Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Overview

Our Business

Hilton is one of the largest and fastest growing hospitality companies in the world, with 4,610 hotels, resorts and timeshare properties comprising 758,502 rooms in 100 countries and territories as of December 31, 2015. Our flagship full service Hilton Hotels & Resorts brand is the most recognized hotel brand in the world. Our premier brand portfolio includes our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts and Canopy by Hilton, our full service hotel brands, Hilton Hotels & Resorts, Curio - A Collection by Hilton, DoubleTree by Hilton and Embassy Suites by Hilton, our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton, and our timeshare brand, Hilton Grand Vacations. As of December 31, 2015, we owned or leased interests in 146 hotels, many of which are located in global gateway cities, including iconic properties such as the Hilton New York, Hilton Hawaiian Village and the London Hilton on Park Lane. We had approximately 51 million members in our award-winning customer loyalty program, Hilton HHonors, as of December 31, 2015.

Segments and Regions

Management analyzes our operations and business by both operating segments and geographic regions. Our operations consist of three reportable segments that are based on similar products or services: ownership; management and franchise; and timeshare. The ownership segment primarily derives earnings from providing hotel room rentals, food and beverage sales and other services at our owned and leased hotels. The management and franchise segment provides services, which include hotel management and licensing of our brands to franchisees, as well as property management at timeshare properties. This segment generates its revenue from management and franchise fees charged to hotel owners, including our owned and leased hotels, and to homeowners' associations at timeshare properties. As a manager of hotels and timeshare resorts, we typically are responsible for supervising or operating the property in exchange for management fees. As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services. The timeshare segment consists of multi-unit vacation ownership properties and generates revenue by marketing and selling timeshare intervals owned by us and third parties, resort operations and providing consumer financing for the timeshare interests.

Geographically, management conducts business through three distinct geographic regions: the Americas; Europe, Middle East and Africa ("EMEA"); and Asia Pacific. The Americas region includes North America, South America and Central America, including all Caribbean nations. Although the U.S. is included in the Americas, it is often analyzed separately and apart from the Americas geographic region and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Ireland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East region and all African nations, including the Indian Ocean island nations. Europe and MEA are often analyzed separately by management. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific island nations.

As of December 31, 2015, approximately 75 percent of our system-wide hotel rooms were located in the U.S. We expect that the percentage of our hotel rooms outside the U.S. will continue to increase in future years as hotels in our pipeline open.

System Growth and Pipeline

We continue to expand our global footprint, fee-based business and the capital efficiency of our timeshare business. As we enter into new management and franchise contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, as the capital required to build and maintain hotels is typically provided by the third-party owner of the respective hotel. Additionally, prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on the geographic location, the credit quality of the third-party owner and other factors. As a result, by increasing the number of management and franchise agreements with third-party owners, we expect to achieve a higher overall return on invested capital.

As of December 31, 2015, we had a total of 1,616 hotels in our development pipeline, representing over 266,000 rooms under construction or approved for development throughout 85 countries and territories, including 31 countries and territories

where we do not currently have any open hotels. All of the rooms in the pipeline are within our management and franchise segment. Of the rooms in the pipeline, approximately 142,000 rooms, or more than half of the pipeline, were located outside the U.S. As of December 31, 2015, approximately 134,000 rooms, representing over half of our development pipeline, were under construction. We do not consider any individual development project to be material to us.

Our overall supply of timeshare intervals as of December 31, 2015 was approximately 134,000 intervals, or over six years at current sales pace. Additionally, we enter into agreements to sell timeshare units developed by third parties. Our supply of third-party developed timeshare intervals was approximately 114,000, or 85 percent of our total supply, as of December 31, 2015.

Recent Events

In January 2016, we launched our newest brand, Tru by Hilton, which is a midscale brand. Tru by Hilton embraces the value-conscious traveler, offering a back-to-basics experience. Each property will include lively social spaces in a large, first floor lobby with a work, play and eat zone, all with a unique personality. As of February 16, 2016, Tru by Hilton had commitments for 163 properties. The first property is expected to open in the fourth quarter of 2016.

In February 2016, we announced a plan to separate a substantial portion of our ownership business, consisting primarily of our owned hotels located in the U.S., as well as our timeshare business from Hilton Worldwide to form two additional new publicly traded companies. See Item 1A. Risk Factors and Note 29: "Subsequent Events" in our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional discussion.

Principal Components and Factors Affecting our Results of Operations

Revenues

Principal Components

We primarily derive our revenues from the following sources:

•Owned and leased hotels. Represents revenues derived from hotel operations, including room rentals, food and beverage sales and other ancillary goods and services. These revenues are primarily derived from two categories of customers: transient and group. Transient guests are individual travelers who are traveling for business or leisure. Our group guests are traveling for group events that reserve rooms for meetings, conferences or social functions sponsored by associations, corporate, social, military, educational, religious or other organizations. Group business usually includes a block of room accommodations, as well as other ancillary services, such as meeting facilities and catering and banquet services. A majority of our food and beverage sales and other ancillary services are provided to customers who are also occupying rooms at our hotel properties. As a result, occupancy affects all components of our owned and leased hotel revenues.
•Management and franchise fees and other. Represents revenues derived from management fees earned from hotels and timeshare properties managed by us, franchise fees received in connection with the franchising of our brands and other revenue generated by the incidental support of hotel operations for owned, leased, managed and franchised properties and other rental income.
•Terms of our management agreements vary, but our fees generally consist of a base fee, which is typically a percentage of each hotel's gross revenue, and in some cases an incentive fee, which is based on gross operating profits, cash flow or a combination thereof. Management fees from timeshare properties are generally a fixed amount as stated in the management agreement. Outside of the U.S., our fees are often more dependent on hotel profitability measures, either through a single management fee structure where the entire fee is based on a profitability measure, or because our two-tier fee structure is more heavily weighted toward the incentive fee than the base fee. Additionally, we receive one-time upfront fees upon execution of certain management contracts, as well as a monthly fee based on a percentage of the total gross room revenue that covers the costs of advertising and marketing programs; internet, technology and reservation systems expenses; and quality assurance program costs. In general, the hotel owner pays all operating and other expenses and reimburses costs we incur in operating the hotel.
•Under our franchise agreements, franchisees pay us franchise fees which consist of initial application and initiation fees for new hotels entering the system and monthly royalty fees, generally calculated as a percentage of room revenues. Royalty fees for our full service brands may also include a percentage of gross food and beverage

revenues and other revenues, where applicable. In addition to the franchise application and royalty fees, franchisees also generally pay a monthly program fee based on a percentage of the total gross room revenue that covers the cost of advertising and marketing programs; internet, technology and reservation system expenses; and quality assurance program costs. We also earn fees when certain franchise agreements are terminated early or there is a change in ownership.

•Timeshare. Represents revenues derived from the sale and financing of timeshare intervals and revenues from enrollments and other fees, rentals of timeshare units, food and beverage sales and other ancillary services at our timeshare properties, which we refer to as resort operations. Additionally, in recent years, we began a transformation of our timeshare business to a capital light model in which third-party timeshare owners and developers provide capital for development while we act as the sales and marketing agent and property manager. Through these transactions, we receive a sales and marketing commission and branding fees based on the total sales price of the timeshare interval, recurring fees to operate the homeowners' associations and revenues from resort operations.
•Other revenues from managed and franchised properties. These revenues represent the payroll and its related costs for properties that we manage where the property employees are legally our responsibility, as well as certain other operating costs of the managed and franchised properties' operations, marketing expenses and other expenses associated with our brands and shared services that are contractually either reimbursed to us by the property owners or paid from fees collected in advance from these properties when the costs are incurred. We have no legal responsibility for employees at franchised properties. The corresponding expenses are presented as other expenses from managed and franchised properties in our consolidated statements of operations resulting in no effect on operating income or net income.

Factors Affecting our Revenues

The following factors affect the revenues we derive from our operations:

•Consumer demand and global economic conditions. Consumer demand for our products and services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political conditions can lower the revenues and profitability of our owned and leased operations and the amount of management and franchise fee revenues we are able to generate from our managed and franchised properties. Further, competition for hotel guests and the supply of hotel services affect our ability to increase rates charged to customers at our hotels. Also, declines in hotel profitability during an economic downturn directly affect the incentive portion of our management fees, which is based on hotel profit measures. Our timeshare segment also is linked to cycles in the general economy and consumer discretionary spending. As a result, changes in consumer demand and general business cycles can subject and have subjected our revenues to significant volatility.
•Agreements with third-party owners and franchisees and relationships with developers. We depend on our long-term management and franchise agreements with third-party owners and franchisees for a significant portion of our management and franchise fee revenues. The success and sustainability of our management and franchise business depends on our ability to perform under our management and franchise agreements and maintain good relationships with third-party owners and franchisees. Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth. Growth and maintenance of our hotel system and earning fees relating to hotels in the pipeline are dependent on the ability of developers and owners to access capital for the development, maintenance and renovation of properties. We believe that we have good relationships with our third-party owners, franchisees and developers and are committed to the continued growth and development of these relationships. These relationships exist with a diverse group of owners, franchisees and developers and are not significantly concentrated with any particular third party.

Additionally, in recent years we have entered into sales and marketing agreements to sell timeshare intervals on behalf of third-party developers. We expect the sales of timeshare intervals developed by third parties and resort operations to comprise a growing percentage of our timeshare revenue, and revenues derived from the sale of timeshare intervals developed by us to comprise a smaller percentage of our timeshare revenue in future periods, consistent with our strategy to focus our business on the management aspects and deploy less of our capital to asset construction.

Expenses

Principal Components

We primarily incur the following expenses:

•Owned and leased hotels. Reflects the operating expenses of our consolidated owned and leased hotels, including room expense, food and beverage costs, other support costs and property expenses. Room expense includes compensation costs for housekeeping, laundry and front desk staff and supply costs for guest room amenities and laundry. Food and beverage costs include costs for wait and kitchen staff and food and beverage products. Other support expenses consist of costs associated with property-level management, utilities, sales and marketing, operating hotel spas, telephones, parking and other guest recreation, entertainment and services. Property expenses include property taxes, repairs and maintenance, rent and insurance.
•Timeshare. Includes the cost of inventory sold during the period, sales and marketing expenses, resort operations expenses and other overhead expenses associated with our timeshare business.
•Depreciation and amortization. These are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings, furniture and equipment at our consolidated owned and leased hotels and certain corporate assets, as well as amortization of our management and franchise intangibles and capitalized software.
•General, administrative and other expenses. Consists primarily of compensation expense for our corporate staff and personnel supporting our business segments (including divisional offices that support our management and franchise segment), professional fees (including consulting, audit and legal fees), travel and entertainment expenses, bad debt expenses for uncollected management, franchise and other fees, contractual performance obligations and office administrative and related expenses. Expenses incurred by our supply management business, laundry facilities and other ancillary businesses are also included in general, administrative and other expenses.
•Impairment losses. We hold significant amounts of goodwill, amortizing and non-amortizing intangible assets and long-lived assets. We evaluate these assets for impairment as further discussed in "—Critical Accounting Policies and Estimates." These evaluations have resulted in impairment losses for certain of these assets based on the specific facts and circumstances surrounding the assets and our estimates of fair value. Based on economic conditions or other factors at a property-specific or company-wide level, we may be required to take additional impairment losses to reflect further declines in our asset values.
•Other expenses from managed and franchised properties. These expenses represent the payroll and its related costs for properties that we manage where the property employees are legally our responsibility, as well as certain other operating costs of the managed and franchised properties' operations, marketing expenses and other expenses associated with our brands and shared services that are contractually either reimbursed to us by the property owners or paid from fees collected in advance from these properties when the costs are incurred. We have no legal responsibility for the employees at our franchised properties. The corresponding revenues are presented as other revenues from managed and franchised properties in our consolidated statements of operations resulting in no effect on operating income or net income.

Factors Affecting our Costs and Expenses

The following are principal factors that affect the costs and expenses we incur in the course of our operations:

•Fixed expenses. Many of the expenses associated with managing, franchising and owning hotels and timeshare resorts are relatively fixed. These expenses include personnel costs, rent, property taxes, insurance and utilities. If we are unable to decrease these costs significantly or rapidly when demand for our hotels and other properties decreases, the resulting decline in our revenues can have an adverse effect on our net cash flow, margins and profits. This effect can be especially pronounced during periods of economic contraction or slow economic growth. Economic downturns generally affect the results of our owned and leased hotel segment more significantly than the results of our management and franchising segments due to the high fixed costs associated with operating an owned or leased hotel. The effectiveness of any cost-cutting efforts is limited by the fixed costs inherent in our business. As a result, we may not be able to offset revenue reductions through cost cutting. Employees at some of our owned and leased hotels are parties to collective bargaining agreements that may also limit our ability to make timely staffing or labor changes in response to declining revenues. In addition, any efforts to reduce costs, or to defer or cancel capital improvements, could adversely affect the economic value of our hotels and brands. We have taken steps to reduce our fixed costs to levels we feel are appropriate to maximize profitability and respond to market conditions without jeopardizing the overall customer experience or the value of our hotels or brands. Also, a significant portion of our costs to support our timeshare business relates to direct sales and marketing of these units. In periods of decreased demand for timeshare intervals, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profit margins on our timeshare business.
•Changes in depreciation and amortization expense. Changes in depreciation expense may be driven by renovations of existing hotels, acquisition or development of new hotels, the disposition of existing hotels through sale or closure or changes in estimates of the useful lives of our assets. As we place new assets into service, we will be required to record additional depreciation expense on those assets. Additionally, we capitalize costs associated with certain software development projects, and as those projects are completed and placed into service, amortization expense will increase.

Other Items

Effect of foreign currency exchange rate fluctuations

Significant portions of our operations are conducted in functional currencies other than our reporting currency, which is the United States ("U.S.") dollar ("USD"), and we have assets and liabilities denominated in a variety of foreign currencies. As a result, we are required to translate those results, assets and liabilities from the functional currency into USD at market based exchange rates for each reporting period. When comparing our results of operations between periods, there may be material portions of the changes in our revenues or expenses that are derived from fluctuations in exchange rates experienced between those periods.

Seasonality

The lodging industry is seasonal in nature. However, the periods during which our hotels experience higher or lower levels of demand vary from property to property and depend upon location, type of property and competitive mix within the specific location. Based on historical results, we generally expect our revenue to be lower during the first calendar quarter of each year than during each of the three subsequent quarters.

Key Business and Financial Metrics Used by Management

Comparable Hotels

We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results are not available. Of the 4,565 hotels in our system as of December 31, 2015, 3,624 have been classified as comparable hotels. Our 941 non-comparable hotels included 137 properties, or approximately three percent of the total hotels in our system, that were removed from the comparable group during the last year because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were not available. Of the 4,278 hotels in our system as of December 31, 2014, 3,514 were classified as comparable hotels for the year ended December 31, 2014.

Occupancy

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy measures the utilization of our hotels' available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.

Average Daily Rate

ADR represents hotel room revenue divided by total number of room nights sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Revenue per Available Room

We calculate RevPAR by dividing hotel room revenue by total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR, ADR and occupancy are presented on a comparable basis and references to RevPAR and ADR are presented on a currency neutral basis (all periods use the same exchange rates), unless otherwise noted.

EBITDA and Adjusted EBITDA

EBITDA, presented herein, is a financial measure that is not recognized under U.S. generally accepted accounting principles ("GAAP") that reflects net income attributable to Hilton stockholders, excluding interest expense, a provision for income taxes and depreciation and amortization. We consider EBITDA to be a useful measure of operating performance, due to the significance of our long-lived assets and level of indebtedness.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, 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; (viii) severance, relocation and other expenses; and (ix) other items. To align with management's view of allocating resources and assessing the performance of our segments and to facilitate comparisons with our competitors, beginning in the first quarter of 2015, Adjusted EBITDA excluded all share-based compensation expense, not just share-based compensation expense recognized in connection with equity issued prior to and in connection with our initial public offering. We have applied this change in the definition to historical results presented to allow for comparability.

EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:

•EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
•EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
•EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
•EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
•EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Results of Operations

Year Ended December 31, 2015 Compared with Year Ended December 31, 2014

The hotel operating statistics for our system-wide comparable hotels were as follows:

Year EndedVariance
December 31, 20152015 vs. 2014
Owned and leased hotels
Occupancy79.1%1.3%pts.
ADR$184.782.5%
RevPAR$146.194.2%
Managed and franchised hotels
Occupancy75.1%1.3%pts.
ADR$136.603.6%
RevPAR$102.615.5%
System-wide
Occupancy75.4%1.3%pts.
ADR$141.193.6%
RevPAR$106.515.4%

The hotel operating statistics by region for our system-wide comparable hotels were as follows:

Year EndedVariance
December 31, 20152015 vs. 2014
U.S.
Occupancy76.2%1.0%pts.
ADR$140.313.8%
RevPAR$106.895.2%
Americas (excluding U.S.)
Occupancy73.1%1.2%pts.
ADR$126.144.8%
RevPAR$92.186.7%
Europe
Occupancy77.0%1.7%pts.
ADR$154.813.7%
RevPAR$119.246.1%
Middle East and Africa
Occupancy66.0%2.3%pts.
ADR$153.91(1.9)%
RevPAR$101.531.7%
Asia Pacific
Occupancy68.8%5.0%pts.
ADR$140.821.3%
RevPAR$96.859.3%

All world regions experienced RevPAR growth in 2015 with nearly all growing in occupancy and ADR. Asia Pacific RevPAR growth led all regions at 9.3 percent, primarily through occupancy, which is a result of our portfolio ramping up in China. The Middle East and Africa region continues to face geopolitical unrest and low oil prices, nonetheless RevPAR still increased as a result of improved year over year demand. U.S. RevPAR growth of 5.2 percent was primarily driven by ADR with demand outpacing supply growth, which is still below the long-term industry average.

Revenues

Owned and leased hotels

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
U.S. owned and leased hotels$2,414$2,2278.4
International owned and leased hotels1,8192,012(9.6)
$4,233$4,239(0.1)

The following details the changes in revenues at our owned and leased hotels:

U.S.International
(in millions)
Increase (decrease) year over year$187$(193)
Foreign currency effect(1)—214
Net decrease (increase) of acquired and disposed hotels(2)(81)80
Increase excluding the effect of foreign currency, acquisitions and disposals$106$101
(1)Unfavorable movements were a result of the strengthening of the USD compared to that of currencies primarily in the Europe and Asia Pacific regions, where the majority of our owned and leased hotels outside of the U.S. are located.
(2)From January 1, 2014 to December 31, 2015, 10 hotels were added to our U.S. owned and leased portfolio on a net basis, and five hotels were removed from our international owned and leased portfolio on a net basis.

As of December 31, 2015, we had 45 consolidated owned and leased hotels located in the U.S., comprising 27,072 rooms. The increase in revenues at our U.S. owned and leased hotels was primarily due to an increase in revenues at our comparable hotels of $107 million as a result of an increase in RevPAR of 4.2 percent during the year ended December 31, 2015, which was primarily attributable to increases in both transient and group business.

As of December 31, 2015, we had 84 consolidated owned and leased hotels located outside of the U.S., comprising 24,205 rooms. Revenues increased $52 million, on a currency neutral basis, at our comparable international owned and leased hotels as a result of an increase in RevPAR of 4.2 percent during the year ended December 31, 2015, which was primarily a result of an increase in transient guest business. Additionally, there was an increase in revenues at our non-comparable international owned and leased hotels of $49 million during the year ended December 31, 2015, primarily as a result of the completion of large renovation projects at certain hotels, which had previously limited the availability of those properties to guests.

Management and franchise fees and other

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Management fees$395$3842.9
Franchise fees1,12292721.0
Other8490(6.7)
$1,601$1,40114.3

On a currency neutral basis, our management fees and franchise fees increased $27 million (7.4 percent) and $207 million (22.6 percent), respectively. These increases were a result of increased RevPAR of 6.3 percent and 5.2 percent at our comparable hotels, respectively, which resulted from increases in both occupancy and ADR. The increase in management fees and franchise fees was also a result of the addition of new managed and franchised properties to our portfolio, which are not included in our comparable hotels and contributed $11 million and $50 million, respectively, of increased fees on a currency neutral basis. Franchise fees also increased as a result of increased currency neutral licensing and other fees of $104 million.

From December 31, 2014 to December 31, 2015, we added 285 managed and franchised properties on a net basis, including new development and ownership type transfers, providing an additional 42,573 rooms to our system. As new hotels are established in our system, we expect the fees received from such hotels to increase as they are part of our system for full reporting periods.

Other revenues decreased primarily as a result of the decrease in revenues earned by our purchasing operations.

Timeshare

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Timeshare sales$959$84413.6
Resort operations2071956.2
Financing and other1421327.6
$1,308$1,17111.7

Timeshare sales revenue increased $115 million during the year ended December 31, 2015 as a result of an increase in commissions recognized from the sale of third-party developed intervals of $136 million, offset by a decrease of $21 million in revenues related to the sale of timeshare intervals owned by us. During the year ended December 31, 2015, we had higher sales volume on third-party developed timeshare intervals.

Operating Expenses

Owned and leased hotels

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
U.S. owned and leased hotels$1,589$1,4976.1
International owned and leased hotels1,5791,755(10.0)
$3,168$3,252(2.6)

The following details the changes in operating expenses at our owned and leased hotels:

U.S.International
(in millions)
Increase (decrease) year over year$92$(176)
Foreign currency effect(1)—186
Net decrease (increase) of acquired and disposed hotels(2)(17)60
Increase excluding the effect of foreign currency, acquisitions and disposals$75$70
(1)Favorable movements were a result of the strengthening of the USD compared to that of currencies primarily in the Europe and Asia Pacific regions, where the majority of our owned and leased hotels outside of the U.S. are located.
(2)From January 1, 2014 to December 31, 2015, 10 hotels were added to our U.S. owned and leased portfolio on a net basis and five hotels were removed from our international owned and leased portfolio on a net basis.

Fluctuations in operating expenses at our owned and leased hotels can relate to various factors, including changes in occupancy levels, labor costs, utilities, taxes and insurance costs. The change in the number of occupied room nights directly affects certain variable expenses, which include payroll, supplies and other operating expenses.

The increase in operating expenses at our U.S. owned and leased hotels was primarily due to an increase at our comparable hotels of $74 million, primarily resulting from higher variable operating costs due to increased occupancy.

Operating expenses increased $45 million, on a currency neutral basis, at our international comparable owned and leased hotels during the year ended December 31, 2015, primarily as a result of increases in variable operating costs resulting from increased occupancy consistent with improved operations at certain leased hotels. Additionally, there were increases in operating expenses at our non-comparable international owned and leased hotels of $25 million during the year ended December 31, 2015, primarily as a result of higher operating expenses at certain hotels where large renovation projects were completed during 2014 and 2015, which is consistent with the $49 million increase in revenues for these hotels.

Timeshare

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Timeshare sales$701$58619.6
Resort operations1301235.7
Financing and other665813.8
$897$76716.9

Timeshare sales expense increased during the year ended December 31, 2015 primarily as a result of an increase of $57 million in the cost of sales of our inventory mainly related to the increase in costs to reacquire inventory developed by us resulting from upgrades into third-party developed properties for which we earn commissions. Additionally, there were higher sales and marketing expenses as a result of the increase in sales volume, which was primarily attributable to the sale of third-party developed timeshare intervals.

Depreciation and amortization

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Depreciation$351$31312.1
Amortization3413158.3
$692$62810.2

The increase in depreciation expense resulted from assets acquired or placed into service from our owned and leased hotels, net of the effect of asset disposals. The increase in amortization expense was primarily as a result of $13 million in accelerated amortization of a management contract intangible asset related to properties that were managed by us prior to our acquisition of those hotels. The remaining increase was primarily a result of capitalized software costs placed into service during and after 2014.

General, administrative and other

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
General and administrative$547$41631.5
Other6475(14.7)
$611$49124.4

The increase in general and administrative expenses for the year ended December 31, 2015 was primarily a result of severance costs related to the sale of the Waldorf Astoria New York of approximately $95 million. The increase in general and administrative expenses was also a result of the increase in share-based compensation expense under our pre-IPO executive compensation plan (the "Promote Plan") of $34 million, primarily due to the recognition of $64 million of expense when all remaining awards vested in May 2015. Additionally, the increase was a result of the reversal of accruals in 2014 related to the termination of a cash-based, long-term incentive plan that was replaced with our 2013 Omnibus Incentive Plan, resulting in an $18 million reduction in general and administrative expense during the year ended December 31, 2014.

The decrease in other expenses primarily represented decreased expenses incurred by our purchasing operations, which were in line with the decrease in revenues from these purchasing operations.

Gain on sales of assets, net

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Gain on sales of assets, net$306$—NM(1)
(1)Fluctuation in terms of percentage change is not meaningful.

During the year ended December 31, 2015, we completed the sales of the Hilton Sydney and the Waldorf Astoria New York. See Note 4: "Disposals" in our consolidated financial statements for additional discussion.

Non-operating Income and Expenses

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Interest expense$575$618(7.0)

The decrease in interest expense was primarily as a result of a decrease in our indebtedness due to the debt prepayments of $775 million on our term loan facility (the "Term Loans") during the year, which resulted in lower 2015 debt principal balances on which interest expense was calculated.

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Equity in earnings from unconsolidated affiliates$23$1921.1

The increase in equity in earnings from unconsolidated affiliates was primarily due to improved performance at our unconsolidated hotels, partially offset by $3 million in equity in earnings included in the year ended December 31, 2014 from unconsolidated affiliates that were involved in an equity investments exchange or sold during that year; see Note 3: "Acquisitions" in our consolidated financial statements for additional discussion.

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Gain (loss) on foreign currency transactions$(41)$26NM(1)
(1)Fluctuation in terms of percentage change is not meaningful.

The net loss on foreign currency transactions for the year ended December 31, 2015 primarily related to changes in foreign currency rates on our short-term cross-currency intercompany loans, predominantly those denominated in Australian dollar ("AUD"), Brazilian real and British pound ("GBP").

The net gain on foreign currency transactions for the year ended December 31, 2014 was primarily a result of changes in foreign currency rates on our short-term cross-currency intercompany loans, predominantly those denominated in GBP and AUD.

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Other gain (loss), net$(1)$37NM(1)
(1)Fluctuation in terms of percentage change is not meaningful.

The other loss, net for the year ended December 31, 2015 was primarily related to $26 million of transaction costs from the acquisition of properties in connection with the tax deferred exchange, partially offset by a $24 million gain from the capital lease liability reduction from one of our consolidated variable interest entities ("VIEs").

The other gain, net for the year ended December 31, 2014 was primarily related to a pre-tax gain of $23 million resulting from an equity investments exchange; see Note 3: "Acquisitions" in our consolidated financial statements, as well as pre-tax gains of $13 million resulting from the sale of two hotels and a vacant parcel of land.

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Income tax expense$80$465(82.8)

The decrease in income tax expense was primarily the result of a $640 million deferred tax benefit resulting from transactions involving the conversion of certain U.S. subsidiaries from corporations to limited liability companies and the election to disregard certain foreign subsidiaries for U.S. Federal income tax purposes. This benefit was offset by an increase in tax expense resulting from a $349 million increase in our income before income taxes. Further, income tax expense was affected by the reduction in goodwill in connection with the sales of the Waldorf Astoria New York and the Hilton Sydney, as well as the compensation costs incurred under the Promote Plan for which no tax benefits were recognized. Refer to Note 18: "Income Taxes" in our consolidated financial statements for additional information.

Segment Results

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 23: "Business Segments" in our consolidated financial statements. Refer to those financial statements for a reconciliation of net income attributable to Hilton stockholders to Adjusted EBITDA. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness, refer to "—Key Business and Financial Metrics Used by Management." The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts:

Year Ended December 31,Percent Change
201520142015 vs. 2014
(in millions)
Revenues:
Ownership$4,262$4,271(0.2)
Management and franchise1,6911,46815.2
Timeshare1,3081,17111.7
Segment revenues7,2616,9105.1
Other revenues from managed and franchised properties4,1303,69111.9
Other revenues9199(8.1)
Intersegment fees elimination(210)(198)6.1
Total revenues$11,272$10,5027.3
Adjusted EBITDA:
Ownership$1,064$1,0006.4
Management and franchise1,6911,46815.2
Timeshare3523374.5
Corporate and other(228)(255)(10.6)
Adjusted EBITDA$2,879$2,55012.9
(1)Refer to Note 23: "Business Segments" in our consolidated financial statements for details on the intersegment fees elimination.

Ownership

Ownership segment revenues decreased $9 million primarily as a result of the decrease in owned and leased hotel revenues. Refer to "—Results of Operations—Year Ended December 31, 2015 Compared with Year Ended December 31, 2014—Revenues—Owned and leased hotels" for further discussion on the decrease in revenues from our owned and leased hotels. Our ownership segment's Adjusted EBITDA increased $64 million primarily as a result of the decrease in owned and leased operating expenses of $84 million offset by the decrease in ownership segment revenues. Refer to "—Results of Operations—Year Ended December 31, 2015 Compared with Year Ended December 31, 2014—Operating Expenses—Owned and leased hotels" for further discussion on the decrease in operating expenses.

Management and franchise

Management and franchise segment revenues increased $223 million as a result of the increase in RevPAR at our comparable managed and franchised properties of 5.5 percent, an increase in licensing and other fees, as well as the net addition of hotels to our managed and franchised system. Refer to "—Results of Operations—Year Ended December 31, 2015 Compared with Year Ended December 31, 2014—Revenues—Management and franchise fees and other" for further discussion on the increase in revenues from our managed and franchised properties. Our management and franchise segment's Adjusted EBITDA increased as a result of the increase in management and franchise segment revenues.

Timeshare

Timeshare Adjusted EBITDA increased $15 million primarily as a result of the $137 million increase in timeshare revenue, offset by a $130 million increase in timeshare operating expense. Refer to "—Results of Operations—Year Ended December 31, 2015 Compared with Year Ended December 31, 2014—Revenues—Timeshare" and "—Results of Operations—Year Ended December 31, 2015 Compared with Year Ended December 31, 2014—Operating Expenses—Timeshare" for a discussion of the changes in revenues and operating expenses from our timeshare segment.

Year Ended December 31, 2014 Compared with Year Ended December 31, 2013

The hotel operating statistics for our system-wide comparable hotels were as follows:

Year EndedVariance
December 31, 20142014 vs. 2013
Owned and leased hotels
Occupancy78.4%2.0%pts.
ADR$199.242.9%
RevPAR$156.185.6%
Managed and franchised hotels
Occupancy74.3%2.4%pts.
ADR$135.203.9%
RevPAR$100.457.3%
System-wide
Occupancy74.6%2.4%pts.
ADR$141.523.7%
RevPAR$105.637.1%

The hotel operating statistics by region for our system-wide comparable hotels were as follows:

Year EndedVariance
December 31, 20142014 vs. 2013
United States
Occupancy75.4%2.3%pts.
ADR$137.184.1%
RevPAR$103.447.4%
Americas (excluding U.S.)
Occupancy72.2%2.1%pts.
ADR$136.244.7%
RevPAR$98.307.9%
Europe
Occupancy75.4%2.6%pts.
ADR$170.682.4%
RevPAR$128.656.1%
Middle East and Africa
Occupancy63.5%3.5%pts.
ADR$165.15(1.3)%
RevPAR$104.934.4%
Asia Pacific
Occupancy69.2%2.3%pts.
ADR$160.591.4%
RevPAR$111.154.9%

During the year ended December 31, 2014, we experienced RevPAR increases in all segments and regions of our business, with occupancy and rate increases in all regions except Middle East and Africa, where rates declined and market demand increased over 2013.

Revenues

Owned and leased hotels

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
U.S. owned and leased hotels$2,227$2,0588.2
International owned and leased hotels2,0121,9881.2
$4,239$4,0464.8

During the year ended December 31, 2014, the overall improved performance at our owned and leased hotels was primarily a result of improvement in RevPAR of 5.6 percent at our comparable owned and leased hotels.

As of December 31, 2014, we had 40 consolidated owned and leased hotels located in the U.S., comprising 25,276 rooms. The increase in revenues from our U.S. owned and leased hotels was primarily a result of an increase in RevPAR at our U.S. comparable owned and leased hotels of 6.9 percent, which was due to increases in occupancy and ADR of 1.7 percentage points and 4.6 percent, respectively. The increase in RevPAR at our U.S. comparable owned and leased hotels was attributable to increases in both transient guests and group business. In addition, food and beverage revenues increased 7.0 percent, primarily as a result of increased spending by group customers.

As of December 31, 2014, we had 87 consolidated owned and leased hotels located outside of the U.S., comprising 25,280 rooms. The increase in revenues from our international (non-U.S.) owned and leased hotels included an unfavorable movement in foreign currency rates of $17 million; on a currency neutral basis, revenue increased $41 million. The increase in currency neutral revenue resulted from an increase in RevPAR at our international comparable owned and leased hotels of 3.2 percent, which was primarily a result of increased occupancy of 2.1 percentage points.

Management and franchise fees and other

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Management fees$384$34312.0
Franchise fees92777220.1
Other906050.0
$1,401$1,17519.2

The increases in our management fees and franchise fees were a result of increased RevPAR of 7.0 percent and 7.5 percent, respectively, during the year ended December 31, 2014. The increases in RevPAR for managed and franchised hotels were a result of increases in both occupancy and ADR.

The addition of new hotels to our managed and franchised system also contributed to the growth in revenue. During 2014, we added 29 managed properties on a net basis, contributing an additional 9,142 rooms to our system, as well as 188 franchised properties on a net basis, providing an additional 28,636 rooms to our system. As new hotels are established in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods.

The increase in other revenues was primarily a result of the increase in revenues earned by our purchasing operations.

Timeshare

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Timeshare sales$844$8212.8
Resort operations19515823.4
Financing and other1321301.5
$1,171$1,1095.6

Timeshare sales revenue increased $23 million as a result of increases in commissions recognized from the sale of third-party developed intervals of approximately $47 million, partially offset by a decrease of approximately $24 million in revenue from the sale of timeshare intervals developed by us, primarily resulting from the deferral of revenue recognition due to sales of developed projects that are partially complete. We expect the decline in sales of our owned timeshare inventory to continue as we further develop our capital light timeshare business with a focus on selling timeshare intervals on behalf of third-party developers. Resort operations revenue increased approximately $37 million resulting from increased transient rentals.

Operating Expenses

Owned and leased hotels

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
U.S. owned and leased hotels$1,497$1,4106.2
International owned and leased hotels1,7551,7371.0
$3,252$3,1473.3

The increase in U.S. owned and leased hotels operating expenses was primarily a result of increases in payroll costs and other variable costs resulting from increased occupancy.

The increase in international owned and leased hotels operating expenses included a favorable movement in foreign currency rates of $9 million; on a currency neutral basis, operating expenses increased $27 million. The increase resulted from the opening of a new property in 2014, which had operating expenses of $13 million for the year ended December 31, 2014. The increase in currency neutral expenses was also a result of a benefit of $11 million recognized as a reduction in rent expense during the year ended December 31, 2013 relating to a termination payment received for one of our properties with a ground lease.

Timeshare

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Timeshare sales$586$5545.8
Resort operations1231193.4
Financing and other58571.8
$767$7305.1

Timeshare sales expense increased $32 million primarily as a result of increased sales and marketing expenses, most significantly related to our increased sales volume.

Depreciation and amortization

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Depreciation$313$318(1.6)
Amortization31528510.5
$628$6034.1

The $30 million increase in amortization expense was primarily a result of capitalized software costs placed into service during and after 2013. Depreciation expense decreased $5 million in 2014, primarily as a result of $10 million in accelerated depreciation recognized in 2013 resulting from a lease termination at one of our properties, offset by additional depreciation expense from our owned and leased hotels resulting from assets placed in service during and after 2013.

General, administrative and other

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
General and administrative$416$697(40.3)
Other755147.1
$491$748(34.4)

General and administrative expenses for the year ended December 31, 2014 decreased as a result of a $281 million decrease in share-based compensation expense issued prior to and in connection with our initial public offering ("IPO"). We incurred $306 million of share-based compensation expense related to the Promote Plan concurrent with our IPO during the fourth quarter of 2013.

The increase of $24 million in other expenses was primarily from our purchasing operations, which is consistent with the increase in revenues from our purchasing operations.

Non-operating Income and Expenses

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Interest expense$618$620(0.3)

Interest expense remained relatively unchanged from 2013. Our overall borrowing rate increased based on a series of transactions related to a debt refinancing occurring in October 2013; however, we reduced our outstanding borrowings during 2014. Additionally, interest expense included the accelerated amortization of $13 million and $23 million of debt issuance costs and original issue discount related to voluntary prepayments on the Term Loans during the years ended December 31, 2014 and 2013, respectively.

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Equity in earnings from unconsolidated affiliates$19$1618.8

The increase in equity in earnings from unconsolidated affiliates were primarily a result of improved performance of our unconsolidated affiliates.

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Gain (loss) on foreign currency transactions$26$(45)NM(1)
(1)Fluctuation in terms of percentage change is not meaningful.

The net gain (loss) on foreign currency transactions was primarily a result of changes in foreign currency rates on our short-term cross-currency intercompany loans, which are primarily denominated in GBP and AUD. Both GBP and AUD weakened against the USD during the year ended December 31, 2014, resulting in a gain on foreign currency transactions. Further, in 2014 we designated certain GBP denominated intercompany loan receivables as long-term, limiting our exposure to changes in the GBP currency rate. This resulted in $81 million in losses included in other comprehensive income (loss) for the year ended December 31, 2014 that would have otherwise been included in gain (loss) on foreign currency transactions.

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Gain on debt extinguishment$—$229NM(1)
(1)Fluctuation in terms of percentage change is not meaningful.

The gain on debt extinguishment was the result of a debt refinancing that occurred in 2013.

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Other gain, net$37$7NM(1)

The other gain, net for the year ended December 31, 2014 was primarily related to a pre-tax gain of $23 million resulting from an equity investments exchange; see Note 3: "Acquisitions" in our consolidated financial statements, as well as pre-tax gains of $13 million resulting from the sale of two hotels and a vacant parcel of land.

The other gain, net for the year ended December 31, 2013 was primarily related to a capital lease restructuring by one of our consolidated VIEs during the period. The revised terms reduced the future minimum lease payments, resulting in a reduction of the capital lease obligation and a residual amount, which was recorded in other gain, net.

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Income tax expense$465$23895.4

The increase in income tax expense was primarily the result of an increase in U.S. federal and state taxes as a result of higher taxable income. Additionally, during the year ended December 31, 2013, we released valuation allowances against certain foreign and state deferred tax assets, which provided a tax benefit of $121 million. Refer to Note 18: "Income Taxes" in our consolidated financial statements for a reconciliation of our tax provision at the U.S. statutory rate to our provision for income taxes.

Segment Results

The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts:

Year Ended December 31,Percent Change
201420132014 vs. 2013
(in millions)
Revenues:
Ownership$4,271$4,0754.8
Management and franchise1,4681,27115.5
Timeshare1,1711,1095.6
Segment revenues6,9106,4557.0
Other revenues from managed and franchised properties3,6913,4058.4
Other revenues996943.5
Intersegment fees elimination(198)(194)2.1
Total revenues$10,502$9,7357.9
Adjusted EBITDA:
Ownership$1,000$9268.0
Management and franchise1,4681,27115.5
Timeshare33729713.5
Corporate and other(255)(284)(10.2)
Adjusted EBITDA$2,550$2,21015.4

Ownership

Ownership segment revenues increased $196 million as a result of an improvement in RevPAR of 5.6 percent at our comparable owned and leased hotels. Refer to "—Results of Operations—Year Ended December 31, 2014 Compared with Year Ended December 31, 2013—Revenues—Owned and leased hotels" for further discussion on the increase in revenues from our owned and leased hotels. Our ownership segment's Adjusted EBITDA increased $73 million primarily as a result of the increase in ownership segment revenues, offset by an increase in operating expenses at our owned and leased hotels of $105 million. Refer to "—Results of Operations—Year Ended December 31, 2014 Compared with Year Ended December 31, 2013—Operating Expenses—Owned and leased hotels" for further discussion on the increase in operating expenses.

Management and franchise

Refer to "—Results of Operations—Year Ended December 31, 2014 Compared with Year Ended December 31, 2013—Revenues—Management and franchise fees and other" for further discussion on the increase in revenues from our managed and franchised properties. Our management and franchise segment's Adjusted EBITDA increased as a result of the increase in management and franchise segment revenues.

Timeshare

Refer to "—Results of Operations—Year Ended December 31, 2014 Compared with Year Ended December 31, 2013—Revenues—Timeshare" for a discussion of the increase in revenues from our timeshare segment. Our timeshare segment's Adjusted EBITDA increased $37 million primarily as a result of the $62 million increase in timeshare revenue, offset by a $37 million increase in timeshare operating expense. Refer to "—Results of Operations—Year Ended December 31, 2014 Compared with Year Ended December 31, 2013—Operating Expenses—Timeshare" for a discussion of the decrease in operating expenses from our timeshare segment.

Supplemental Financial Data for Unrestricted U.S. Real Estate Subsidiaries

As of December 31, 2015, we owned majority or controlling financial interests in 56 hotels, representing 29,269 rooms. See "Part I—Item 2. Properties" for more information on each of our owned hotels. Of these owned hotels, 36 hotels representing an aggregate of 23,913 rooms as of December 31, 2015, were owned by subsidiaries that we collectively refer to as our "Unrestricted U.S. Real Estate Subsidiaries." The properties held by our Unrestricted U.S. Real Estate Subsidiaries secure either a $3,418 million commercial mortgage-backed securities loan secured by 22 U.S. owned real estate assets (the "CMBS Loan") or one of our mortgage loans secured by four other properties that total in aggregate $492 million and are not

included in the collateral securing our borrowings under our senior secured credit facility (the "Senior Secured Credit Facility") and the Unrestricted U.S. Real Estate Subsidiaries do not guarantee obligations under our Senior Secured Credit Facility or our $1.5 billion of 5.625% senior notes due 2021 (the "Senior Notes"). In addition, the Unrestricted U.S. Real Estate Subsidiaries are not subject to any of the restrictive covenants in the indenture that governs our Senior Notes. For further discussion, see "—Liquidity and Capital Resources" and Note 12: "Debt" in our consolidated financial statements.

We have included this supplemental financial data to comply with certain financial information requirements regarding our Unrestricted U.S. Real Estate Subsidiaries set forth in the indenture that governs our Senior Notes. For the year ended December 31, 2015, the Unrestricted U.S. Real Estate Subsidiaries represented 19.9 percent of our total revenues, 15.8 percent of net income attributable to Hilton stockholders and 24.4 percent of our Adjusted EBITDA, and as of December 31, 2015, represented 34.8 percent of our total assets and 33.8 percent of our total liabilities.

The following tables present supplemental unaudited financial data, as required by the indenture, for our Unrestricted U.S. Real Estate Subsidiaries:

Year Ended December 31,
201520142013
(in millions)
Revenues$2,239$2,060$1,915
Net income attributable to Hilton stockholders222157185
Capital expenditures for property and equipment203152136
Adjusted EBITDA(1)702621567
Cash provided by (used in):
Operating activities415438366
Investing activities251(149)(164)
Financing activities(644)(307)(185)
(1)The following table provides a reconciliation of our Unrestricted U.S. Real Estate Subsidiaries' net income attributable to Hilton stockholders, which we believe is the most closely comparable U.S. GAAP measure, to EBITDA and to Adjusted EBITDA.
Year Ended December 31,
201520142013
(in millions)
Net income attributable to Hilton stockholders$222$157$185
Interest expense17417335
Income tax expense168110132
Depreciation and amortization244202202
EBITDA808642554
Net income (loss) attributable to noncontrolling interests2(1)—
Gain on sales of assets, net(143)——
Share-based compensation expense2——
Other loss (gain), net32(23)—
Other adjustment items1313
Adjusted EBITDA$702$621$567
December 31,
20152014
(in millions)
Assets$8,943$8,803
Liabilities6,6896,774

Liquidity and Capital Resources

Overview

As of December 31, 2015, we had total cash and cash equivalents of $856 million, including $247 million of restricted cash and cash equivalents. The majority of our restricted cash and cash equivalents balance relates to cash collateral on our self-insurance programs, escrowed cash from our timeshare operations and cash restricted under our debt agreements.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including corporate expenses, payroll and related benefits, legal costs, operating costs associated with the management of hotels, interest and scheduled principal payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for renovations and maintenance at our owned and leased hotels. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our owned and leased hotels, purchase commitments, dividends as declared, costs associated with potential acquisitions and corporate capital expenditures.

We finance our business activities primarily with existing cash and cash generated from our operations. We believe that this cash will be adequate to meet anticipated requirements for operating expenses and other expenditures, including corporate expenses, payroll and related benefits, legal costs and purchase commitments for the foreseeable future. The objectives of our cash management policy are to maintain the availability of liquidity, minimize operational costs and use available cash to pay down our outstanding debt. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments across all three of our business segments.

We and our affiliates, and/or our major stockholders and their respective affiliates, may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

Recent Events Affecting Our Liquidity and Capital Resources

During the year ended December 31, 2015, we made prepayments of $775 million on our Term Loans, including a contractually required prepayment using the net proceeds from the sale of the Hilton Sydney. In February 2015, we completed the sale of the Waldorf Astoria New York hotel and repaid in full the $525 million Waldorf Astoria Loan and upon acquisition of the Waldorf Astoria Orlando and the Hilton Orlando Bonnet Creek (the "Bonnet Creek Resort"), assumed a $450 million mortgage loan secured by the Bonnet Creek Resort (the "Bonnet Creek Loan"), resulting in a net reduction of $75 million in mortgage debt.

During the year ended December 31, 2015, we made a contractually required prepayment of $69 million on the variable rate component of the CMBS Loan in exchange for the release of certain collateral. In December 2015, we paid in full the $64 million mortgage loan assumed as part of an equity investments exchange that occurred in 2014.

In July 2015, we commenced paying quarterly dividends. During the year ended December 31, 2015, we paid $138 million in connection with two quarterly cash dividends of $0.07 per share. In February 2016, we declared a cash dividend of $0.07 per share on shares of our common stock to be paid on or before March 31, 2016 to stockholders of record of our common stock as of the close of business on March 18, 2016.

Sources and Uses Of Our Cash and Cash Equivalents

The following table summarizes our net cash flows and key metrics related to our liquidity:

As of and for the year ended December 31,Percent Change
2015201420132015 vs. 20142014 vs. 2013
(in millions)
Net cash provided by operating activities$1,394$1,366$2,1012.1(35.0)
Net cash provided by (used in) investing activities392(310)(382)NM(1)(18.9)
Net cash used in financing activities(1,724)(1,070)(1,863)61.1(42.6)
Working capital surplus(2)118242241(51.2)0.4
(1)Fluctuation in terms of percentage change is not meaningful.
(2)Total current assets less total current liabilities.

Our ratio of current assets to current liabilities was 1.05 as of December 31, 2015 and 1.11 as of December 31, 2014 and 2013.

Operating Activities

Cash flow from operating activities is primarily generated from management and franchise revenues, operating income from our owned and leased properties and sales of timeshare intervals. In a recessionary market, we may experience significant declines in travel and, thus, declines in demand for our hotel and resort rooms and timeshare intervals. A decline in demand could have a material effect on our cash flow from operating activities.

The $28 million increase in net cash provided by operating activities during the year ended December 31, 2015 compared to the year ended December 31, 2014 was primarily as a result of improved operating results in each of our three business segments, as well as a decrease in cash paid for interest of $29 million, offset by an increase in net cash paid for income taxes of $46 million.

The $735 million decrease in net cash provided by operating activities during the year ended December 31, 2014, compared to the year ended December 31, 2013, was attributable to an increase in cash paid for taxes of $196 million during the year ended December 31, 2014, compared to the year ended December 31, 2013, due to higher taxable income in 2014, as well as a decrease in deferred revenues as of December 31, 2014. In 2013, we collected $650 million from the sales of Hilton HHonors points, most of which was deferred revenue as of December 31, 2013. These were offset by a decrease in cash paid for interest of $21 million in 2014 compared to 2013 and other favorable timing differences in cash generated from operating activities.

Investing Activities

The $702 million increase in net cash provided by investing activities during the year ended December 31, 2015 compared to the year ended December 31, 2014 was primarily attributable to net proceeds from the sales of the Waldorf Astoria New York and Hilton Sydney of $1,866 million and $331 million, respectively, offset by $1,410 million in proceeds used in the acquisitions of the properties in the tax deferred exchange during the year ended December 31, 2015. Refer to Note 3: "Acquisitions" and Note 4: "Disposals" in our consolidated financial statements.

The $72 million decrease in net cash used in investing activities during the year ended December 31, 2014, compared to the year ended December 31, 2013, was primarily attributable to $44 million in proceeds from asset dispositions in the year ended December 31, 2014, related to the sale of two hotels, a land parcel and land and easement rights. Additionally, there were no acquisitions in 2014, while during the year ended December 31, 2013, there were acquisitions of $30 million for a parcel of land and a hotel.

Our capital expenditures for property and equipment primarily included expenditures related to the renovation of existing

owned and leased properties and our corporate facilities. Our software capitalization costs related to various systems initiatives for the benefit of our hotel owners and our overall corporate operations.

Financing Activities

The $654 million increase in net cash used in financing activities during the year ended December 31, 2015 compared to the year ended December 31, 2014 was primarily attributable to a decrease in proceeds from borrowings of $302 million, an increase of repayments of debt of $200 million and the payment of cash dividends totaling $138 million in 2015. The changes in borrowings and repayments of debt were primarily due to the repayment of the Waldorf Astoria Loan of $525 million in connection with the sale of the Waldorf Astoria New York, as well as $775 million of prepayments on our Term Loans, including a $350 million prepayment using the net proceeds from the sale of the Hilton Sydney, during the year ended December 31, 2015. Comparatively, during the year ended December 31, 2014, we issued $350 million of Securitized Timeshare Debt, of which $300 million of proceeds was used to reduce our outstanding balance on the Timeshare Facility, combined with prepayments on our Term Loans of $1.0 billion.

Net cash used in financing activities during the year ended December 31, 2014 decreased $793 million compared to the year ended December 31, 2013 due to a decrease in net repayments of debt of $2,041 million. The higher net repayments of debt in 2013 was primarily due to a debt refinancing. Additionally, in December 2013 we received $1,243 million in net proceeds from issuance of common stock from our IPO.

Debt and Borrowing Capacity

As of December 31, 2015, our total indebtedness, excluding $229 million of our share of debt of our investments in affiliates, was approximately $10.5 billion, including $726 million of non-recourse debt. For further information on our total indebtedness and debt repayments refer to Note 12: "Debt" in our consolidated financial statements.

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 other mortgage loans. Additionally, none of our foreign subsidiaries or our non-wholly owned domestic subsidiaries guarantee the Senior Secured Credit Facility.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures, issue additional equity securities or draw on our senior secured revolving credit facility (the "Revolving Credit Facility"). Our ability to make scheduled principal payments and to pay interest on our debt depends on the future performance of our operations, which is subject to general conditions in or affecting the hotel and timeshare industries that are beyond our control.

Our Revolving Credit Facility provides for $1.0 billion in borrowings, including the ability to draw up to $150 million in the form of letters of credit. As of December 31, 2015, we had $45 million of letters of credit outstanding, leaving us with a borrowing capacity of $955 million. We are currently required to pay a commitment fee of 0.125 percent per annum under the Revolving Credit Facility in respect of the unused commitments thereunder.

Letters of Credit

We had a total of $45 million in letters of credit outstanding as of December 31, 2015 and 2014, the majority of which were outstanding under the Revolving Credit Facility and related to our guarantees on debt and other obligations of third parties and self-insurance programs. The maturities of the letters of credit were within one year as of December 31, 2015.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2015:

Payments Due by Period
TotalLess Than 1 Year1-3 Years3-5 YearsMore Than 5 Years
(in millions)
Long-term debt(1)(2)$11,393$493$4,222$5,077$1,601
Non-recourse debt(2)5761242838881
Capital lease obligations
Recourse15661212126
Non-recourse288143746191
Operating leases2,5002474373741,442
Purchase commitments30763521875
Total contractual obligations$15,220$947$5,043$5,784$3,446
(1)We have assumed all extensions, which are solely at our option, were exercised.
(2)Includes principal, as well as estimated interest payments. For our variable-rate debt we have assumed a constant 30-day LIBOR rate of 0.36 percent as of December 31, 2015.

The total amount of unrecognized tax benefits as of December 31, 2015 was $407 million. These amounts are excluded from the table above because they are uncertain and subject to the findings of the taxing authorities in the jurisdictions where we are subject to tax. It is possible that the amount of the liability for unrecognized tax benefits could change during the next year. Refer to Note 18: "Income Taxes" in our consolidated financial statements for further discussion of our liability for unrecognized tax benefits.

In addition to the purchase commitments in the table above, in the normal course of business we enter into purchase commitments for which we are reimbursed by the owners of our managed and franchised hotels. These obligations have minimal or no effect on our net income and cash flow.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of December 31, 2015 included letters of credit of $45 million, guarantees of $25 million for debt and obligations of third parties, performance guarantees with possible cash outlays totaling approximately $83 million, of which we have accrued $33 million as of December 31, 2015 for estimated probable exposure, and construction contract commitments of approximately $56 million for capital expenditures at our owned, leased and consolidated VIE hotels. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract. Additionally, during 2010, in conjunction with a lawsuit settlement, an affiliate of Blackstone entered into service contracts with the plaintiff. 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. The remaining potential exposure under this guarantee as of December 31, 2015 was approximately $22 million. See Note 24: "Commitments and Contingencies" in our consolidated financial statements for further discussion on these amounts.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the consolidated financial statements and accompanying footnotes. We believe that of our significant accounting policies, which are described in Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our consolidated financial statements, the following accounting policies are critical because they involve a higher degree of judgment, and the estimates required to be made were based on assumptions that are inherently uncertain. As a result, these accounting policies could materially affect our financial position, results of operations and related disclosures. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that are believed to reflect the current circumstances. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial position or results of operations.

Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of the board of directors.

Property and Equipment and Intangible Assets with Finite Lives

We evaluate the carrying value of our property and equipment and intangible assets with finite lives by comparing the expected undiscounted future cash flows to the net book value of the assets if we determine there are indicators of potential impairment. If it is determined that the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations as impairment losses.

As part of the process described above, we exercise judgment to:

•determine if there are indicators of impairment present. Factors we consider when making this determination include assessing the overall effect of trends in the hospitality industry and the general economy, historical experience, capital costs and other asset-specific information;
•determine the projected undiscounted future cash flows when indicators of impairment are present. Judgment is required when developing projections of future revenues and expenses based on estimated growth rates over the expected useful life of the asset group. These estimated growth rates are based on historical operating results, as well as various internal projections and external sources; and
•determine the asset fair value when required. In determining the fair value, we often use internally-developed discounted cash flow models. Assumptions used in the discounted cash flow models include estimating cash flows, which may require us to adjust for specific market conditions, as well as capitalization rates, which are based on location, property or asset type, market-specific dynamics and overall economic performance. The discount rate takes into account our weighted average cost of capital according to our capital structure and other market specific considerations.

We had $9,119 million of property and equipment, net and $1,735 million of intangible assets with finite lives as of December 31, 2015. Changes in estimates and assumptions used in our impairment testing of property and equipment and intangible assets with finite lives could result in future impairment losses, which could be material.

In conjunction with our regular assessment of impairment, we did not identify any property and equipment with indicators of impairment for which a 10 percent reduction in our estimate of undiscounted future cash flows would result in additional impairment losses. We did not identify any intangible assets with finite lives for which a 10 percent reduction in our estimates of undiscounted future cash flows, projected operating results or other significant assumptions would result in impairment losses.

Investments in Affiliates

We evaluate our investments in affiliates for impairment when there are indicators that the fair value of our investment may be less than our carrying value. We record an impairment loss when we determine there has been an "other-than-temporary" decline in the investment’s fair value. If an identified event or change in circumstances requires an evaluation to determine if the value of an investment may have an other-than-temporary decline, we assess the fair value of the investment based on the accepted valuation methods, 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.

Our investments in affiliates consist primarily of our interests in entities that own or lease hotels. As such, the factors we consider when determining if there are indicators of potential impairment are similar to property and equipment discussed above. If there are indicators of potential impairment, we estimate the fair value of our equity method and cost method investments by internally developed discounted cash flow models. The principal factors used in our discounted cash flow models that require judgment are the same as the items discussed in property and equipment above.

We had $138 million of investments in affiliates as of December 31, 2015. Changes in estimates and assumptions used in our impairment testing of investments in affiliates could result in future impairment losses, which could be material.

In conjunction with our regular assessment of impairment, we did not identify any investments in affiliates with indicators of impairment for which a 10 percent change in our estimates of future cash flows or other significant assumptions would result in material impairment losses.

Business Combinations

Property and equipment are recorded at fair value and allocated to land, buildings and leasehold improvements and furniture and equipment using appraisals and valuations performed by management and independent third parties. Fair values are based on the exit price (i.e., the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date). We evaluate several factors, including market data for similar assets, expected future cash flows discounted at risk adjusted rates and replacement cost for the assets to determine an appropriate exit price when evaluating the fair value of our assets. Changes to these factors could affect the measurement and allocation of fair value. Other assets and liabilities acquired in a business combination are recorded based on the fair value of the assets acquired and liabilities assumed at acquisition date.

Goodwill

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 23: "Business Segments" in our consolidated financial statements. We perform this evaluation annually or at an interim date if indicators of impairment exist. In any given year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process. In the first step, we evaluate the fair value of our reporting units quantitatively. When determining fair value, we utilize discounted future cash flow models, as well as market conditions relative to the operations of our reporting units. Under the discounted cash flow approach, we utilize various assumptions that require judgment, including projections of revenues and expenses based on estimated long-term growth rates, and discount rates based on weighted average cost of capital. Our estimates of long-term growth and costs are based on historical data, as well as various internal projections and external sources. The weighted average cost of capital is estimated based on each reporting units’ cost of debt and equity and a selected capital structure. The selected capital structure

for each reporting unit is based on consideration of capital structures of comparable publicly traded companies operating in the business of that reporting unit. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step must be performed. In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination.

We had $5,887 million of goodwill as of December 31, 2015. Changes in the estimates and assumptions used in our goodwill impairment testing could result in future impairment losses, which could be material. A change in our estimates and assumptions that would reduce the fair value of each reporting units by 10 percent would not result in an impairment of any of our reporting units. Additionally, when a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained. When determining fair value of the businesses disposed of and the reporting unit to be retained, we use estimates and assumptions similar to that of those used in our impairment analysis.

Brands

We evaluate our brand intangible assets for impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of the brand is below the carrying value. When determining fair value, we utilize discounted future cash flow models for hotels that we manage or franchise. Under the discounted cash flow approach, we utilize various assumptions that require judgment, including projections of revenues and expenses based on estimated long-term growth rates and discount rates based on weighted average cost of capital. Our estimates of long-term growth and costs are based on historical data, as well as various internal estimates. If a brand’s estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses.

We had $4,919 million of brand intangible assets as of December 31, 2015. Changes in the estimates and assumptions used in our brands impairment testing, most notably revenue growth rates and discount rates, could result in future impairment losses, which could be material. A change in our estimates and assumptions that would reduce the fair value of each of our brands by 10 percent would not result in an impairment of any of the brand intangible assets.

Hilton HHonors

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 require judgment, including an estimate of "breakage" (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of the points to be redeemed. The cost of the points to be redeemed includes further estimates of available room nights, occupancy rates, room rates and any devaluation or appreciation of points based on changes in reward prices or changes in points earned per stay.

We had $1,278 million of guest loyalty liability as of December 31, 2015, including $494 million in current liabilities. Changes in the estimates used in developing our breakage rate could result in a material change to our guest loyalty liability. A 10 percent decrease to the breakage estimate used in determining future award redemption obligations would increase our guest loyalty liability by approximately $53 million.

Allowance for Loan Losses

The allowance for loan losses is related to the receivables generated by our financing of timeshare interval sales, which are secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our timeshare financing receivables. The adequacy of the related allowance is determined by management through analysis of several factors requiring judgment, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including assumed default rates.

We had $106 million of allowance for loan losses as of December 31, 2015. Changes in the estimates used in developing our default rates could result in a material change to our allowance. A 10 percent increase to our default rates used in the allowance calculation would increase our allowance for loan losses by approximately $43 million.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.

We use a prescribed more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the financial statements. Assumptions and estimates are used to determine the more-likely-than-not designation. Changes to these assumptions and estimates can lead to an additional income tax benefit (expense), which can materially change our consolidated financial statements.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. An estimated loss from a loss contingency should be accrued by a charge to income if it is probable and the amount of the loss can be reasonably estimated. Significant judgment is required when we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially affect our consolidated financial statements.

Consolidations

We use judgment when evaluating whether we have a controlling financial interest in an entity, including the assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests in an entity that are not controllable through voting interests. If the entity is considered to be a VIE, we use judgment determining whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interest in the entity. Changes to judgments used in evaluating our partnerships and other investments could materially affect our consolidated financial statements.

Share-Based Compensation

The process of estimating the fair value of stock-based compensation awards and recognizing the associated expense over the requisite service period involves significant management estimates and assumptions. Refer to Note 20: "Share-Based Compensation" in our consolidated financial statements for additional discussion. Any changes to these estimates will affect the amount of compensation expense we recognize with respect to future grants.

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