
Ownership |
$ | 11,769 | $ | 11,936 | ||||
Management and franchise |
10,626 | 11,016 | ||||||
Timeshare |
1,757 | 1,871 | ||||||
Corporate and other |
2,172 | 1,739 | ||||||
|
|
|
|
|||||
$ | 26,324 | $ | 26,562 | |||||
|
|
|
|
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Assets: |
||||||||
Ownership |
$ | 11,936 | $ | 12,476 | ||||
Management and franchise |
11,016 | 11,650 | ||||||
Timeshare |
1,871 | 1,911 | ||||||
Corporate and other |
1,739 | 1,029 | ||||||
|
|
|
|
|||||
$ | 26,562 | $ | 27,066 | |||||
|
|
|
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(in millions) | ||||||||
Capital expenditures for property and equipment: |
||||||||
Ownership |
$ | 173 | $ | 158 | ||||
Timeshare |
5 | 4 | ||||||
Corporate and other |
6 | 5 | ||||||
|
|
|
|
|||||
$ | 184 | $ | 167 | |||||
|
|
|
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
Capital expenditures for property and equipment: |
||||||||||||
Ownership |
$ | 240 | $ | 396 | $ | 368 | ||||||
Timeshare |
8 | 28 | 12 | |||||||||
Corporate and other |
6 | 9 | 9 | |||||||||
|
|
|
|
|
|
|||||||
$ | 254 | $ | 433 | $ | 389 | |||||||
|
|
|
|
|
|
Revenues by country were as follows:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(in millions) | ||||||||||||
U.S. |
$ | 7,262 | $ | 6,743 | $ | 6,293 | ||||||
All other |
2,473 | 2,533 | 2,490 | |||||||||
|
|
|
|
|
|
|||||||
$ | 9,735 | $ | 9,276 | $ | 8,783 | |||||||
|
|
|
|
|
|
Property and equipment, net by country were as follows:
December 31, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
U.S. |
$ | 8,204 | $ | 8,252 | ||||
All other |
854 | 945 | ||||||
|
|
|
|
|||||
$ | 9,058 | $ | 9,197 | |||||
|
|
|
|
|
The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results. Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.
2013 | ||||||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Year | ||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||
Revenues |
$ | 2,263 | $ | 2,380 | $ | 2,449 | $ | 2,643 | $ | 9,735 | ||||||||||
Operating income |
252 | 404 | 357 | 89 | 1,102 | |||||||||||||||
Net income |
38 | 157 | 203 | 62 | 460 | |||||||||||||||
Net income attributable to Hilton stockholders |
34 | 155 | 200 | 26 | 415 | |||||||||||||||
Basic and diluted earnings per share |
$ | 0.03 | $ | 0.17 | $ | 0.22 | $ | 0.03 | $ | 0.45 | ||||||||||
2012 | ||||||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Year | ||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||
Revenues |
$ | 2,131 | $ | 2,390 | $ | 2,417 | $ | 2,338 | $ | 9,276 | ||||||||||
Operating income |
194 | 298 | 345 | 263 | 1,100 | |||||||||||||||
Net income |
47 | 69 | 179 | 64 | 359 | |||||||||||||||
Net income attributable to Hilton stockholders |
48 | 66 | 177 | 61 | 352 | |||||||||||||||
Basic and diluted earnings per share |
$ | 0.05 | $ | 0.07 | $ | 0.19 | $ | 0.07 | $ | 0.38 |
|
The following schedules present the condensed consolidated financial information as of September 30, 2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013, for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 235 | $ | 308 | $ | — | $ | 543 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 196 | 92 | — | 288 | ||||||||||||||||||
Accounts receivable, net |
— | — | 478 | 384 | — | 862 | ||||||||||||||||||
Inventories |
— | — | 326 | 24 | — | 350 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 37 | 19 | — | 56 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 64 | — | 64 | ||||||||||||||||||
Prepaid expenses |
— | — | 34 | 138 | — | 172 | ||||||||||||||||||
Other |
— | — | 29 | 27 | — | 56 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,341 | 1,073 | — | 2,414 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 323 | 8,801 | — | 9,124 | ||||||||||||||||||
Financing receivables, net |
— | — | 235 | 146 | — | 381 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 433 | — | 433 | ||||||||||||||||||
Investments in affiliates |
— | — | 123 | 51 | — | 174 | ||||||||||||||||||
Investments in subsidiaries |
4,961 | 11,708 | 5,269 | — | (21,938) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,338 | — | 6,185 | ||||||||||||||||||
Brands |
— | — | 4,405 | 582 | — | 4,987 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,039 | 307 | — | 1,346 | ||||||||||||||||||
Other intangible assets, net |
— | — | 475 | 220 | — | 695 | ||||||||||||||||||
Deferred income tax assets |
22 | — | — | 195 | (22) | 195 | ||||||||||||||||||
Other |
— | 95 | 124 | 171 | — | 390 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,983 | 11,803 | 15,840 | 13,244 | (21,960) | 23,910 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,983 | $ | 11,803 | $ | 17,181 | $ | 14,317 | $ | (21,960) | $ | 26,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 64 | $ | 1,246 | $ | 693 | $ | — | $ | 2,003 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 3 | — | 3 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 124 | — | 124 | ||||||||||||||||||
Income taxes payable |
— | — | — | 10 | — | 10 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 64 | 1,246 | 830 | — | 2,140 | ||||||||||||||||||
Long-term debt |
— | 6,776 | 54 | 4,294 | — | 11,124 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 813 | — | 813 | ||||||||||||||||||
Deferred revenues |
— | — | 540 | 4 | — | 544 | ||||||||||||||||||
Deferred income tax liabilities |
— | 2 | 2,241 | 2,916 | (22) | 5,137 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 637 | — | — | 637 | ||||||||||||||||||
Other |
193 | — | 755 | 231 | — | 1,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
193 | 6,842 | 5,473 | 9,088 | (22) | 21,574 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,790 | 4,961 | 11,708 | 5,269 | (21,938) | 4,790 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (40) | — | (40) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,790 | 4,961 | 11,708 | 5,229 | (21,938) | 4,750 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,983 | $ | 11,803 | $ | 17,181 | $ | 14,317 | $ | (21,960) | $ | 26,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 194 | 72 | — | 266 | ||||||||||||||||||
Accounts receivable, net |
— | — | 426 | 305 | — | 731 | ||||||||||||||||||
Inventories |
— | — | 370 | 26 | — | 396 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 38 | 56 | — | 94 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 27 | — | 27 | ||||||||||||||||||
Prepaid expenses |
— | — | 15 | 133 | — | 148 | ||||||||||||||||||
Other |
— | — | 101 | 26 | (23) | 104 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,479 | 927 | (23) | 2,383 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 341 | 8,717 | — | 9,058 | ||||||||||||||||||
Financing receivables, net |
— | — | 199 | 436 | — | 635 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 194 | — | 194 | ||||||||||||||||||
Investments in affiliates |
— | — | 210 | 50 | — | 260 | ||||||||||||||||||
Investments in subsidiaries |
4,528 | 11,942 | 5,253 | — | (21,723) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,373 | — | 6,220 | ||||||||||||||||||
Brands |
— | — | 4,405 | 608 | — | 5,013 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,143 | 309 | — | 1,452 | ||||||||||||||||||
Other intangible assets, net |
— | — | 511 | 240 | — | 751 | ||||||||||||||||||
Deferred income tax assets |
21 | — | — | 193 | (21) | 193 | ||||||||||||||||||
Other |
— | 121 | 133 | 149 | — | 403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,549 | 12,063 | 16,042 | 13,269 | (21,744) | 24,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 60 | $ | 1,335 | $ | 684 | $ | — | $ | 2,079 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 4 | — | 4 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 48 | — | 48 | ||||||||||||||||||
Income taxes payable |
— | — | 3 | 31 | (23) | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 60 | 1,338 | 767 | (23) | 2,142 | ||||||||||||||||||
Long-term debt |
— | 7,470 | 54 | 4,227 | — | 11,751 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 920 | — | 920 | ||||||||||||||||||
Deferred revenues |
— | — | 674 | — | — | 674 | ||||||||||||||||||
Deferred income tax liabilities |
— | 5 | 2,298 | 2,771 | (21) | 5,053 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 597 | — | — | 597 | ||||||||||||||||||
Other |
186 | — | 618 | 345 | — | 1,149 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
186 | 7,535 | 5,579 | 9,030 | (44) | 22,286 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,363 | 4,528 | 11,942 | 5,253 | (21,723) | 4,363 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (87) | — | (87) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,363 | 4,528 | 11,942 | 5,166 | (21,723) | 4,276 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following schedules present the condensed consolidated financial information as of December 31, 2013 and 2012, and the years ended December 31, 2013, 2012 and 2011, for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 194 | 72 | — | 266 | ||||||||||||||||||
Accounts receivable, net |
— | — | 426 | 305 | — | 731 | ||||||||||||||||||
Inventories |
— | — | 370 | 26 | — | 396 | ||||||||||||||||||
Deferred income tax assets |
— | — | 6 | 17 | — | 23 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 38 | 56 | — | 94 | ||||||||||||||||||
Current portion of securitized financing receivables, net |
— | — | — | 27 | — | 27 | ||||||||||||||||||
Prepaid expenses |
— | — | 15 | 133 | — | 148 | ||||||||||||||||||
Other |
— | — | 101 | 26 | (23) | 104 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | — | 1,479 | 927 | (23) | 2,383 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 341 | 8,717 | — | 9,058 | ||||||||||||||||||
Financing receivables, net |
— | — | 199 | 436 | — | 635 | ||||||||||||||||||
Securitized financing receivables, net |
— | — | — | 194 | — | 194 | ||||||||||||||||||
Investments in affiliates |
— | — | 210 | 50 | — | 260 | ||||||||||||||||||
Investments in subsidiaries |
4,528 | 11,942 | 5,253 | — | (21,723) | — | ||||||||||||||||||
Goodwill |
— | — | 3,847 | 2,373 | — | 6,220 | ||||||||||||||||||
Brands |
— | — | 4,405 | 608 | — | 5,013 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,143 | 309 | — | 1,452 | ||||||||||||||||||
Other intangible assets, net |
— | — | 511 | 240 | — | 751 | ||||||||||||||||||
Deferred income tax assets |
21 | — | — | 193 | (21) | 193 | ||||||||||||||||||
Other |
— | 121 | 133 | 149 | — | 403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
4,549 | 12,063 | 16,042 | 13,269 | (21,744) | 24,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | 60 | $ | 1,335 | $ | 684 | $ | — | $ | 2,079 | ||||||||||||
Current maturities of long-term debt |
— | — | — | 4 | — | 4 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 48 | — | 48 | ||||||||||||||||||
Income taxes payable |
— | — | 3 | 31 | (23) | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | 60 | 1,338 | 767 | (23) | 2,142 | ||||||||||||||||||
Long-term debt |
— | 7,470 | 54 | 4,227 | — | 11,751 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 920 | — | 920 | ||||||||||||||||||
Deferred revenues |
— | — | 674 | — | — | 674 | ||||||||||||||||||
Deferred income tax liabilities |
— | 5 | 2,298 | 2,771 | (21) | 5,053 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 597 | — | — | 597 | ||||||||||||||||||
Other |
186 | — | 618 | 345 | — | 1,149 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
186 | 7,535 | 5,579 | 9,030 | (44) | 22,286 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
4,363 | 4,528 | 11,942 | 5,253 | (21,723) | 4,363 | ||||||||||||||||||
Noncontrolling interests |
— | — | — | (87) | — | (87) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
4,363 | 4,528 | 11,942 | 5,166 | (21,723) | 4,276 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 4,549 | $ | 12,063 | $ | 17,521 | $ | 14,196 | $ | (21,767) | $ | 26,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 542 | $ | 213 | $ | — | $ | 755 | ||||||||||||
Restricted cash and cash equivalents |
— | — | 496 | 54 | — | 550 | ||||||||||||||||||
Accounts receivable, net |
— | — | 414 | 305 | — | 719 | ||||||||||||||||||
Intercompany interest receivable(1) |
98 | — | — | — | (98 | ) | — | |||||||||||||||||
Inventories |
— | — | 395 | 20 | — | 415 | ||||||||||||||||||
Deferred income tax assets |
— | — | 64 | 12 | — | 76 | ||||||||||||||||||
Current portion of financing receivables, net |
— | — | 119 | — | — | 119 | ||||||||||||||||||
Prepaid expenses |
— | — | 22 | 131 | — | 153 | ||||||||||||||||||
Other |
— | — | 51 | 12 | (23 | ) | 40 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
98 | — | 2,103 | 747 | (121 | ) | 2,827 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, Investments and Other Assets: |
||||||||||||||||||||||||
Property and equipment, net |
— | — | 359 | 8,838 | — | 9,197 | ||||||||||||||||||
Financing receivables, net |
— | — | 806 | 9 | — | 815 | ||||||||||||||||||
Intercompany notes receivable(1) |
3,787 | — | — | — | (3,787 | ) | — | |||||||||||||||||
Investments in affiliates |
— | — | 244 | 47 | — | 291 | ||||||||||||||||||
Investments in subsidiaries |
— | — | 9,364 | — | (9,364 | ) | — | |||||||||||||||||
Goodwill |
— | — | 3,847 | 2,350 | — | 6,197 | ||||||||||||||||||
Brands |
— | — | 4,405 | 624 | — | 5,029 | ||||||||||||||||||
Management and franchise contracts, net |
— | — | 1,285 | 315 | — | 1,600 | ||||||||||||||||||
Other intangible assets, net |
— | — | 512 | 232 | — | 744 | ||||||||||||||||||
Deferred income tax assets |
— | — | — | 104 | — | 104 | ||||||||||||||||||
Other |
— | — | 159 | 103 | — | 262 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total property, investments and other assets |
3,787 | — | 20,981 | 12,622 | (13,151) | 24,239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 3,885 | $ | — | $ | 23,084 | $ | 13,369 | $ | (13,272) | $ | 27,066 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | — | $ | — | $ | 1,253 | $ | 669 | $ | — | $ | 1,922 | ||||||||||||
Intercompany interest payable(1) |
— | — | 98 | — | (98 | ) | — | |||||||||||||||||
Current maturities of long-term debt |
— | — | 357 | 35 | — | 392 | ||||||||||||||||||
Current maturities of non-recourse debt |
— | — | — | 15 | — | 15 | ||||||||||||||||||
Income taxes payable |
— | — | — | 43 | (23 | ) | 20 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
— | — | 1,708 | 762 | (121 | ) | 2,349 | |||||||||||||||||
Long-term debt |
— | — | 15,001 | 182 | — | 15,183 | ||||||||||||||||||
Non-recourse debt |
— | — | — | 405 | — | 405 | ||||||||||||||||||
Intercompany notes payable(1) |
— | — | 3,787 | — | (3,787 | ) | — | |||||||||||||||||
Investments in subsidiaries |
1,389 | — | — | — | (1,389 | ) | — | |||||||||||||||||
Deferred revenues |
— | — | 82 | — | — | 82 | ||||||||||||||||||
Deferred income tax liabilities |
8 | — | 2,495 | 2,445 | — | 4,948 | ||||||||||||||||||
Liability for guest loyalty program |
— | — | 503 | — | — | 503 | ||||||||||||||||||
Other |
187 | — | 897 | 357 | — | 1,441 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,584 | — | 24,473 | 4,151 | (5,297 | ) | 24,911 | |||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Hilton stockholders’ equity |
2,301 | — | (1,389) | 9,364 | (7,975 | ) | 2,301 | |||||||||||||||||
Noncontrolling interests |
— | — | — | (146) | — | (146) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
2,301 | — | (1,389) | 9,218 | (7,975 | ) | 2,155 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 3,885 | $ | — | $ | 23,084 | $ | 13,369 | $ | (13,272 | ) | $ | 27,066 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Prior to June 30, 2013, a Guarantor had intercompany notes payable to the Parent (the “Notes Payable to Parent”). Interest under the Notes Payable to Parent was accrued and added to the principal balance through the date of maturity. On June 30, 2013, the Parent made a non-cash contribution of the Notes Payable to Parent, including the accrued interest, to the Guarantor, resulting in an increase to the Guarantor’s equity. |
Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 163 | $ | 2,999 | $ | (21) | $ | 3,141 | ||||||||||||
Management and franchise fees and other |
— | — | 575 | 546 | (91) | 1,030 | ||||||||||||||||||
Timeshare |
— | — | 777 | 73 | — | 850 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,515 | 3,618 | (112) | 5,021 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 2,991 | 300 | (638) | 2,653 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 4,506 | 3,918 | (750) | 7,674 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 116 | 2,359 | (55) | 2,420 | ||||||||||||||||||
Timeshare |
— | — | 590 | 14 | (40) | 564 | ||||||||||||||||||
Depreciation and amortization |
— | — | 227 | 243 | — | 470 | ||||||||||||||||||
General, administrative and other |
— | — | 275 | 91 | (17) | 349 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,208 | 2,707 | (112) | 3,803 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 2,991 | 300 | (638) | 2,653 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 4,199 | 3,007 | (750) | 6,456 | ||||||||||||||||||
Operating income |
— | — | 307 | 911 | — | 1,218 | ||||||||||||||||||
Interest income |
— | — | 6 | 2 | — | 8 | ||||||||||||||||||
Interest expense |
— | (255) | (42) | (170) | — | (467) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 13 | 3 | — | 16 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 248 | (207) | — | 41 | ||||||||||||||||||
Other gain, net |
— | — | 6 | 32 | — | 38 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
— | (255) | 538 | 571 | — | 854 | ||||||||||||||||||
Income tax benefit (expense) |
(5) | 98 | (213) | (211) | — | (331) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
(5) | (157) | 325 | 360 | — | 523 | ||||||||||||||||||
Equity in earnings from subsidiaries |
520 | 677 | 352 | — | (1,549) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
515 | 520 | 677 | 360 | (1,549) | 523 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (8) | — | (8) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 515 | $ | 520 | $ | 677 | $ | 352 | $ | (1,549) | $ | 515 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 381 | $ | 516 | $ | 697 | $ | 212 | $ | (1,415) | $ | 391 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (10) | — | (10) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 381 | $ | 516 | $ | 697 | $ | 202 | $ | (1,415) | $ | 381 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 146 | $ | 2,855 | $ | (19) | $ | 2,982 | ||||||||||||
Management and franchise fees and other |
— | — | 425 | 546 | (103) | 868 | ||||||||||||||||||
Timeshare |
— | — | 779 | 30 | — | 809 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,350 | 3,431 | (122) | 4,659 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 2,792 | 247 | (606) | 2,433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 4,142 | 3,678 | (728) | 7,092 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 110 | 2,258 | (41) | 2,327 | ||||||||||||||||||
Timeshare |
— | — | 594 | 8 | (57) | 545 | ||||||||||||||||||
Depreciation and amortization |
— | — | 208 | 247 | — | 455 | ||||||||||||||||||
General, administrative and other |
— | — | 229 | 114 | (24) | 319 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,141 | 2,627 | (122) | 3,646 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 2,792 | 247 | (606) | 2,433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 3,933 | 2,874 | (728) | 6,079 | ||||||||||||||||||
Operating income |
— | — | 209 | 804 | — | 1,013 | ||||||||||||||||||
Interest income |
217 | — | 3 | 2 | (217) | 5 | ||||||||||||||||||
Interest expense |
— | — | (575) | (43) | 217 | (401) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 9 | 2 | — | 11 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 4 | (47) | — | (43) | ||||||||||||||||||
Other gain, net |
— | — | — | 5 | — | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
217 | — | (350) | 723 | — | 590 | ||||||||||||||||||
Income tax benefit (expense) |
(84) | — | 141 | (249) | — | (192) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
133 | — | (209) | 474 | — | 398 | ||||||||||||||||||
Equity in earnings from subsidiaries |
256 | — | 465 | — | (721) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
389 | — | 256 | 474 | (721) | 398 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (9) | — | (9) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 389 | $ | — | $ | 256 | $ | 465 | $ | (721) | $ | 389 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 378 | $ | — | $ | 261 | $ | 472 | $ | (710) | $ | 401 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (23) | — | (23) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 378 | $ | — | $ | 261 | $ | 449 | $ | (710) | $ | 378 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 190 | $ | 3,882 | $ | (26) | $ | 4,046 | ||||||||||||
Management and franchise fees and other |
— | — | 587 | 733 | (145) | 1,175 | ||||||||||||||||||
Timeshare |
— | — | 1,052 | 57 | — | 1,109 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,829 | 4,672 | (171) | 6,330 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,869 | 351 | (815) | 3,405 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,698 | 5,023 | (986) | 9,735 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 148 | 3,058 | (59) | 3,147 | ||||||||||||||||||
Timeshare |
— | — | 797 | 12 | (79) | 730 | ||||||||||||||||||
Depreciation and amortization |
— | — | 277 | 326 | — | 603 | ||||||||||||||||||
General, administrative and other |
— | — | 620 | 161 | (33) | 748 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,842 | 3,557 | (171) | 5,228 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,869 | 351 | (815) | 3,405 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 5,711 | 3,908 | (986) | 8,633 | ||||||||||||||||||
Operating income (loss) |
— | — | (13) | 1,115 | — | 1,102 | ||||||||||||||||||
Interest income |
217 | — | 7 | 2 | (217) | 9 | ||||||||||||||||||
Interest expense |
— | (105) | (642) | (90) | 217 | (620) | ||||||||||||||||||
Equity in earnings from unconsolidated affiliates |
— | — | 13 | 3 | — | 16 | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | 35 | (80) | — | (45) | ||||||||||||||||||
Gain on debt extinguishment |
— | — | 229 | — | — | 229 | ||||||||||||||||||
Other gain, net |
— | — | 2 | 5 | — | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
217 | (105) | (369) | 955 | — | 698 | ||||||||||||||||||
Income tax benefit (expense) |
(84) | 40 | 48 | (242) | — | (238) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
133 | (65) | (321) | 713 | — | 460 | ||||||||||||||||||
Equity in earnings from subsidiaries |
282 | 347 | 668 | — | (1,297) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
415 | 282 | 347 | 713 | (1,297) | 460 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (45) | — | (45) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 415 | $ | 282 | $ | 347 | $ | 668 | $ | (1,297) | $ | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 557 | $ | 288 | $ | 417 | $ | 797 | $ | (1,439) | $ | 620 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (63) | — | (63) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 557 | $ | 288 | $ | 417 | $ | 734 | $ | (1,439) | $ | 557 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 181 | $ | 3,821 | $ | (23) | $ | 3,979 | ||||||||||||
Management and franchise fees and other |
— | — | 459 | 762 | (133) | 1,088 | ||||||||||||||||||
Timeshare |
— | — | 1,081 | 4 | — | 1,085 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,721 | 4,587 | (156) | 6,152 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,643 | 295 | (814) | 3,124 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,364 | 4,882 | (970) | 9,276 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 142 | 3,141 | (53) | 3,230 | ||||||||||||||||||
Timeshare |
— | — | 827 | 4 | (73) | 758 | ||||||||||||||||||
Depreciation and amortization |
— | — | 251 | 299 | — | 550 | ||||||||||||||||||
Impairment losses |
— | — | 13 | 41 | — | 54 | ||||||||||||||||||
General, administrative and other |
— | — | 342 | 148 | (30) | 460 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,575 | 3,633 | (156) | 5,052 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,643 | 295 | (814) | 3,124 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 5,218 | 3,928 | (970) | 8,176 | ||||||||||||||||||
Operating income |
— | — | 146 | 954 | — | 1,100 | ||||||||||||||||||
Interest income |
403 | — | 7 | 8 | (403) | 15 | ||||||||||||||||||
Interest expense |
— | — | (916) | (56) | 403 | (569) | ||||||||||||||||||
Equity in earnings (losses) from unconsolidated affiliates |
— | — | (12) | 1 | — | (11) | ||||||||||||||||||
Gain on foreign currency transactions |
— | — | 12 | 11 | — | 23 | ||||||||||||||||||
Other gain, net |
— | — | 6 | 9 | — | 15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
403 | — | (757) | 927 | — | 573 | ||||||||||||||||||
Income tax benefit (expense) |
(155) | — | 312 | (371) | — | (214) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
248 | — | (445) | 556 | — | 359 | ||||||||||||||||||
Equity in earnings from subsidiaries |
104 | — | 549 | — | (653) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
352 | — | 104 | 556 | (653) | 359 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (7) | — | (7) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 352 | $ | — | $ | 104 | $ | 549 | $ | (653) | $ | 352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 435 | $ | — | $ | 126 | $ | 631 | $ | (736) | $ | 456 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
— | — | — | (21) | — | (21) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 435 | $ | — | $ | 126 | $ | 610 | $ | (736) | $ | 435 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantor |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Owned and leased hotels |
$ | — | $ | — | $ | 171 | $ | 3,751 | $ | (24) | $ | 3,898 | ||||||||||||
Management and franchise fees and other |
— | — | 383 | 756 | (125) | 1,014 | ||||||||||||||||||
Timeshare |
— | — | 940 | 4 | — | 944 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,494 | 4,511 | (149) | 5,856 | |||||||||||||||||||
Other revenues from managed and franchised properties |
— | — | 3,521 | 196 | (790) | 2,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
— | — | 5,015 | 4,707 | (939) | 8,783 | ||||||||||||||||||
Expenses |
||||||||||||||||||||||||
Owned and leased hotels |
— | — | 140 | 3,124 | (51) | 3,213 | ||||||||||||||||||
Timeshare |
— | — | 731 | 4 | (67) | 668 | ||||||||||||||||||
Depreciation and amortization |
— | — | 246 | 318 | — | 564 | ||||||||||||||||||
Impairment losses |
— | — | 8 | 12 | — | 20 | ||||||||||||||||||
General, administrative and other |
— | — | 301 | 146 | (31) | 416 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
— | — | 1,426 | 3,604 | (149) | 4,881 | |||||||||||||||||||
Other expenses from managed and franchised properties |
— | — | 3,521 | 196 | (790) | 2,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
— | — | 4,947 | 3,800 | (939) | 7,808 | ||||||||||||||||||
Operating income |
— | — | 68 | 907 | — | 975 | ||||||||||||||||||
Interest income |
359 | — | 7 | 4 | (359) | 11 | ||||||||||||||||||
Interest expense |
— | — | (948) | (54) | 359 | (643) | ||||||||||||||||||
Equity in losses from unconsolidated affiliates |
— | — | (133) | (12) | — | (145) | ||||||||||||||||||
Gain (loss) on foreign currency transactions |
— | — | (26) | 5 | — | (21) | ||||||||||||||||||
Other gain, net |
— | — | 14 | 5 | — | 19 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity in earnings from subsidiaries |
359 | — | (1,018) | 855 | — | 196 | ||||||||||||||||||
Income tax benefit (expense) |
(137) | — | 397 | (201) | — | 59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings from subsidiaries |
222 | — | (621) | 654 | — | 255 | ||||||||||||||||||
Equity in earnings from subsidiaries |
31 | — | 652 | — | (683) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
253 | — | 31 | 654 | (683) | 255 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
— | — | — | (2) | — | (2) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Hilton stockholders |
$ | 253 | $ | — | $ | 31 | $ | 652 | $ | (683) | $ | 253 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 162 | $ | — | $ | 30 | $ | 561 | $ | (592) | $ | 161 | ||||||||||||
Comprehensive loss attributable to noncontrolling interests |
— | — | — | 1 | — | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to Hilton stockholders |
$ | 162 | $ | — | $ | 30 | $ | 562 | $ | (592) | $ | 162 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non-Guarantors | Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 605 | $ | 501 | $ | (207) | $ | 899 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (13) | (171) | — | (184) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 16 | 2 | — | 18 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | — | (1) | — | (1) | ||||||||||||||||||
Investments in affiliates |
— | — | (6) | — | — | (6) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 30 | 2 | — | 32 | ||||||||||||||||||
Proceeds from asset dispositions |
— | — | 6 | 34 | — | 40 | ||||||||||||||||||
Contract acquisition costs |
— | — | (13) | (41) | — | (54) | ||||||||||||||||||
Software capitalization costs |
— | — | (45) | — | — | (45) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (25) | (175) | — | (200) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 350 | — | 350 | ||||||||||||||||||
Repayment of debt |
— | (700) | — | (375) | — | (1,075) | ||||||||||||||||||
Debt issuance costs |
— | (6) | — | (3) | — | (9) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | — | (19) | — | (19) | ||||||||||||||||||
Intercompany transfers |
— | 706 | (674) | (32) | — | — | ||||||||||||||||||
Dividends paid to Guarantors |
— | — | — | (207) | 207 | — | ||||||||||||||||||
Capital contribution |
— | — | — | 13 | — | 13 | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (674) | (276) | 207 | (743) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (7) | — | (7) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (94) | 43 | — | (51) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 329 | 265 | — | 594 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 235 | $ | 308 | $ | — | $ | 543 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non-Guarantors | Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 592 | $ | 432 | $ | — | $ | 1,024 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (15) | (152) | — | (167) | ||||||||||||||||||
Acquisitions |
— | — | — | (30) | — | (30) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 3 | — | — | 3 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (6) | (2) | — | (8) | ||||||||||||||||||
Investments in affiliates |
— | — | (4) | — | — | (4) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 16 | — | — | 16 | ||||||||||||||||||
Contract acquisition costs |
— | — | (2) | (10) | — | (12) | ||||||||||||||||||
Software capitalization costs |
— | — | (50) | — | — | (50) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (58) | (194) | — | (252) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 702 | — | 702 | ||||||||||||||||||
Repayment of debt |
— | — | (1,279) | (323) | — | (1,602) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 140 | (26) | — | 114 | ||||||||||||||||||
Intercompany transfers |
— | — | 566 | (566) | — | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (573) | (216) | — | (789) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (14) | — | (14) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (39) | 8 | — | (31) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 542 | 213 | — | 755 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 503 | $ | 221 | $ | — | $ | 724 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 1,574 | $ | 630 | $ | (103) | $ | 2,101 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (23) | (231) | — | (254) | ||||||||||||||||||
Acquisitions |
— | — | — | (30) | — | (30) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 4 | 1 | — | 5 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (6) | (4) | — | (10) | ||||||||||||||||||
Investments in affiliates |
— | — | (4) | — | — | (4) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 33 | — | — | 33 | ||||||||||||||||||
Contract acquisition costs |
— | — | (14) | (30) | — | (44) | ||||||||||||||||||
Software capitalization costs |
— | — | (78) | — | — | (78) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (88) | (294) | — | (382) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Net proceeds from issuance of common stock |
1,243 | — | — | — | — | 1,243 | ||||||||||||||||||
Borrowings |
— | 9,062 | — | 5,026 | — | 14,088 | ||||||||||||||||||
Repayment of debt |
— | (1,600) | (15,245) | (358) | — | (17,203) | ||||||||||||||||||
Debt issuance costs |
— | (123) | — | (57) | — | (180) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 222 | (29) | — | 193 | ||||||||||||||||||
Intercompany transfers |
(1,243) | (7,339) | 13,324 | (4,742) | — | — | ||||||||||||||||||
Dividends paid to Guarantors |
— | — | — | (103) | 103 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (4) | — | (4) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (1,699) | (267) | 103 | (1,863) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (17) | — | (17) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (213) | 52 | — | (161) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 542 | 213 | — | 755 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 329 | $ | 265 | $ | — | $ | 594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 271 | $ | 853 | $ | (14) | $ | 1,110 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (57) | (376) | — | (433) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 5 | 3 | — | 8 | ||||||||||||||||||
Issuance of other financing receivables |
— | — | (1) | (3) | — | (4) | ||||||||||||||||||
Investments in affiliates |
— | — | (3) | — | — | (3) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | 8 | — | — | 8 | ||||||||||||||||||
Contract acquisition costs |
— | — | (28) | (3) | — | (31) | ||||||||||||||||||
Software capitalization costs |
— | — | (103) | — | — | (103) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (179) | (379) | — | (558) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | — | 96 | — | 96 | ||||||||||||||||||
Repayment of debt |
— | — | (735) | (119) | — | (854) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | 193 | (6) | — | 187 | ||||||||||||||||||
Intercompany transfers |
— | — | 449 | (463) | 14 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (4) | — | (4) | ||||||||||||||||||
Acquisition of noncontrolling interests |
— | — | — | (1) | — | (1) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (93) | (497) | 14 | (576) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (2) | — | (2) | ||||||||||||||||||
Net decrease in cash and cash equivalents |
— | — | (1) | (25) | — | (26) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 543 | 238 | — | 781 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 542 | $ | 213 | $ | — | $ | 755 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011 | ||||||||||||||||||||||||
Parent | Subsidiary Issuers |
Guarantors | Non- Guarantors |
Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Operating Activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | — | $ | 359 | $ | 812 | $ | (4) | $ | 1,167 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities: |
||||||||||||||||||||||||
Capital expenditures for property and equipment |
— | — | (43) | (346) | — | (389) | ||||||||||||||||||
Acquisitions |
— | — | — | (12) | — | (12) | ||||||||||||||||||
Payments received on other financing receivables |
— | — | 6 | 1 | — | 7 | ||||||||||||||||||
Investments in affiliates |
— | — | (11) | — | — | (11) | ||||||||||||||||||
Distributions from unconsolidated affiliates |
— | — | — | 23 | — | 23 | ||||||||||||||||||
Proceeds from asset dispositions |
— | — | 65 | — | — | 65 | ||||||||||||||||||
Contract acquisition costs |
— | — | (23) | (30) | — | (53) | ||||||||||||||||||
Software capitalization costs |
— | — | (93) | — | — | (93) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | — | (99) | (364) | — | (463) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities: |
||||||||||||||||||||||||
Borrowings |
— | — | 24 | 16 | — | 40 | ||||||||||||||||||
Repayment of debt |
— | — | (697) | (29) | — | (726) | ||||||||||||||||||
Change in restricted cash and cash equivalents |
— | — | (19) | (6) | — | (25) | ||||||||||||||||||
Intercompany transfers |
— | — | 422 | (426) | 4 | — | ||||||||||||||||||
Distributions to noncontrolling interests |
— | — | — | (3) | — | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
— | — | (270) | (448) | 4 | (714) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | — | (5) | — | (5) | ||||||||||||||||||
Net decrease in cash and cash equivalents |
— | — | (10) | (5) | — | (15) | ||||||||||||||||||
Cash and cash equivalents, beginning of period |
— | — | 553 | 243 | — | 796 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | — | $ | — | $ | 543 | $ | 238 | $ | — | $ | 781 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|