Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page No.
Management’s Report on Internal Control Over Financial Reporting	62
Report of Independent Registered Public Accounting Firm	63
Report of Independent Registered Public Accounting Firm	64
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2017 and 2016	65
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	66
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	67
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	68
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015	69
Notes to Consolidated Financial Statements	70

Management's Report on Internal Control Over Financial Reporting

Management of Hilton Worldwide Holdings Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2017.

Ernst & Young LLP, the independent registered public accounting firm that has audited the consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2017. The report is included herein.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Hilton Worldwide Holdings Inc.

Opinion on Internal Control over Financial Reporting

We have audited Hilton Worldwide Holdings Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hilton Worldwide Holdings Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Hilton Worldwide Holdings Inc. (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017 of the Company and the related notes, and our report dated February 14, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ Ernst & Young LLP

Tysons, Virginia

February 14, 2018

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Hilton Worldwide Holdings Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hilton Worldwide Holdings Inc. (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with US generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 14, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2002.

Tysons, Virginia

February 14, 2018

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)



	December 31,
2017				2016
ASSETS
Current Assets:
Cash and cash equivalents	$	570			$	1,062
Restricted cash and cash equivalents	100				121
Accounts receivable, net of allowance for doubtful accounts of $29 and $27	998				755
Prepaid expenses	111				89
Income taxes receivable	36				13
Other	171				39
Current assets of discontinued operations	—				1,478
Total current assets (variable interest entities - $93 and $167)	1,986				3,557
Intangibles and Other Assets:
Goodwill	5,190				5,218
Brands	4,890				4,848
Management and franchise contracts, net	909				963
Other intangible assets, net	433				447
Property and equipment, net	353				341
Deferred income tax assets	113				82
Other	434				408
Non-current assets of discontinued operations	—				10,347
Total intangibles and other assets (variable interest entities - $171 and $569)	12,322				22,654
TOTAL ASSETS	$	14,308			$	26,211
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	2,150			$	1,821
Current maturities of long-term debt	46				33
Income taxes payable	12				56
Current liabilities of discontinued operations	—				774
Total current liabilities (variable interest entities - $58 and $124)	2,208				2,684
Long-term debt	6,556				6,583
Deferred revenues	97				42
Deferred income tax liabilities	1,063				1,778
Liability for guest loyalty program	839				889
Other	1,470				1,492
Non-current liabilities of discontinued operations	—				6,894
Total liabilities (variable interest entities - $271 and $766)	12,233				20,362
Commitments and contingencies - see Note 20
Equity:
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of December 31, 2017 and 2016	—				—
Common stock(1), $0.01 par value; 10,000,000,000 authorized shares, 331,054,014 issued and 317,420,933 outstanding as of December 31, 2017 and 329,351,581 issued and 329,341,992 outstanding as of December 31, 2016	3				3
Treasury stock, at cost; 13,633,081 shares as of December 31, 2017 and 9,589 shares as of December 31, 2016	(891		)		—
Additional paid-in capital(1)	10,298				10,220
Accumulated deficit	(6,596		)		(3,323		)
Accumulated other comprehensive loss	(742		)		(1,001		)
Total Hilton stockholders' equity	2,072				5,899
Noncontrolling interests	3				(50		)
Total equity	2,075				5,849
TOTAL LIABILITIES AND EQUITY	$	14,308			$	26,211


(1)	Balance as of December 31, 2016 was adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017. See Note 1: "Organization" for additional information.

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)



	Year Ended December 31,
	2017			2016			2015
Revenues
Franchise fees	$	1,382		$	1,154		$	1,087
Base and other management fees	336			242			230
Incentive management fees	222			142			138
Owned and leased hotels	1,450			1,452			1,596
Other revenues	105			82			71
	3,495			3,072			3,122
Other revenues from managed and franchised properties	5,645			4,310			4,011
Total revenues	9,140			7,382			7,133

Expenses
Owned and leased hotels	1,286			1,295			1,414
Depreciation and amortization	347			364			385
General and administrative	434			403			537
Other expenses	56			66			49
	2,123			2,128			2,385
Other expenses from managed and franchised properties	5,645			4,310			4,011
Total expenses	7,768			6,438			6,396

Gain on sales of assets, net	—			8			163

Operating income	1,372			952			900

Interest expense	(408		)	(394		)	(377		)
Gain (loss) on foreign currency transactions	3			(16		)	(41		)
Loss on debt extinguishment	(60		)	—			—
Other non-operating income, net	23			14			51

Income from continuing operations before income taxes	930			556			533

Income tax benefit (expense)	334			(564		)	348

Income (loss) from continuing operations, net of taxes	1,264			(8		)	881
Income from discontinued operations, net of taxes	—			372			535
Net income	1,264			364			1,416
Net income attributable to noncontrolling interests	(5		)	(16		)	(12		)
Net income attributable to Hilton stockholders	$	1,259		$	348		$	1,404

Earnings (loss) per share(1):
Basic:
Net income (loss) from continuing operations per share	$	3.88		$	(0.05	)	$	2.67
Net income from discontinued operations per share	—			1.11			1.60
Net income per share	$	3.88		$	1.06		$	4.27
Diluted:
Net income (loss) from continuing operations per share	$	3.85		$	(0.05	)	$	2.66
Net income from discontinued operations per share	—			1.11			$	1.60
Net income per share	$	3.85		$	1.06		$	4.26

Cash dividends declared per share(1)	$	0.60		$	0.84		$	0.42


(1)	Weighted average shares outstanding used in the computation of basic and diluted earnings (loss) per share and cash dividends declared per share for the years ended December 31, 2016 and 2015 was adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017. See Note 1: "Organization" for additional information.

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)



	Year Ended December 31,
	2017			2016			2015
Net income	$	1,264		$	364		$	1,416
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $32, $19, and $(8)	161			(159		)	(134		)
Pension liability adjustment, net of tax of $(8), $(2), and $10	22			(57		)	(15		)
Cash flow hedge adjustment, net of tax of $(7), $2, and $4	13			(2		)	(7		)
Total other comprehensive income (loss)	196			(218		)	(156		)

Comprehensive income	1,460			146			1,260
Comprehensive income attributable to noncontrolling interests	(5		)	(15		)	(12		)
Comprehensive income attributable to Hilton stockholders	$	1,455		$	131		$	1,248

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)



	Year Ended December 31,
	2017			2016			2015
Operating Activities:
Net income	$	1,264		$	364		$	1,416
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	347			686			692
Gain on sales of assets, net	—			(9		)	(306		)
Loss (gain) on foreign currency transactions	(3		)	13			41
Loss on debt extinguishment	60			—			—
Share-based compensation	74			65			124
Amortization of deferred financing costs and other	15			32			38
Distributions from unconsolidated affiliates	1			22			26
Deferred income taxes	(727		)	(79		)	(479		)
Changes in operating assets and liabilities:
Accounts receivable, net	(210		)	(143		)	(47		)
Inventories	—			15			(39		)
Prepaid expenses	(15		)	—			(27		)
Income taxes receivable	(24		)	84			35
Other current assets	7			(2		)	32
Accounts payable, accrued expenses and other	51			232			90
Income taxes payable	(43		)	28			13
Change in timeshare financing receivables	—			(54		)	(49		)
Change in deferred revenues	55			(219		)	(212		)
Change in liability for guest loyalty program	29			154			64
Change in other liabilities	8			199			154
Other	35			(23		)	(120		)
Net cash provided by operating activities	924			1,365			1,446
Investing Activities:
Capital expenditures for property and equipment	(58		)	(317		)	(310		)
Acquisitions, net of cash acquired	—			—			(1,402		)
Proceeds from asset dispositions	—			11			2,205
Contract acquisition costs	(75		)	(55		)	(37		)
Capitalized software costs	(75		)	(81		)	(62		)
Other	(14		)	(36		)	20
Net cash provided by (used in) investing activities	(222		)	(478		)	414
Financing Activities:
Borrowings	1,824			4,715			48
Repayment of debt	(1,860		)	(4,359		)	(1,624		)
Debt issuance costs and redemption premium	(69		)	(76		)	—
Dividends paid	(195		)	(277		)	(138		)
Cash transferred in spin-offs of Park and HGV	(501		)	—			—
Repurchases of common stock	(891		)	—			—
Distributions to noncontrolling interests	(1		)	(32		)	(8		)
Tax withholdings on share-based compensation	(31		)	(15		)	(31		)
Net cash used in financing activities	(1,724		)	(44		)	(1,753		)

Effect of exchange rate changes on cash, restricted cash and cash equivalents	8			(15		)	(19		)
Net increase (decrease) in cash, restricted cash and cash equivalents	(1,014		)	828			88
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	1,183			633			628
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	501			223			140
Cash, restricted cash and cash equivalents, beginning of period	1,684			856			768
Cash, restricted cash and cash equivalents from continuing operations, end of period	670			1,183			633
Cash, restricted cash and cash equivalents from discontinued operations, end of period	—			501			223
Cash, restricted cash and cash equivalents, end of period	$	670		$	1,684		$	856

See notes to consolidated financial statements. For supplemental disclosures, see Note 22: "Supplemental Disclosures of Cash Flow Information."

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions)



	Equity Attributable to Hilton Stockholders
								Additional Paid-in Capital					Accumulated Other Comprehensive Loss
	Common Stock				Treasury Stock				Accumulated Deficit			Noncontrolling Interests			Total
	Shares		Amount
Balance as of December 31, 2014(1)	328		$	3	$	—		$	10,035	$	(4,658	)	$	(628	)	$	(38	)	$	4,714
Share-based compensation	1		—		—			115		—			—			—			115
Net income	—		—		—			—		1,404			—			12			1,416
Other comprehensive loss, net of tax:
Currency translation adjustment	—		—		—			—		—			(134		)	—			(134		)
Pension liability adjustment	—		—		—			—		—			(15		)	—			(15		)
Cash flow hedge adjustment	—		—		—			—		—			(7		)	—			(7		)
Other comprehensive loss	—		—		—			—		—			(156		)	—			(156		)
Dividends	—		—		—			—		(138		)	—			—			(138		)
Excess tax benefits on equity awards	—		—		—			8		—			—			—			8
Distributions	—		—		—			—		—			—			(8		)	(8		)
Balance as of December 31, 2015(1)	329		3		—			10,158		(3,392		)	(784		)	(34		)	5,951
Share-based compensation	—		—		—			62		—			—			—			62
Net income	—		—		—			—		348			—			16			364
Other comprehensive loss, net of tax:
Currency translation adjustment	—		—		—			—		—			(158		)	(1		)	(159		)
Pension liability adjustment	—		—		—			—		—			(57		)	—			(57		)
Cash flow hedge adjustment	—		—		—			—		—			(2		)	—			(2		)
Other comprehensive loss	—		—		—			—		—			(217		)	(1		)	(218		)
Dividends	—		—		—			—		(279		)	—			—			(279		)
Cumulative effect of the adoption of ASU 2015-02	—		—		—			—		—			—			5			5
Deconsolidation of a variable interest entity	—		—		—			—		—			—			(4		)	(4		)
Distributions	—		—		—			—		—			—			(32		)	(32		)
Balance as of December 31, 2016(1)	329		3		—			10,220		(3,323		)	(1,001		)	(50		)	5,849
Share-based compensation	2		—		—			77		—			—			—			77
Repurchases of common stock	(14	)	—		(891		)	—		—			—			—			(891		)
Net income	—		—		—			—		1,259			—			5			1,264
Other comprehensive income, net of tax:
Currency translation adjustment	—		—		—			—		—			161			—			161
Pension liability adjustment	—		—		—			—		—			22			—			22
Cash flow hedge adjustment	—		—		—			—		—			13			—			13
Other comprehensive income	—		—		—			—		—			196			—			196
Dividends	—		—		—			—		(196		)	—			—			(196		)
Spin-offs of Park and HGV	—		—		—			—		(4,335		)	63			49			(4,223		)
Cumulative effect of the adoption of ASU 2016-09	—		—		—			1		(1		)	—			—			—
Distributions	—		—		—			—		—			—			(1		)	(1		)
Balance as of December 31, 2017	317		$	3	$	(891	)	$	10,298	$	(6,596	)	$	(742	)	$	3		$	2,075


(1)	Common stock and additional paid-in capital were adjusted to reflect the 1-for-3 reverse stock split that occurred on January 3, 2017. See Note 1: "Organization" for additional information.

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization

Organization

Hilton Worldwide Holdings Inc. (the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the

"Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts, including timeshare properties. As of December 31, 2017, we managed, franchised, owned or leased 5,236 hotel and resort properties, totaling 848,014 rooms in 105 countries and territories.

In March 2017, HNA Tourism Group Co., Ltd and certain affiliates (together, "HNA") acquired 82.5 million shares of Hilton common stock from affiliates of The Blackstone Group L.P. ("Blackstone"). As of December 31, 2017, HNA and Blackstone beneficially owned approximately 26.0 percent and 5.4 percent of our common stock, respectively.

Spin-offs

On January 3, 2017, we completed the spin-offs of a portfolio of hotels and resorts, as well as our timeshare business, into two independent, publicly traded companies: Park Hotels & Resorts Inc. ("Park") and Hilton Grand Vacations Inc. ("HGV"), respectively, (the "spin-offs"). See Note 3: "Discontinued Operations" for additional information.

Reverse Stock Split

On January 3, 2017, we completed a 1-for-3 reverse stock split of Hilton's outstanding common stock (the "Reverse Stock Split"). The authorized number of shares of common stock was reduced from 30,000,000,000 to 10,000,000,000, par value remained $0.01 per share and the authorized number of shares of preferred stock remained 3,000,000,000. Stockholders entitled to fractional shares as a result of the Reverse Stock Split received a cash payment in lieu of receiving fractional shares. All share and share-related information presented for periods prior to the Reverse Stock Split have been retrospectively adjusted to reflect the decreased number of shares resulting from the Reverse Stock Split. The retrospective adjustments resulted in the reclassification of $7 million from common stock to additional paid-in capital in the consolidated balance sheets and consolidated statements of stockholders’ equity for periods prior to the date of the Reverse Stock Split, as the par value was unchanged, but the number of outstanding shares was reduced.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements present the consolidated financial position and the results of operations of Hilton as of and for the years ended December 31, 2017, 2016 and 2015 giving effect to the spin-offs, with the combined historical financial results of Park and HGV reflected as discontinued operations. Unless otherwise indicated, the information in the notes to the consolidated financial statements refer only to Hilton's continuing operations and do not include discussion of balances or activity of Park or HGV.

Principles of Consolidation

The consolidated financial statements include the accounts of Hilton, our wholly owned subsidiaries and entities in which we have a controlling financial interest, including variable interest entities ("VIEs") where we are the primary beneficiary. Entities in which we have a controlling financial interest generally comprise majority owned real estate ownership and management enterprises.

The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other ownership interests. If the entity is considered to be a VIE, we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest.

All material intercompany transactions and balances have been eliminated in consolidation. References in these financial statements to net income (loss) attributable to Hilton stockholders and Hilton stockholders' equity (deficit) do not include noncontrolling interests, which represent the outside ownership interests of our consolidated, non-wholly owned entities and are reported separately.

Reclassifications

Certain amounts in previously issued financial statements have been reclassified to conform to the presentation following the spin-offs, which includes the reclassification of the combined financial position and results of operations of Park and HGV as discontinued operations as of December 31, 2016 and for the years ended December 31, 2016 and 2015. Additionally, certain line items in the consolidated statements of operations have been revised to reflect the operating structure of Hilton subsequent to the spin-offs. The primary changes to the consolidated statements of operations are the disaggregation of management and franchise fee revenues and the combination of certain line items that were individually immaterial.

Use of Estimates

The preparation of financial statements in conformity with United States of America ("U.S.") generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.

Summary of Significant Accounting Policies

Revenue Recognition

Revenues are primarily derived from the following sources and are generally recognized as services are rendered and when collectibility is reasonably assured. Amounts received in advance of revenue recognition are deferred as liabilities.


•	Franchise fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with a hotel owner. We charge a monthly franchise royalty fee, generally based on a percentage of the hotel's gross room revenue, and, for our full service brands, a percentage of gross food and beverage revenues and other revenues, as applicable. Additionally, we receive one-time upfront fees upon execution of certain franchise contracts, that consist of application, initiation and other fees for new hotels entering the system, when there is a change in ownership or a contract is extended. We also earn license fees from a license agreement with HGV and co-brand credit card arrangements for the use of certain Hilton marks and intellectual property. We recognize franchise fee revenue as the fees are earned, which is when all material services or conditions have been performed or satisfied by us.

•

Franchise fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with a hotel owner. We charge a monthly franchise royalty fee, generally based on a percentage of the hotel's gross room revenue, and, for our full service brands, a percentage of gross food and beverage revenues and other revenues, as applicable. Additionally, we receive one-time upfront fees upon execution of certain franchise contracts, that consist of application, initiation and other fees for new hotels entering the system, when there is a change in ownership or a contract is extended. We also earn license fees from a license agreement with HGV and co-brand credit card arrangements for the use of certain Hilton marks and intellectual property. We recognize franchise fee revenue as the fees are earned, which is when all material services or conditions have been performed or satisfied by us.


•	Base and other management fees and incentive management fees represent fees earned from hotels that we manage, usually under long-term contracts with the property owner. Management fees usually include a base fee, which is generally a percentage of the hotel's gross revenue, and an incentive fee, which is typically based on a fixed or variable percentage of hotel operating profits and in some cases may be subject to a stated return threshold to the owner, normally measured over a one-calendar year period. We recognize base fees as revenue when earned in accordance with the terms of the management agreement. For incentive fees, we recognize those amounts that would be due if the contract was terminated at the financial statement date.

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Base and other management fees and incentive management fees represent fees earned from hotels that we manage, usually under long-term contracts with the property owner. Management fees usually include a base fee, which is generally a percentage of the hotel's gross revenue, and an incentive fee, which is typically based on a fixed or variable percentage of hotel operating profits and in some cases may be subject to a stated return threshold to the owner, normally measured over a one-calendar year period. We recognize base fees as revenue when earned in accordance with the terms of the management agreement. For incentive fees, we recognize those amounts that would be due if the contract was terminated at the financial statement date.


•	Owned and leased hotel revenues primarily consist of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking) related to owned, leased and consolidated properties owned or leased by non-wholly owned entities. Revenues are recognized when rooms are occupied or goods and services have been delivered or rendered, respectively.

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Owned and leased hotel revenues primarily consist of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking) related to owned, leased and consolidated properties owned or leased by non-wholly owned entities. Revenues are recognized when rooms are occupied or goods and services have been delivered or rendered, respectively.


•	Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels, including purchasing operations, and other operating income. Purchasing revenues include any amounts received for vendor rebate arrangements that we participate in as a manager of hotel properties.


•	Other revenues from managed and franchised properties represent contractual reimbursements to us by property owners for the payroll and related costs for properties that we manage where the property employees are legally our responsibility, as well as certain other operating costs of the managed and franchised properties’ operations, marketing expenses and other expenses associated with our brands and shared services that are paid from fees collected in advance from these properties when the costs are incurred. The corresponding expenses are presented as other

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Other revenues from managed and franchised properties represent contractual reimbursements to us by property owners for the payroll and related costs for properties that we manage where the property employees are legally our responsibility, as well as certain other operating costs of the managed and franchised properties’ operations, marketing expenses and other expenses associated with our brands and shared services that are paid from fees collected in advance from these properties when the costs are incurred. The corresponding expenses are presented as other

expenses from managed and franchised properties in our consolidated statements of operations, resulting in no effect on operating income (loss) or net income (loss).

We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

Discontinued Operations

In determining whether a group of assets that is disposed (or to be disposed) should be presented as a discontinued operation, we analyze whether the group of assets being disposed represents a component of the Company; that is, whether it had historic operations and cash flows that were clearly distinguished, both operationally and for financial reporting purposes. In addition, we consider whether the disposal represents a strategic shift that has or will have a major effect on our operations and financial results. The results of discontinued operations, as well as any gain or loss on the disposal, if applicable, are aggregated and separately presented in our consolidated statements of operations, net of income taxes. The historical financial position of discontinued operations are aggregated and separately presented in our consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents include cash balances established as security for certain guarantees, ground rent and property tax escrows, insurance and furniture, fixtures and equipment replacement reserves required under certain lease agreements.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided on accounts receivable when losses are probable based on historical collection activity and current business conditions.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below the carrying amount.

In connection with the October 24, 2007 transaction whereby we became a wholly owned subsidiary of an affiliate of Blackstone (the "Merger"), we recorded goodwill representing the excess purchase price over the fair value of the other identified assets and liabilities. We evaluate goodwill for potential impairment by comparing the carrying value of our reporting units to their fair value. Our reporting units are the same as our operating segments as described in Note 19: "Business Segments." We perform this evaluation annually or at an interim date if indicators of impairment exist. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we perform a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit with its carrying value, including goodwill. The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired; otherwise, an impairment loss is recognized within our consolidated statements of operations in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Brands

We own, lease, manage and franchise hotels under our portfolio of brands. There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these brands and, accordingly, the useful lives of these brands are considered to be indefinite. As of December 31, 2017, our brand portfolio included Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Curio - A Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton, Embassy Suites by Hilton, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton, Home2 Suites by Hilton and our timeshare brand, Hilton Grand Vacations.

At the time of the Merger, our brands were assigned a fair value based on a common valuation technique known as the relief from royalty approach. Canopy by Hilton, Curio - A Collection by Hilton, Tapestry Collection by Hilton, Tru by Hilton, and Home2 Suites by Hilton were launched post-Merger and, as such, they were not assigned fair values and we do not have any intangible assets for these brands recorded in our consolidated balances sheets. We evaluate our brands for impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of the brand is below the carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we perform a quantitative analysis. If a brand’s estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recognized in our consolidated statements of operations within impairment loss.

Intangible Assets with Finite Useful Lives

We have certain finite lived intangible assets that were initially recorded at their fair value at the time of the Merger. These intangible assets consist of management contracts, franchise contracts, leases, certain proprietary technologies and our guest loyalty program, Hilton Honors. Additionally, we capitalize direct and incremental management and franchise contract acquisition costs, including development commissions, as finite lived intangible assets. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which are generally as follows: management contracts recorded at the Merger (13 to 16 years), management contract acquisition costs (20 to 30 years), franchise contracts recorded at the Merger (12 to 13 years), franchise contract acquisition costs (10 to 20 years), leases (12 to 35 years), Hilton Honors (16 years) and capitalized software development costs (3 years).

We capitalize costs incurred to develop internal-use computer software and costs to acquire software licenses. Internal and external costs incurred in connection with development of upgrades or enhancements that result in additional information technology functionality are also capitalized. These capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. These capitalized costs are recorded in other intangible assets in our consolidated balance sheets.

We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.

Property and Equipment

Property and equipment are recorded at cost. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.

Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements (8 to 40 years), furniture and equipment (3 to 8 years) and computer equipment (3 to 5 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term.

We evaluate the carrying value of our property and equipment if there are indicators of potential impairment. We perform an analysis to determine the recoverability of the asset group carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset group. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset group, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations within impairment loss. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset group using discount and capitalization rates deemed reasonable for the type of assets, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred, which is generally upon acquisition, construction or development or through the normal operation of the asset.

Hilton Honors

Hilton Honors is a guest loyalty and marketing program provided to hotels and resort properties. Nearly all of our owned, leased, managed and franchised hotels and resort properties participate in the Hilton Honors program. Hilton Honors members earn points based on their spending at our participating properties and through participation in affiliated partner programs. When points are earned by Hilton Honors members, the property or affiliated partner pays Hilton Honors based on an estimated cost per point for the estimated cost of award redemptions, as well as the costs of operating the program, which include marketing, promotion, communication and administrative expenses. Hilton Honors member points are accumulated and may be redeemed for the right to stay at participating properties, as well as for other goods and services from third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining.

We record a liability for the payments received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of "breakage" (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of reimbursing hotels and other third parties in respect to other redemption opportunities available to members. Revenue is recognized by participating hotels and resorts only when points that have been redeemed for hotel stay certificates are used by members or their designees at the respective properties. Additionally, when members of the Hilton Honors loyalty program redeem award certificates at our owned and leased hotels, we recognize owned and leased hotel revenues in our consolidated statements of operations.

Fair Value Measurements - Valuation Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (i.e., an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the data market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:


•	Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 - Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.


•	Level 3 - Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

Derivative Instruments

We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. We regularly monitor the financial stability and credit standing of the counterparties to our derivative instruments. We do not enter into derivative financial instruments for trading or speculative purposes.

We record all derivatives at fair value. On the date the derivative contract is entered into, we may designate the derivative as one of the following: a hedge of a forecasted transaction or the variability of cash flows to be paid ("cash flow hedge"), a hedge of the fair value of a recognized asset or liability ("fair value hedge") or a hedge of our investment in a foreign operation

("net investment hedge"). Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income (loss) until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. If we do not specifically designate a derivative as one of the above, changes in the fair value of the undesignated derivative instrument are reported in current period earnings. Likewise, the ineffective portion of designated derivative instruments is reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows, while cash flows from undesignated derivative financial instruments are included as an investing activity.

If we determine that we qualify for and will designate a derivative as a hedging instrument, at the designation date we formally document all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions, linking all derivatives designated as fair value hedges to specific assets and liabilities in the consolidated balance sheets and determining the foreign currency exposure of the net investment of the foreign operation for a net investment hedge.

On a quarterly basis, we assess the effectiveness of our designated hedges in offsetting the variability in the cash flows or fair values of the hedged assets or obligations using the Hypothetical Derivative Method. This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions. Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument. We discontinue hedge accounting prospectively, when the derivative is no longer highly effective as a hedge, the underlying hedged transaction is no longer probable or the hedging instrument expires, is sold, terminated or exercised.

Currency Translation

The United States dollar ("USD") is our reporting currency and is the functional currency of our consolidated and unconsolidated entities operating in the U.S. The functional currency for our consolidated and unconsolidated entities operating outside of the U.S. is the currency of the primary economic environment in which the respective entity operates. Assets and liabilities measured in foreign currencies are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income (loss) in our consolidated balance sheets. Income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to transactions denominated in a currency other than an entity's functional currency or intercompany receivables and payables denominated in a currency other than an entity’s functional currency that are not of a long-term investment nature are recognized as gain (loss) on foreign currency transactions in our consolidated statements of operations. Where certain specific evidence indicates intercompany receivables and payables will not be settled in the foreseeable future and are of a long-term nature, gains and losses from foreign exchange rate changes are recognized as other comprehensive income (loss) in our consolidated statements of comprehensive income (loss).

Insurance

We are self-insured for losses up to our third-party insurance deductibles for general liability, auto liability and workers' compensation at our owned, leased and managed properties that participate in our programs. We purchase insurance coverage for claim amounts that exceed our deductible obligations. In addition, through our captive insurance subsidiary, we participate in reinsurance arrangements that provide coverage for a certain portion of our deductibles and/or acts as a financial intermediary for claim payments on our self-insurance program, along with property and casualty insurance for certain international hotels that are reinsured by other third parties. These obligations and reinsurance arrangements can cause timing differences in the recognition of assets, liabilities, gains and losses between reporting periods, although these amounts ultimately offset when the related claims are settled. Our insurance reserves are accrued based on our deductibles related to the estimated ultimate cost of claims that occurred during the covered period, which includes claims incurred but not reported, for which we will be responsible. These estimates are prepared with the assistance of outside actuaries and consultants. The ultimate cost of claims for a covered period may differ from our original estimates.

Share-based Compensation

As part of our 2013 and 2017 Omnibus Incentive Plans, we award time-vesting restricted stock units and restricted stock ("RSUs"), nonqualified stock options ("options") and performance-vesting restricted stock units and restricted stock (collectively, "performance shares") to our eligible employees and deferred share units ("DSUs") to members of our board of directors.


•	RSUs generally vest in equal annual installments over two or three years from the date of grant. Vested RSUs generally will be settled for the Company's common stock, with the exception of certain awards that will be settled in cash. The grant date fair value is equal to the closing stock price on the grant date.


•	Options vest over three years in equal annual installments from the grant date and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances. The exercise price is equal to the closing price of the Company’s common stock on the date of grant. The grant date fair value is estimated using the Black-Scholes-Merton option-pricing model.

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Options vest over three years in equal annual installments from the grant date and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances. The exercise price is equal to the closing price of the Company’s common stock on the date of grant. The grant date fair value is estimated using the Black-Scholes-Merton option-pricing model.


•	Performance shares are settled at the end of a three-year performance period with 50 percent of the shares subject to achievement based on a measure of the Company’s Adjusted earnings before interest expense, a provision for income taxes and depreciation and amortization ("EBITDA") compound annual growth rate ("CAGR") ("EBITDA CAGR") and the other 50 percent of the shares subject to achievement based on the Company’s free cash flow ("FCF") per share CAGR ("FCF CAGR"). The total number of performance shares that vest related to each performance measure is based on an achievement factor that, in both cases, ranges from a zero to a 200 percent payout. The grant date fair value for these awards is equal to the closing stock price on the grant date.

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Performance shares are settled at the end of a three-year performance period with 50 percent of the shares subject to achievement based on a measure of the Company’s Adjusted earnings before interest expense, a provision for income taxes and depreciation and amortization ("EBITDA") compound annual growth rate ("CAGR") ("EBITDA CAGR") and the other 50 percent of the shares subject to achievement based on the Company’s free cash flow ("FCF") per share CAGR ("FCF CAGR"). The total number of performance shares that vest related to each performance measure is based on an achievement factor that, in both cases, ranges from a zero to a 200 percent payout. The grant date fair value for these awards is equal to the closing stock price on the grant date.


•	DSUs are issued to our independent directors and are fully vested and non-forfeitable on the grant date. DSUs are settled for shares of the Company's common stock, which are deliverable upon the earlier of termination of the individual's service on our board of directors or a change in control. The grant date fair value is equal to the closing stock price on the grant date.

We recognize these share-based payment transactions when services from the employees are received and recognize either a corresponding increase in additional paid-in capital or accounts payable, accrued expenses and other in our consolidated balance sheets, depending on whether the instruments granted satisfy the equity or liability classification criteria. The measurement objective for these equity awards is the estimated fair value at the grant date of the equity instruments that we are obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. The compensation expense for an award classified as an equity instrument is recognized ratably over the requisite service period. The requisite service period is the period during which an employee is required to provide service in exchange for an award. Liability awards are measured based on the award’s fair value and the fair value is remeasured at each reporting date until the date of settlement. Compensation expense for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period. Compensation expense for awards with performance conditions is recognized over the requisite service period if it is probable that the performance condition will be satisfied. If such performance conditions are not considered probable until they occur, no compensation expense for these awards is recognized.

Income Taxes

We account for income taxes using the asset and liability method. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts and tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the respective temporary differences or operating loss or tax credit carryforwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carryforwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.

On December 22, 2017, H.R.1, known as the Tax Cuts and Jobs Act of 2017 (the "TCJ Act") was signed into law and includes widespread changes to the Internal Revenue Code including, among other items, a reduction to the federal corporate tax rate to 21 percent, a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred and the

creation of new taxes on certain foreign earnings. As of December 31, 2017, we had not completed our accounting for the tax effects of enactment of the TCJ Act; however, where possible, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we were not able to make a reasonable estimate and continued to account for those items based on the provisions of the tax laws that were in effect immediately prior to enactment. We will update our estimates and finalize our measurement of the result of the TCJ Act over a one-year measurement period, to be completed in or before December 2018.

We use a prescribed recognition threshold for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is "more-likely-than-not" that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04 ("ASU 2017-04"), Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill by removing Step 2 from the goodwill impairment test. We elected, as permitted by the standard, to early adopt ASU 2017-04 on a prospective basis as of January 1, 2017. The adoption did not have a material effect on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09 ("ASU 2016-09"), Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as to clarify the classification in the statement of cash flows. We adopted ASU 2016-09 as of January 1, 2017. One of the provisions of this ASU requires entities to make an accounting policy election with respect to forfeitures of share-based payment awards, and we elected to account for forfeitures as they occur and adopted this provision of ASU 2016-09 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of January 1, 2017 of approximately $1 million. Additionally, we have applied the provisions of this ASU on a retrospective basis in our consolidated statements of cash flows, which includes presenting: (i) excess tax benefits as an operating activity, which were previously presented as a financing activity; and (ii) cash payments to tax authorities for employee taxes when shares are withheld to meet statutory withholding requirements as a financing activity, which were previously presented as an operating activity.

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. We intend to adopt the standard on January 1, 2019 and apply the package of practical expedients available to us upon adoption. We are continuing to evaluate the effect that this ASU will have on our consolidated financial statements, but we expect this ASU to have a material effect on our consolidated balance sheet.

In May 2014, the FASB issued ASU No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Subsequent to ASU 2014-09, the FASB issued several related ASUs to clarify the application of the new revenue recognition standard, collectively referred to herein as ASU 2014-09. ASU 2014-09 permits two transition approaches: full retrospective and modified retrospective. We will adopt ASU 2014-09 on January 1, 2018 using the full retrospective approach. In preparation for adoption, we have implemented internal controls and key system functionality to enable the preparation of the necessary financial information and have reached conclusions on key accounting assessments.

The primary anticipated effects of the provisions of ASU 2014-09 on revenues for the year ended December 31, 2017 are as follows:


•	Application, initiation and other fees, charged when (i) new hotels enter our system; (ii) there is a change of ownership; or (iii) contracts are extended, will be recognized over the term of the franchise contract, rather than upon execution of the contract. This change is expected to reduce franchise fees by $56 million.


•	Certain contract acquisition costs related to our management and franchise contracts will be recognized over the term of the contracts as a reduction to revenue, instead of as amortization expense. This change is expected to reduce franchise fees and base and other management fees by $5 million and $9 million, respectively, which will accordingly reduce depreciation and amortization by $14 million, with no effect on the Company's net income (loss).

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Certain contract acquisition costs related to our management and franchise contracts will be recognized over the term of the contracts as a reduction to revenue, instead of as amortization expense. This change is expected to reduce franchise fees and base and other management fees by $5 million and $9 million, respectively, which will accordingly reduce depreciation and amortization by $14 million, with no effect on the Company's net income (loss).


•	Incentive management fees will be recognized to the extent that it is probable that a significant reversal will not occur as a result of future hotel profits or cash flows, as opposed to recognizing amounts that would be due if the management contract was terminated at the end of the reporting period. This change will not affect the Company's net income (loss) for any full year period.


•	Revenue related to our Hilton Honors guest loyalty program will be recognized upon point redemption, net of any reward reimbursement paid to a third party, as opposed to recognized on a gross basis at the time points are issued in conjunction with the accrual of the expected future cost of the reward reimbursement. Additionally, since we are also the sponsor of the loyalty program, points issued at owned and leased hotels will be accounted for as a reduction of revenue from owned and leased hotels, as opposed to expenses of owned and leased hotels. These changes are expected to reduce total revenues by $1,009 million, with a corresponding reduction to total expenses of $818 million, primarily reducing other revenues and expenses from managed and franchised properties and an expected offsetting reduction of revenues and expenses from owned and leased hotels of $18 million.

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Revenue related to our Hilton Honors guest loyalty program will be recognized upon point redemption, net of any reward reimbursement paid to a third party, as opposed to recognized on a gross basis at the time points are issued in conjunction with the accrual of the expected future cost of the reward reimbursement. Additionally, since we are also the sponsor of the loyalty program, points issued at owned and leased hotels will be accounted for as a reduction of revenue from owned and leased hotels, as opposed to expenses of owned and leased hotels. These changes are expected to reduce total revenues by $1,009 million, with a corresponding reduction to total expenses of $818 million, primarily reducing other revenues and expenses from managed and franchised properties and an expected offsetting reduction of revenues and expenses from owned and leased hotels of $18 million.


•	Reimbursable fees related to our management and franchise contracts will be recognized as they are billed, as opposed to when we incur the related expenses. This change is expected to increase other revenues from managed and franchised properties by $73 million, but could increase or reduce these revenues in other periods.

Revenue recognition related to our accounting for ongoing royalty and management fee revenues, direct reimbursable fees from our management and franchise contracts and hotel guest transactions at our owned and leased hotels will otherwise remain substantially unchanged.

Note 3: Discontinued Operations

On January 3, 2017, we completed the spin-offs of Park and HGV via a pro rata distribution to each of Hilton's stockholders of record, as of close of business on December 15, 2016, of 100 percent of the outstanding common stock of each of Park and HGV (the "Distribution"). Each Hilton stockholder received one share of Park common stock for every five shares of Hilton common stock and one share of HGV common stock for every ten shares of Hilton common stock. Following the spin-offs, Hilton did not retain any ownership interest in Park or HGV. Both Park and HGV have their common stock listed on the New York Stock Exchange under the symbols "PK" and "HGV," respectively.

In connection with the spin-offs, on January 2, 2017, Hilton entered into several agreements with Park and HGV that govern Hilton’s relationship with them following the Distribution, including: (i) a Distribution Agreement; (ii) an Employee Matters Agreement; (iii) a Tax Matters Agreement; (iv) a Transition Services Agreement ("TSA"); (v) a License Agreement with HGV; (vi) a Tax Stockholders Agreement; and (vii) management and franchise contracts with Park.

Under the TSA with Park and HGV, Hilton or one of its affiliates provides Park and HGV certain services for a period of up to two years from the date of the TSA to facilitate an orderly transition following the Distribution. The services that Hilton agreed to provide under the TSA include: finance; information technology; human resources and compensation; facilities; legal and compliance; and other services. The entity providing the services is compensated for any such services at agreed amounts as set forth in the TSA.

The License Agreement with HGV granted HGV the exclusive right, for an initial term of 100 years, to use certain Hilton marks and intellectual property in its timeshare business, subject to the terms and conditions of the agreement. HGV pays a royalty fee of five percent of gross revenues, as defined in the agreement, to Hilton quarterly in arrears, as well as specified additional fees and reimbursements. Additionally, during the term of the License Agreement, HGV will participate in Hilton’s guest loyalty program, Hilton Honors.

Under the management and franchise contracts with Park, Park pays agreed upon fees for various services that Hilton provides to support the operations of their hotels, as well as royalty fees for the licensing of Hilton's hotel brands. The terms of the management contracts generally include a base management fee, calculated as three percent of gross hotel revenues or receipts, and an incentive management fee, calculated as six percent of a specified measure of hotel earnings as determined in accordance with the applicable management contract. Additionally, payroll and related costs, certain other operating costs, marketing expenses and other expenses associated with Hilton's brands and shared services are directly reimbursed to Hilton by Park pursuant to the terms of the management and franchise contracts.

Financial Information

During the year ended December 31, 2017, we recognized $157 million of management and franchise fees and $1,197 million of other revenues from managed and franchised properties under our management and franchise contracts with Park. We also recognized $87 million of franchise fees under our License Agreement with HGV.

Prior to the spin-offs, the results of Park were reported in our ownership segment and the results of HGV were reported in our timeshare segment. Following the spin-offs, we do not report a timeshare segment, as we no longer have timeshare operations.

The following table presents the assets and liabilities of Park and HGV that were included in discontinued operations in our consolidated balance sheet:



	December 31,
2016
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	341
Restricted cash and cash equivalents	160
Accounts receivable, net	250
Prepaid expenses	48
Inventories	527
Current portion of financing receivables, net	136
Other	16
Total current assets of discontinued operations (variable interest entities - $92)	1,478
Intangibles and Other Assets:
Goodwill	604
Management and franchise contracts, net	56
Other intangible assets, net	60
Property and equipment, net	8,589
Deferred income tax assets	35
Financing receivables, net	895
Investments in affiliates	81
Other	27
Total intangibles and other assets of discontinued operations (variable interest entities - $405)	10,347
TOTAL ASSETS OF DISCONTINUED OPERATIONS	$	11,825
LIABILITIES
Current Liabilities:
Accounts payable, accrued expenses and other	$	632
Current maturities of long-term debt	65
Current maturities of timeshare debt	73
Income taxes payable	4
Total current liabilities of discontinued operations (variable interest entities - $81)	774
Long-term debt	3,437
Timeshare debt	621
Deferred revenues	22
Deferred income tax liabilities	2,797
Other	17
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS (variable interest entities - $506)	$	7,668

The following table presents the results of operations of Park and HGV that were included in discontinued operations in our consolidated statements of operations:



	Year Ended December 31,
	2016			2015
	(in millions)
Total revenues from discontinued operations	$	4,281		$	4,139

Expenses
Owned and leased hotels	1,805			1,754
Timeshare	948			897
Depreciation and amortization	322			307
Other	298			153
Total expenses from discontinued operations	3,373			3,111

Gain on sales of assets, net	1			143

Operating income from discontinued operations	909			1,171

Non-operating loss, net	(210		)	(208		)

Income from discontinued operations before income taxes	699			963

Income tax expense	(327		)	(428		)

Income from discontinued operations, net of taxes	372			535
Income from discontinued operations attributable to noncontrolling interests, net of taxes	(6		)	(7		)
Income from discontinued operations attributable to Hilton stockholders, net of taxes	$	366		$	528

The following table presents selected financial information of Park and HGV that was included in our consolidated statements of cash flows:



	Year Ended December 31,
	2016			2015
	(in millions)
Non-cash items included in net income:
Depreciation and amortization	$	322		$	307
Gain on sales of assets, net	(1		)	(143		)

Investing activities:
Capital expenditures for property and equipment	$	(255	)	$	(243	)
Acquisitions, net of cash acquired	—			(1,402		)
Proceeds from asset dispositions	—			1,866

Note 4: Disposals

Hilton Sydney

In July 2015, we completed the sale of the Hilton Sydney for a purchase price of 442 million Australian dollars (equivalent to $340 million as of the closing date of the sale). As a result of the sale, we recognized a pre-tax gain of $163 million included in gain on sales of assets, net in our consolidated statement of operations for the year ended December 31, 2015. The pre-tax gain was net of transaction costs, a goodwill reduction of $36 million and a reclassification of a currency translation adjustment of $25 million from accumulated other comprehensive loss into earnings concurrent with the disposition. The goodwill reduction was due to our consideration of the Hilton Sydney property as a business within our ownership segment; therefore, we reduced the carrying value of our goodwill by the amount representing the fair value of the business disposed relative to the fair value of the portion of our ownership reporting unit goodwill that was retained.

Note 5: Consolidated Variable Interest Entities

As of December 31, 2017 and 2016, we consolidated three VIEs: two entities that lease hotel properties and one management company. We are the primary beneficiaries of these consolidated VIEs as we have the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our consolidated VIEs are only available to settle the obligations of the respective entities. Our consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised the following:



	December 31,
	2017		2016
	(in millions)
Cash and cash equivalents	$	73	$	57
Accounts receivable, net	16		14
Property and equipment, net	57		52
Deferred income tax assets	56		58
Other non-current assets	57		53
Accounts payable, accrued expenses and other	43		33
Long-term debt(1)	212		212


(1)	Includes capital lease obligations of $191 million as of December 31, 2017 and 2016.

During the years ended December 31, 2017, 2016 and 2015 we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

In December 2016, one of our VIEs that we previously consolidated sold the hotel asset that it owned. As a result of the sale, we deconsolidated the VIE, as we no longer had the power to direct the activities that most significantly affected its performance. Our retained interest in the entity was accounted for as an equity investment and was included in other non-current assets in our consolidated balance sheet as of December 31, 2016. In July 2017, we received a distribution in complete liquidation of our remaining interest in the entity.

In June 2015, one of our consolidated VIEs modified the terms of its capital lease, resulting in a reduction in long-term debt of $24 million. Since the capital lease asset was previously fully impaired, this amount was recognized as a gain in other non-operating income, net in our consolidated statement of operations during the year ended December 31, 2015.

Note 6: Goodwill and Intangible Assets

Goodwill

Our goodwill balances, by reporting unit, were as follows:



	Ownership(1)			Management and Franchise(2)			Total
	(in millions)
Balance as of December 31, 2015	$	193		$	5,087		$	5,280
Foreign currency translation	(9		)	(53		)	(62		)
Balance as of December 31, 2016	184			5,034			5,218
Spin-off of Park	(91		)	—			(91		)
Foreign currency translation	11			52			63
Balance as of December 31, 2017	$	104		$	5,086		$	5,190


(1)	The balances as of December 31, 2016 and 2015 exclude goodwill of $2,707 million and $2,710 million, respectively, and accumulated impairment losses of $2,103 million that were attributable to Park and included in non-current assets of discontinued operations in our consolidated balance sheets. Amounts for the ownership reporting unit include the following gross carrying values and accumulated impairment losses for the periods presented:

(1)

The balances as of December 31, 2016 and 2015 exclude goodwill of $2,707 million and $2,710 million, respectively, and accumulated impairment losses of $2,103 million that were attributable to Park and included in non-current assets of discontinued operations in our consolidated balance sheets. Amounts for the ownership reporting unit include the following gross carrying values and accumulated impairment losses for the periods presented:



	Gross Carrying Value			Accumulated Impairment Losses			Net Carrying Value
	(in millions)
Balance as of December 31, 2015	$	865		$	(672	)	$	193
Foreign currency translation	(9		)	—			(9		)
Balance as of December 31, 2016	856			(672		)	184
Spin-off of Park	(423		)	332			(91		)
Foreign currency translation	11			—			11
Balance as of December 31, 2017	$	444		$	(340	)	$	104


(2)	There were no accumulated impairment losses for the management and franchise reporting unit as of December 31, 2017, 2016 and 2015.

Intangible Assets

Changes to our brands intangible assets from December 31, 2016 to December 31, 2017 were due to foreign currency translations.

Amortizing intangible assets were as follows:



	December 31, 2017
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)	$	2,242	$	(1,715	)	$	527
Contract acquisition costs and other	457		(75		)	382
	$	2,699	$	(1,790	)	$	909

Other amortizing intangible assets:
Leases(1)	$	301	$	(153	)	$	148
Capitalized software	585		(428		)	157
Hilton Honors(1)	341		(217		)	124
Other	38		(34		)	4
	$	1,265	$	(832	)	$	433



	December 31, 2016
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)	$	2,221	$	(1,534	)	$	687
Contract acquisition costs and other	343		(67		)	276
	$	2,564	$	(1,601	)	$	963

Other amortizing intangible assets:
Leases(1)	$	276	$	(126	)	$	150
Capitalized software	510		(362		)	148
Hilton Honors(1)	335		(192		)	143
Other	37		(31		)	6
	$	1,158	$	(711	)	$	447


(1)	Represents intangible assets that were initially recorded at their fair value as part of the Merger.

Amortization expense on our amortizing intangible assets was $288 million, $312 million and $325 million for the years ended December 31, 2017, 2016 and 2015, respectively, including $67 million, $87 million and $87 million, respectively, of amortization expense on our capitalized software.

We estimated future amortization expense on our amortizing intangible assets as of December 31, 2017 to be as follows:



Year	(in millions)
2018	$	286
2019	274
2020	223
2021	87
2022	75
Thereafter	397
	$	1,342

Note 7: Property and Equipment

Property and equipment were as follows:



	December 31,
	2017			2016
	(in millions)
Land	$	12		$	12
Buildings and leasehold improvements	428			384
Furniture and equipment	346			357
Construction-in-progress	17			14
	803			767
Accumulated depreciation	(450		)	(426		)
	$	353		$	341

As of December 31, 2017 and 2016, property and equipment included approximately $90 million and $122 million, respectively, of capital lease assets primarily consisting of buildings and leasehold improvements, net of $90 million and $74 million, respectively, of accumulated depreciation.

Depreciation expense on property and equipment was $59 million, $52 million and $60 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Note 8: Accounts Payable, Accrued Expenses and Other

Accounts payable, accrued expenses and other were as follows:



	December 31,
	2017		2016
	(in millions)
Accrued employee compensation and benefits	$	502	$	438
Accounts payable	282		314
Liability for guest loyalty program, current	622		543
Insurance reserves, current	264		122
Other accrued expenses	480		404
	$	2,150	$	1,821

Other accrued expenses consist of deferred revenues, deposit liabilities related to hotel operations, taxes, rent, interest and other accrued balances.

Note 9: Debt

Long-term Debt

Long-term debt balances, including obligations for capital leases, and associated interest rates as of December 31, 2017 were as follows:



	December 31,
	2017			2016
	(in millions)
Senior notes due 2021	$	—		$	1,500
Senior notes with a rate of 4.250% due 2024	1,000			1,000
Senior notes with a rate of 4.625% due 2025	900			—
Senior notes with a rate of 4.875% due 2027	600			—
Senior secured term loan facility due 2020	—			750
Senior secured term loan facility with a rate of 3.55%, due 2023	3,929			3,209
Capital lease obligations with an average rate of 6.33%, due 2021 to 2030	233			227
Other debt with an average rate of 2.65%, due 2018 to 2026	21			20
	6,683			6,706
Less: unamortized deferred financing costs and discount	(81		)	(90		)
Less: current maturities of long-term debt(1)	(46		)	(33		)
	$	6,556		$	6,583


(1)	Net of unamortized deferred financing costs and discount attributable to current maturities of long-term debt.

Senior Notes

In March 2017, we issued $900 million aggregate principal amount of 4.625% Senior Notes due 2025 (the "2025 Senior Notes") and $600 million aggregate principal amount of 4.875% Senior Notes due 2027 (the "2027 Senior Notes"), and incurred $21 million of debt issuance costs. Interest on the 2025 Senior Notes and the 2027 Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning from October 2017. We used the net proceeds of the 2025 Senior Notes and the 2027 Senior Notes, along with available cash, to redeem in full our $1.5 billion 5.625% Senior Notes due 2021 (the "2021 Senior Notes"), plus accrued and unpaid interest. In connection with the repayment, we paid a redemption premium of $42 million and accelerated the recognition of $18 million of unamortized debt issuance costs, which were included in loss on debt extinguishment in our consolidated statement of operations for the year ended December 31, 2017.

In August 2016, Hilton issued $1.0 billion aggregate principal amount of 4.25% Senior Notes due 2024 (the "2024 Senior Notes") and incurred $20 million of debt issuance costs. Interest on the 2024 Senior Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning from March 2017.

The 2024 Senior Notes, 2025 Senior Notes and 2027 Senior Notes are guaranteed on a senior unsecured basis by Hilton and certain of its wholly owned subsidiaries. See Note 23: "Condensed Consolidating Guarantor Financial Information" for additional details.

Senior Secured Credit Facilities

Our senior secured credit facility consists of a $1.0 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loans"). The obligations of our senior secured credit facility are unconditionally and irrevocably guaranteed by Hilton and substantially all of our direct or indirect wholly owned domestic subsidiaries.

In November 2016, we amended the Revolving Credit Facility to extend the maturity to November 2021 and incurred $5 million of debt issuance costs. As of December 31, 2017, we had $41 million of letters of credit outstanding under our Revolving Credit Facility and a borrowing capacity of $959 million. We are required to pay a commitment fee of 0.125 percent per annum under the Revolving Credit Facility in respect of the unused commitments thereunder.

In August 2016, we amended the Term Loans pursuant to which $3,225 million of outstanding Term Loans were converted into a new tranche of Term Loans due October 2023 with an interest rate of LIBOR plus 250 basis points. In connection with this modification, we recognized an $8 million discount as a reduction to long-term debt in our consolidated balance sheet and $4 million of other debt issuance costs included in other non-operating income, net in our consolidated statement of operations for the year ended December 31, 2016.

In March 2017, we amended the Term Loans again pursuant to which the remaining $750 million of outstanding Term Loans due in 2020 were extended, aligning their maturity with the tranche of Term Loans due 2023. Additionally, concurrent with the extension, the entire balance of the Term Loans was repriced with an interest rate of LIBOR plus 200 basis points. In connection with the refinancing and modification of the Term Loans, we incurred $3 million of debt issuance costs, which were included in other non-operating income, net in our consolidated statement of operations for the year ended December 31, 2017.

Debt Maturities

The contractual maturities of our long-term debt as of December 31, 2017, were as follows:



Year	(in millions)
2018	$	54
2019	55
2020	57
2021	58
2022	58
Thereafter	6,401
	$	6,683

Note 10: Other Liabilities

Other long-term liabilities were as follows:



	December 31,
	2017		2016
	(in millions)
Program surplus	$	549	$	446
Pension obligations	165		215
Other long-term tax liabilities	397		480
Deferred employee compensation and benefits	117		113
Insurance reserves	162		131
Other	80		107
	$	1,470	$	1,492

Program surplus represents obligations to operate our marketing, sales and brand programs on behalf of our hotel owners. Our obligations related to the insurance claims are expected to be satisfied, on average, over the next three years.

Note 11: Derivative Instruments and Hedging Activities

Cash Flow Hedges

In May 2017, we began hedging foreign exchange-based cash flow variability in certain of our foreign currency denominated management and franchise fees using forward contracts (the "Fee Forward Contracts"), and elected to designate these Fee Forward Contracts as cash flow hedges for accounting purposes. As of December 31, 2017, the Fee Forward Contracts had an aggregate notional amount of $31 million and maturities of 24 months or less.

In March 2017, we entered into two interest rate swap agreements with notional amounts of $1.6 billion and $750 million, which swap one-month LIBOR on the Term Loans to fixed rates of 1.98 percent and 2.02 percent, respectively, and expire in March 2022. We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.

Non-designated Hedges

As of December 31, 2017, we held short-term forward contracts with an aggregate notional amount of $353 million to offset exposure to fluctuations in certain of our foreign currency denominated cash balances. We elected not to designate these forward contracts as hedging instruments. Depending on the fair value of each contract, we classify it as an asset or liability.

In August and September 2016, we dedesignated four interest rate swaps (the "2013 Interest Rate Swaps") that were previously designated as cash flow hedges as they no longer met the criteria for hedge accounting. These interest rate swaps, which had an aggregate notional amount of $1.45 billion and swapped three-month LIBOR on the Term Loans to a fixed rate of 1.87 percent, were settled in March 2017.

Fair Value of Derivative Instruments

We measure our derivative instruments at fair value, which is estimated using a discounted cash flow analysis, and we consider the inputs used to measure the fair value as Level 2 within the fair value hierarchy. The discounted cash flow analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves and spot and forward rates, as applicable, as well as option volatility. The fair values of our derivative instruments in our consolidated balance sheets were as follows:



		December 31,
	Balance Sheet Classification	2017		2016
		(in millions)
Cash Flow Hedges:
Interest rate swaps	Other non-current assets	$	11	N/A
Forward contracts	Accounts payable, accrued expenses and other	1		N/A

Non-designated Hedges:
Interest rate swaps	Other liabilities	N/A		$	12
Forward contracts	Other current assets	4		3
Forward contracts	Accounts payable, accrued expenses and other	1		4

Earnings Effect of Derivative Instruments

The gains and losses recognized in our consolidated statements of operations and consolidated statements of comprehensive income (loss) before any effect for income taxes were as follows:



		Year Ended December 31,
	Classification of Gain (Loss) Recognized	2017			2016			2015
		(in millions)
Cash Flow Hedges(1)(2):
Interest rate swaps	Other comprehensive income (loss)	$	11		$	(7	)	$	(11	)
Forward contracts	Other comprehensive income (loss)	(1		)	N/A			N/A

Non-designated Hedges:
Interest rate swaps	Other non-operating income, net	2			4			N/A
Interest rate swaps(3)	Interest expense	(10		)	(4		)	N/A
Forward contracts	Gain (loss) on foreign currency transactions	12			7			11


(1)	There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the years ended December 31, 2017, 2016 and 2015.


(2)	The earnings effect of the Fee Forward Contracts on fee revenues for the year ended December 31, 2017 was less than $1 million.


(3)	These amounts are related to the dedesignation of the 2013 Interest Rate Swaps as cash flow hedges and were reclassified from accumulated other comprehensive loss as the underlying transactions occurred.

Note 12: Fair Value Measurements

We did not elect the fair value measurement option for any of our financial assets or liabilities. The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below (see Note 11: "Derivative Instruments and Hedging Activities" for the fair value information of our derivatives and Note 15: "Employee Benefit Plans" for fair value information of our pension assets):



	December 31, 2017
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	284	$	—	$	284	$	—
Restricted cash equivalents	12		—		12		—
Liabilities:
Long-term debt(1)	6,348		2,575		—		3,954



	December 31, 2016
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	782	$	—	$	782	$	—
Restricted cash equivalents	11		—		11		—
Liabilities:
Long-term debt(1)	6,369		2,516		—		4,006


(1)	The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude capital lease obligations and other debt.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2017 and 2016. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.

Cash equivalents and restricted cash equivalents primarily consisted of short-term interest-bearing money market funds with maturities of less than 90 days and time deposits. The estimated fair values were based on available market pricing information of similar financial instruments.

The estimated fair values of our Level 1 long-term debt were based on prices in active debt markets. The estimated fair values of our Level 3 long-term debt were based on indicative quotes received for similar issuances.

Note 13: Leases

We lease hotel properties, land, equipment and corporate office space under operating and capital leases. As of December 31, 2017 and 2016, we leased 59 hotels and 61 hotels, respectively, under operating leases, and four hotels under capital leases. As of December 31, 2017 and 2016, two of these capital leases were liabilities of VIEs that we consolidated and were non-recourse to us. Our leases expire at various dates from 2018 through 2196, with varying renewal options, and the majority expire before 2026.

Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rent payments equal to the greater of a minimum rent or contingent rent. In addition, we may be required to pay some, or all, of the capital costs for property and equipment in the hotel during the term of the lease.

The future minimum rent payments under non-cancelable leases as of December 31, 2017, were as follows:



	Operating Leases		Capital Leases			Non-Recourse Capital Leases
Year	(in millions)
2018	$	192	$	5		$	19
2019	174		5			24
2020	175		6			24
2021	165		6			24
2022	130		5			24
Thereafter	1,025		34			158
Total minimum rent payments	$	1,861	61			273
Less: amount representing interest			(19		)	(82		)
Present value of net minimum rent payments			$	42		$	191

Rent expense for all operating leases was as follows:



	Year Ended December 31,
	2017		2016		2015
	(in millions)
Minimum rentals	$	183	$	224	$	244
Contingent rentals	101		98		104
	$	284	$	322	$	348

The amortization of assets recorded under capital leases is included in depreciation and amortization in our consolidated statements of operations and is recognized over the shorter of the lease term or useful life of the asset.

Note 14: Income Taxes

Our tax provision includes federal, state and foreign income taxes payable. The domestic and foreign components of income from continuing operations before income taxes were as follows:



	Year Ended December 31,
	2017		2016			2015
	(in millions)
U.S. income before tax	$	791	$	934		$	262
Foreign income (loss) before tax	139		(378		)	271
Income from continuing operations before income taxes	$	930	$	556		$	533

The components of our provision (benefit) for income taxes were as follows:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Current:
Federal	$	239		$	441		$	164
State	59			143			51
Foreign	95			70			64
Total current	393			654			279
Deferred:
Federal	(679		)	(116		)	(606		)
State	(24		)	50			(86		)
Foreign	(24		)	(24		)	65
Total deferred	(727		)	(90		)	(627		)
Total provision (benefit) for income taxes	$	(334	)	$	564		$	(348	)

Reconciliations of our tax provision at the U.S. statutory rate to the provision (benefit) for income taxes were as follows:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Statutory U.S. federal income tax provision	$	326		$	194		$	187
State income taxes, net of U.S. federal tax benefit	26			23			17
Impact of foreign operations	1			32			3
Effects of the Tax Cuts and Jobs Act	(665		)	—			—
Nontaxable liquidation of subsidiaries	—			—			(628		)
Corporate restructuring	—			482			—
Change in deferred tax asset valuation allowance	(48		)	(22		)	24
Provision (benefit) for uncertain tax positions	38			(139		)	18
Non-deductible share-based compensation	—			—			23
Non-deductible goodwill	—			—			13
Other, net	(12		)	(6		)	(5		)
Provision (benefit) for income taxes	$	(334	)	$	564		$	(348	)

On December 22, 2017, the TCJ Act was signed into law, which permanently reduces the corporate income tax rate from a graduated 35 percent to a flat 21 percent rate and imposes a one-time transition tax on earnings of foreign subsidiaries that were previously deferred. As of December 31, 2017, we had not completed our accounting for the tax effects of enactment of the TCJ Act; however, where possible, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we were not able to make a reasonable estimate and continued to account for those items based on the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional benefit of $665 million, of which $517 million was the result of the remeasurement of U.S. deferred tax assets and liabilities and other tax liabilities.

Provisional amounts

•

Deferred tax assets and liabilities and other tax liabilities. We remeasured deferred tax assets and liabilities and other tax liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. The provisional amounts recorded related to the remeasurement of our deferred tax assets and liabilities, uncertain tax position reserves and other tax liabilities were income tax benefits of $517 million, $33 million and $84 million, respectively. However, this remeasurement is based on estimates as of the enactment date of the TCJ Act and our existing analysis of the numerous complex tax law changes in the TCJ Act. As we finalize our analysis of the tax law changes in the TCJ Act, including the impact on our current year tax return filing positions throughout the 2018 fiscal year, we will update our provisional amounts for this remeasurement.

•

Foreign taxation changes. A one-time transition tax is applied to foreign earnings previously not subjected to U.S. tax. The one-time transition tax is based on our total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes, but is assessed at a lower tax rate than the federal corporate tax rate of 35 percent. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries based on estimates, as of the enactment date of the TCJ Act, for our controlled foreign subsidiaries and estimates of the total post-1986 E&P for noncontrolled foreign subsidiaries. Additionally, the language in the TCJ Act is not specific enough to address all aspects of the calculation of the transition tax and leaves certain components of the calculation open to interpretation. The U.S. Treasury department is expected to issue regulations to provide clarification. We will update our provisional amounts related to the transition tax for the E&P of our noncontrolled foreign subsidiaries as further guidance is provided by the U.S. Treasury department. We previously recorded a federal deferred tax liability for our deferred earnings at the statutory 35 percent rate. The application of the transition tax results in the deferred earnings previously recorded at 35 percent being subjected to a lower rate, resulting in a provisional income tax benefit of $15 million. We had not recorded certain deferred tax assets, related primarily to E&P deficits, for some foreign subsidiaries based upon an expectation that no tax benefit from such assets would be realized within the foreseeable future. The recognition of tax benefits from the deferred tax assets previously not recorded resulted in a provisional income tax benefit of $16 million.

We have not made sufficient progress on our analysis of the TCJ Act’s impact on our recognition of deferred tax assets and liabilities for outside basis differences in our investments in foreign subsidiaries due to the complexity of these calculations on both our U.S. and foreign tax positions and uncertainty regarding the impact of new taxes on certain foreign earnings and, therefore, have not recorded provisional amounts. As of December 31, 2017, we have not recorded any deferred tax assets or liabilities for outside basis differences in our investments in foreign subsidiaries. We will further analyze the impact of these new taxes on foreign earnings and their impact on our tax positions throughout fiscal year 2018 to allow us to complete the required accounting for our outside basis differences in our investments in foreign subsidiaries. We continued to apply Accounting Standards Codification 740 based on the provisions of the tax laws that were in effect immediately prior to the TCJ Act being enacted.

During the year ended December 31, 2016, we effected two corporate structuring transactions that included: (i) the organization of Hilton's assets and subsidiaries in preparation for the spin-offs; and (ii) a restructuring of Hilton's international assets and subsidiaries (the "international restructuring"). The international restructuring involved a transfer of certain assets, including intellectual property used in the international business, from U.S. subsidiaries to foreign subsidiaries, and became effective in December 2016. The transfer of the intellectual property resulted in the recognition of tax expense representing the estimated U.S. tax expected to be paid in future years on income generated from the intellectual property transferred to foreign subsidiaries. Further, our deferred effective tax rate is determined based upon the composition of applicable federal and state tax rates. Due to the changes in the footprint of the Company and the expected applicable tax rates at which our domestic deferred tax assets and liabilities will reverse in future periods as a result of the described structuring activities, our estimated deferred effective tax rate increased for the year ended December 31, 2016. In total, these structuring transactions, which became effective in December 2016, resulted in additional income tax expense of $482 million in the period.

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) were as follows:



	December 31,
	2017			2016
	(in millions)
Deferred tax assets:
Net operating loss carryforwards	$	395		$	394
Compensation	123			214
Other reserves	12			15
Capital lease obligations	78			84
Insurance reserves	27			36
Program surplus	17			84
Property and equipment	32			26
Investments	16			12
Other	57			66
Total gross deferred tax assets	757			931
Less: valuation allowance	(408		)	(507		)
Deferred tax assets	349			424
Deferred tax liabilities:
Brands	(1,121		)	(1,626		)
Amortizing intangible assets	(178		)	(305		)
Investment in foreign subsidiaries	—			(39		)
Deferred income	—			(150		)
Deferred tax liabilities	(1,299		)	(2,120		)
Net deferred taxes	$	(950	)	$	(1,696	)

As of December 31, 2017, we had foreign net operating loss carryforwards of $1.6 billion, which resulted in deferred tax assets of $395 million for foreign jurisdictions. Approximately $6 million of our deferred tax assets as of December 31, 2017 related to net operating loss carryforwards that will expire between 2018 and 2037 with less than $1 million of that amount expiring in 2018. Approximately $389 million of our deferred tax assets as of December 31, 2017 resulted from net operating loss carryforwards that are not subject to expiration. We believe that it is more likely than not that the benefit from certain foreign net operating loss carryforwards will not be realized. In recognition of this assessment, we provided a valuation allowance of $384 million as of December 31, 2017 on the deferred tax assets relating to the foreign net operating loss carryforwards. Our total valuation allowance relating to these net operating loss carryforwards and other deferred tax assets decreased $99 million during the year ended December 31, 2017. Based on our consideration of all available positive and negative evidence, we determined that it was more likely than not that we would be able to realize the benefit of certain foreign deferred tax assets and released valuation allowances of $48 million against our foreign deferred tax assets through continuing operations. Additionally, other factors that did not have any impact on income tax expense, including revaluations of certain foreign deferred tax assets and their associated valuation allowances, resulted in the reduction of total valuation allowances of $51 million.

We classify reserves for tax uncertainties within current income taxes payable and other long-term liabilities in our consolidated balance sheets. Reconciliations of the beginning and ending amounts of unrecognized tax benefits were as follows:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Balance at beginning of year	$	174		$	315		$	296
Additions for tax positions related to the prior year	3			77			25
Additions for tax positions related to the current year	126			9			8
Reductions for tax positions related to prior years	(10		)	(204		)	(4		)
Settlements	(9		)	(21		)	(4		)
Lapse of statute of limitations	(2		)	(2		)	(2		)
Currency translation adjustment	1			—			(4		)
Balance at end of year	$	283		$	174		$	315

The changes to our unrecognized tax benefits during the year ended December 31, 2017 were primarily related to uncertainty regarding the valuation of certain tax assets in the U.S. and the United Kingdom. The changes to our unrecognized tax benefits during the years ended December 31, 2016 and 2015 were primarily the result of items identified, resolved and settled as part of our ongoing U.S. federal audit. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense. During the years ended December 31, 2017, 2016 and 2015, we accrued $3 million, $4 million and $5 million, respectively, of interest and penalties and as of December 31, 2017 and 2016, we had accrued balances of $33 million and $30 million, respectively, for the related payments. Included in the balance of uncertain tax positions as of December 31, 2017 and 2016 were $285 million and $176 million, respectively, associated with positions that if favorably resolved would provide a benefit to our effective tax rate.

In April 2014, we received 30-day Letters from the Internal Revenue Service ("IRS") and the Revenue Agents Report ("RAR") for the 2006 and October 2007 tax years. We disagreed with several of the proposed adjustments in the RAR, filed a formal appeals protest with the IRS and did not make any tax payments related to this audit. The issues being protested in appeals relate to assertions by the IRS that: (i) certain foreign currency denominated intercompany loans from our foreign subsidiaries to certain U.S. subsidiaries should be recharacterized as equity for U.S. federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S. subsidiaries; (ii) in calculating the amount of U.S. taxable income resulting from our Hilton Honors guest loyalty program, we should not reduce gross income by the estimated costs of future redemptions, but rather such costs would be deductible at the time the points are redeemed; and (iii) certain foreign currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is USD, should instead be treated as issued by one of our Belgian subsidiaries whose functional currency is the euro, and thus foreign currency gains and losses with respect to such loans should have been measured in euros, instead of USD. Additionally, in January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years. The RAR includes the proposed adjustments for tax years December 2007 through 2010, which reflect the carryover effect of the three protested issues from 2006 through October 2007. These proposed adjustments will also be protested in appeals, and formal appeals protests have been submitted. In total, the proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $874 million, excluding interest and penalties and potential state income taxes. The portion of this amount related to Hilton Honors would result in a decrease to our future tax liability when the points are redeemed. We disagree with the IRS's position on each of these assertions and intend to vigorously contest them. However, based on continuing appeals process discussions with the IRS, we believe that it is more likely than not that we will not recognize the full benefit related to certain of the issues being appealed. Accordingly, we have recorded $45 million of unrecognized tax benefits related to these issues.

We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign tax jurisdictions. We are under regular and recurring audit by the IRS and other taxing authorities on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. We are no longer subject to U.S. federal income tax examination for years through 2004. As of December 31, 2017, we remain subject to federal examinations from 2005 through 2016, state examinations from 2005 through 2016 and foreign examinations of our income tax returns for the years 1996 through 2016.

State income tax returns are generally subject to examination for a period of three to five years after filing the respective return; however, the state effect of any federal tax return changes remains subject to examination by various states for a period generally of up to one year after formal notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after filing the respective tax return.

Note 15: Employee Benefit Plans

We sponsor multiple domestic and international employee benefit plans. Benefits are based upon years of service and compensation.

We have a noncontributory retirement plan in the U.S. (the "Domestic Plan"), which covers certain employees not earning union benefits. This plan was frozen for participant benefit accruals in 1996; therefore, the projected benefit obligation is equal to the accumulated benefit obligation. The plan assets will be used to pay benefits due to employees for service through December 31, 1996. Since employees have not accrued additional benefits from that time, we do not utilize salary or pension inflation assumptions in calculating our benefit obligation for the Domestic Plan. The annual measurement date for the Domestic Plan is December 31.

We also have multiple employee benefit plans that cover many of our international employees. These include: (i) a plan that covers workers in the United Kingdom (the "U.K. Plan"), which was frozen to further service accruals on November 30, 2013; and (ii) a number of smaller plans that cover workers in various countries around the world (the "International Plans"). The annual measurement date for all of these plans is December 31.

We are required to recognize the funded status of our pension plans, which is the difference between the fair value of plan assets and the projected benefit obligations, in our consolidated balance sheets and make corresponding adjustments for changes in the value through accumulated other comprehensive loss, net of taxes.

The following table presents the projected benefit obligation, the fair value of plan assets, the funded status and the accumulated benefit obligation for the Domestic Plan, the U.K. Plan and the International Plans:



	Domestic Plan						U.K. Plan						International Plans
	2017			2016			2017			2016			2017			2016
	(in millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$	381		$	394		$	404		$	391		$	81		$	82
Service cost	—			—			2			2			1			2
Interest cost	12			13			10			12			1			2
Actuarial loss	16			1			4			87			3			2
Settlements and curtailments	(1		)	(2		)	—			—			—			(1		)
Effect of foreign exchange rates	—			—			40			(74		)	4			(1		)
Benefits paid	(24		)	(25		)	(17		)	(14		)	(4		)	(5		)
Benefit obligation at end of year	$	384		$	381		$	443		$	404		$	86		$	81

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	267		$	265		$	336		$	368		$	58		$	60
Actual return on plan assets, net of expenses	43			11			24			42			6			1
Employer contributions	21			18			9			5			4			3
Settlements	(1		)	(2		)	—			—			—			(1		)
Effect of foreign exchange rates	—			—			34			(65		)	1			—
Benefits paid	(24		)	(25		)	(17		)	(14		)	(4		)	(5		)
Fair value of plan assets at end of year	306			267			386			336			65			58
Funded status at end of year (underfunded)	(78		)	(114		)	(57		)	(68		)	(21		)	(23		)
Accumulated benefit obligation	$	384		$	381		$	443		$	404		$	86		$	81

Amounts recognized in the consolidated balance sheets consisted of the following:



	Domestic Plan						U.K. Plan						International Plans
	2017			2016			2017			2016			2017			2016
	(in millions)
Other non-current assets	$	—		$	4		$	—		$	—		$	9		$	6
Other liabilities	(78		)	(118		)	(57		)	(68		)	(30		)	(29		)
Net amount recognized	$	(78	)	$	(114	)	$	(57	)	$	(68	)	$	(21	)	$	(23	)

Amounts recognized in accumulated other comprehensive loss consisted of the following:



	Domestic Plan									U.K. Plan									International Plans
	2017			2016			2015			2017			2016			2015			2017		2016			2015
	(in millions)
Net actuarial loss (gain)	$	(15	)	$	—		$	15		$	13		$	41		$	16		$	—	$	3		$	1
Prior service credit	(3		)	(3		)	(4		)	—			—			—			—		—			—
Amortization of net loss	(3		)	(3		)	(3		)	(4		)	(2		)	(2		)	—		(1		)	(9		)
Net amount recognized	$	(21	)	$	(6	)	$	8		$	9		$	39		$	14		$	—	$	2		$	(8	)

The estimated unrecognized net losses and prior service cost that will be amortized into net periodic pension cost over the fiscal year following the indicated year were as follows:



	Domestic Plan						U.K. Plan						International Plans
	2017		2016		2015		2017		2016		2015		2017		2016		2015
	(in millions)
Unrecognized net losses	$	3	$	2	$	2	$	4	$	4	$	2	$	—	$	—	$	—
Unrecognized prior service cost	4		4		4		—		—		—		—		—		—
Amount unrecognized	$	7	$	6	$	6	$	4	$	4	$	2	$	—	$	—	$	—

The net periodic pension cost (credit) was as follows:



	Domestic Plan									U.K. Plan									International Plans
	2017			2016			2015			2017			2016			2015			2017			2016			2015
	(in millions)
Service cost	$	8		$	8		$	7		$	2		$	2		$	2		$	2		$	3		$	3
Interest cost	12			13			16			10			12			15			2			2			2
Expected return on plan assets	(19		)	(19		)	(19		)	(19		)	(22		)	(25		)	(3		)	(3		)	(4		)
Amortization of prior service cost	3			4			4			—			—			—			—			—			—
Amortization of net loss	3			3			3			4			2			2			—			—			—
Settlement losses	—			—			—			—			—			—			—			—			10
Net periodic pension cost (credit)	$	7		$	9		$	11		$	(3	)	$	(6	)	$	(6	)	$	1		$	2		$	11

The weighted-average assumptions used to determine benefit obligations were as follows:



	Domestic Plan				U.K. Plan				International Plans
	2017		2016		2017		2016		2017		2016
Discount rate	3.6	%	4.0	%	2.6	%	2.8	%	2.4	%	3.1	%
Salary inflation	N/A		N/A		1.8		1.9		2.2		2.1
Pension inflation	N/A		N/A		3.0		3.1		1.8		1.7

The weighted-average assumptions used to determine net periodic pension cost (credit) were as follows:



	Domestic Plan						U.K. Plan						International Plans
	2017		2016		2015		2017		2016		2015		2017		2016		2015
Discount rate	4.0	%	4.2	%	3.9	%	2.8	%	3.9	%	3.8	%	3.0	%	3.5	%	3.3	%
Expected return on plan assets	7.0		7.3		7.5		5.5		6.5		6.5		4.3		5.4		5.1
Salary inflation	N/A		N/A		N/A		1.9		1.7		1.6		2.1		2.1		2.2
Pension inflation	N/A		N/A		N/A		3.1		2.8		2.8		1.7		1.6		1.8

The investment objectives for the various plans are preservation of capital, current income and long-term growth of capital. All plan assets are managed by outside investment managers and do not include investments in Hilton stock. Asset allocations are reviewed periodically by the investment managers.

Expected long-term returns on plan assets are determined using historical performance for debt and equity securities held by our plans, actual performance of plan assets and current and expected market conditions. Expected returns are formulated based on the target asset allocation. The target asset allocation for the Domestic Plan, as a percentage of total plan assets, as of December 31, 2017 and 2016, was 80 percent and 65 percent, respectively, in funds that invest in equity securities, and 20 percent and 35 percent, respectively, in funds that invest in debt securities. The target asset allocation for the U.K. Plan and the International Plans was 75 percent and 65 percent in funds that invest in equity and debt securities and 25 percent and 35 percent in bond funds as of December 31, 2017 and 2016, respectively.

The following tables present the fair value hierarchy of total plan assets measured at fair value by asset category. The fair values of Level 2 assets were based on available market pricing information of similar financial instruments.



	December 31, 2017
	Domestic Plan				U.K. Plan				International Plans
	Level 1		Level 2		Level 1		Level 2		Level 1		Level 2
	(in millions)
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	11	$	—
Equity funds	—		—		—		—		—		6
Debt securities	—		—		—		—		—		—
Bond funds	—		—		—		—		—		5
Common collective trusts	—		306		—		386		—		43
Other	—		—		—		—		—		—
Total	$	—	$	306	$	—	$	386	$	11	$	54



	December 31, 2016
	Domestic Plan				U.K. Plan				International Plans
	Level 1		Level 2		Level 1		Level 2		Level 1		Level 2
	(in millions)
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	10	$	—
Equity funds	25		—		—		—		3		6
Debt securities	1		62		—		—		—		—
Bond funds	—		—		—		—		—		6
Common collective trusts	—		139		—		336		—		33
Other	—		40		—		—		—		—
Total	$	26	$	241	$	—	$	336	$	13	$	45

We expect to contribute approximately $19 million, $9 million and $4 million to the Domestic Plan, the U.K. Plan and the International Plans, respectively, in 2018.

As of December 31, 2017, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter were as follows:



	Domestic Plan		U.K. Plan		International Plans
Year	(in millions)
2018	$	33	$	18	$	10
2019	26		18		5
2020	26		19		5
2021	26		19		5
2022	26		19		5
2023-2027	121		102		26
	$	258	$	195	$	56

As of January 1, 2007, the Domestic Plan and plans maintained for certain domestic hotels currently or formerly managed by us were merged into a multiple employer plan. As of December 31, 2017 and 2016, the multiple employer plan had combined plan assets of $331 million and $289 million, respectively, and a projected benefit obligation of $409 million and $405 million, respectively.

We also have plans covering qualifying employees and non-officer directors (the "Supplemental Plans"). Benefits for the Supplemental Plans are based upon years of service and compensation. Since December 31, 1996, employees and non-officer directors have not accrued additional benefits under the Supplemental Plans. These plans are self-funded by us and, therefore, have no plan assets isolated to pay benefits due to employees. As of December 31, 2017 and 2016, these plans had benefit obligations of $15 million and $19 million, respectively, which were fully accrued in other liabilities in our consolidated balance sheets. Expenses incurred under the Supplemental Plans for the years ended December 31, 2017 and 2016 were $1 million and $3 million, respectively, and for the year ended December 31, 2015 were less than $1 million.

We have various employee defined contribution investment plans whereby we contribute matching percentages of employee contributions. The aggregate expense under these plans totaled $15 million, $17 million and $18 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Note 16: Share-Based Compensation

We recognized share-based compensation expense of $121 million, $81 million and $147 million during the years ended December 31, 2017, 2016 and 2015, respectively, which included amounts reimbursed by hotel owners. The total tax benefit recognized related to this share-based compensation expense was $49 million, $31 million and $31 million for the years ended December 31, 2017, 2016 and 2015, respectively. Share-based compensation expense for the year ended December 31, 2015 included compensation expense that was recognized when certain remaining awards granted in connection with our initial public offering vested during 2015. As of December 31, 2017 and 2016, we accrued $15 million in accounts payable, accrued expenses and other in our consolidated balance sheets for certain awards settled in cash.

As of December 31, 2017, unrecognized compensation costs for unvested awards was approximately $116 million, which is expected to be recognized over a weighted-average period of 1.8 years on a straight-line basis. As of December 31, 2017, there were 17,968,736 shares of common stock available for future issuance under our 2017 Omnibus Incentive Plan, plus any shares subject to awards outstanding under our 2013 Omnibus Incentive Plan, which will become available for issuance under our 2017 Omnibus Incentive Plan as a result of such outstanding awards expiring or terminating or being canceled or forfeited.

All share and share-related information presented for periods prior to January 3, 2017 have been adjusted to reflect the Reverse Stock Split. See Note 1: "Organization" for additional information.

Effect of the Spin-offs on Equity Awards

In connection with the spin-offs, the outstanding share-based compensation awards held by employees transferring to Park and HGV were converted to equity awards in Park and HGV common stock, respectively.

Share-based compensation awards of employees remaining at Hilton were adjusted using a conversion factor in accordance with the anti-dilution provisions of the 2013 Omnibus Incentive Plan with the intent to preserve the intrinsic value of the original awards (the "Conversion Factor"). The adjustments were determined by comparing the fair value of such awards immediately prior to the spin-offs to the fair value of such awards immediately after the spin-offs. The comparison resulted in no incremental share-based compensation expense. Equity awards that were adjusted generally remain subject to the same vesting, expiration and other terms and conditions as applied to the awards immediately prior to the spin-offs.

RSUs

The following table provides information about our RSU grants for the last three fiscal years:



	Year Ended December 31,
	2017		2016		2015
Number of shares granted	1,467,396		1,169,238		679,546
Weighted average grant date fair value per share	$	58.80	$	59.73	$	82.38
Fair value of shares vested (in millions)	$	78	$	40	$	90

The following table summarizes the activity of our RSUs during the year ended December 31, 2017:



	Number of Shares		Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2016	1,624,541		$	65.24
Conversion from performance shares upon completion of the spin-offs(1)	671,604		72.42
Effect of the spin-offs(2)	439,113		57.60
Granted	1,467,396		58.80
Vested(2)	(1,199,987	)	51.65
Forfeited(2)	(161,736	)	50.33
Outstanding as of December 31, 2017	2,840,931		51.44


(1)	Represents all performance shares outstanding as of December 31, 2016.


(2)	The weighted average grant date fair value was adjusted to reflect the Conversion Factor.

Options

The following table provides information about our option grants for the last three fiscal years:



	Year Ended December 31,
	2017		2016		2015
Number of options granted	748,965		503,150		309,528
Weighted average exercise price per share	$	58.40	$	58.83	$	82.38
Weighted average grant date fair value per share	$	13.96	$	16.41	$	25.17

The grant date fair value of each of these option grants was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:



	Year Ended December 31,
	2017		2016		2015
Expected volatility(1)	24.00	%	32.00	%	28.00	%
Dividend yield(2)	0.92% - 1.03%		1.43	%	—	%
Risk-free rate(3)	1.93% - 2.03%		1.36	%	1.67	%
Expected term (in years)(4)	6.0		6.0		6.0


(1)	Estimated using historical movement of Hilton's stock price and, due to limited trading history, historical volatility of our peer group over a time period consistent with our expected term assumption.


(2)	Estimated based on the expected annualized dividend payment at the grant date. For the 2015 options granted, we had no plans to pay dividends during the expected term at the time of grant.


(3)	Based on the yields of U.S. Department of Treasury instruments with similar expected lives.


(4)	Estimated using the average of the vesting periods and the contractual term of the options.

The following table summarizes the activity of our options during the year ended December 31, 2017:



	Number of Shares		Weighted Average Exercise Price per Share
Outstanding as of December 31, 2016	1,076,031		$	66.83
Effect of the spin-offs(1)	251,145		57.60
Granted	748,965		58.40
Exercised(1)	(61,888	)	46.75
Forfeited or expired(1)	(20,799	)	53.47
Outstanding as of December 31, 2017(2)	1,993,454		51.24
Exercisable as of December 31, 2017(1)(2)	741,798		48.32


(1)	The weighted average exercise price was adjusted to reflect the Conversion Factor.


(2)	The aggregate intrinsic value of options outstanding and options exercisable was $57 million and $23 million, respectively, as of December 31, 2017.

The weighted average remaining contractual term for options outstanding as of December 31, 2017 was 8.6 years.

Performance Shares

As of December 31, 2016, we had outstanding performance awards based on a measure of the Company’s total shareholder return relative to the total shareholder returns of members of a peer company group ("relative shareholder return") and based on the Company’s EBITDA CAGR. In November 2016, we modified our performance shares, such that upon completion of the spin-offs, we converted all 671,604 outstanding performance shares to RSUs based on a 100 percent achievement percentage with the same vesting periods as the original awards. We recognized $3.3 million and $0.3 million of incremental expense related to the modification of these awards during the years ended December 31, 2017 and 2016, respectively, and we will recognize additional expense of $2.3 million from the modification in 2018.

During the year ended December 31, 2017, we issued performance shares with 50 percent of the shares subject to achievement based on the Company's EBITDA CAGR and the other 50 percent of the shares subject to achievement based on the Company’s FCF CAGR. The performance shares are settled at the end of the three-year performance period. We determined that the performance condition for these awards is probable of achievement and, as of December 31, 2017, we recognized compensation expense based on the anticipated achievement percentage of 200 percent and 175 percent for the performance awards based on EBITDA CAGR and FCF CAGR, respectively. As of December 31, 2017, there were no outstanding performance shares based on relative shareholder return.

The following table provides information about our performance share grants for the last three fiscal years:



	Year Ended December 31,
	2017		2016		2015
EBITDA CAGR:
Number of shares granted	179,006		300,784		204,523
Weighted average grant date fair value per share	$	58.40	$	58.83	$	82.38
Fair value of shares vested (in millions)	$	—	$	12	$	—

FCF CAGR:
Number of shares granted	178,975		N/A		N/A
Weighted average grant date fair value per share	$	58.40	N/A		N/A
Fair value of shares vested (in millions)	$	—	N/A		N/A

Relative Shareholder Return:
Number of shares granted	N/A		300,784		204,523
Weighted average grant date fair value per share	N/A		$	62.43	$	98.94
Fair value of shares vested (in millions)	N/A		$	16	$	—

The following table summarizes the activity of our performance shares during the year ended December 31, 2017:



	EBITDA CAGR				FCF CAGR
	Number of Shares		Weighted Average Grant Date Fair Value per Share		Number of Shares		Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2016	335,802		$	68.09	—		N/A
Conversion to RSUs upon completion of the spin-offs	(335,802	)	68.09		—		N/A
Granted	179,006		58.40		178,975		$	58.40
Forfeited or canceled	(2,915	)	58.02		(2,914	)	58.02
Outstanding as of December 31, 2017	176,091		58.41		176,061		58.41

DSUs

During the years ended December 31, 2017, 2016 and 2015, we issued to our independent directors 16,638, 11,393 and 6,179 DSUs, respectively, with weighted average grant date fair values of $66.09, $66.12 and $84.96, respectively.

Note 17: Earnings (Loss) Per Share

The following table presents the calculation of basic and diluted earnings (loss) per share ("EPS"). All share and per share amounts for the years ended December 31, 2016 and 2015 have been adjusted to reflect the Reverse Stock Split. See Note 1: "Organization" for additional information.



	Year Ended December 31,
	2017		2016			2015
	(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income (loss) from continuing operations attributable to Hilton stockholders	$	1,259	$	(18	)	$	876
Denominator:
Weighted average shares outstanding	324		329			329
Basic EPS	$	3.88	$	(0.05	)	$	2.67

Diluted EPS:
Numerator:
Net income (loss) from continuing operations attributable to Hilton stockholders	$	1,259	$	(18	)	$	876
Denominator:
Weighted average shares outstanding	327		329			330
Diluted EPS	$	3.85	$	(0.05	)	$	2.66

Approximately 1 million, 2 million and less than 1 million share-based compensation awards were excluded from the weighted average shares outstanding in the computation of diluted EPS for the years ended December 31, 2017, 2016 and 2015, respectively, because their effect would have been anti-dilutive under the treasury stock method.

Note 18: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, were as follows:



	Currency Translation Adjustment(1)			Pension Liability Adjustment			Cash Flow Hedge Adjustment			Total
	(in millions)
Balance as of December 31, 2014	$	(446	)	$	(179	)	$	(3	)	$	(628	)
Other comprehensive loss before reclassifications	(150		)	(21		)	(7		)	(178		)
Amounts reclassified from accumulated other comprehensive loss	16			6			—			22
Net current period other comprehensive loss	(134		)	(15		)	(7		)	(156		)
Balance as of December 31, 2015	(580		)	(194		)	(10		)	(784		)
Other comprehensive loss before reclassifications	(157		)	(63		)	(5		)	(225		)
Amounts reclassified from accumulated other comprehensive loss	(1		)	6			3			8
Net current period other comprehensive loss	(158		)	(57		)	(2		)	(217		)
Balance as of December 31, 2016	(738		)	(251		)	(12		)	(1,001		)
Other comprehensive income before reclassifications	160			15			7			182
Amounts reclassified from accumulated other comprehensive loss	1			7			6			14
Net current period other comprehensive income	161			22			13			196
Spin-offs of Park and HGV	63			—			—			63
Balance as of December 31, 2017	$	(514	)	$	(229	)	$	1		$	(742	)


(1)	Includes net investment hedges and intra-entity foreign currency transactions that are of a long-term investment nature.

The following table presents additional information about reclassifications out of accumulated other comprehensive loss (amounts in parentheses indicate a loss in our consolidated statement of operations):



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Currency translation adjustment:
Sale or liquidation of investment in foreign entity(1)	$	(2	)	$	—		$	(25	)
Gains on net investment hedges(2)	1			1			—
Tax benefit(3)(4)	—			—			9
Total currency translation adjustment reclassifications for the period, net of taxes	(1		)	1			(16		)
Pension liability adjustment:
Amortization of prior service cost(5)	(3		)	(4		)	(4		)
Amortization of net loss(5)	(7		)	(5		)	(5		)
Tax benefit(3)	3			3			3
Total pension liability adjustment reclassifications for the period, net of taxes	(7		)	(6		)	(6		)
Cash flow hedge adjustment:
Dedesignation of interest rate swaps(6)	(10		)	(4		)	—
Tax benefit(3)	4			1			—
Total cash flow hedge adjustment reclassifications for the period, net of taxes	(6		)	(3		)	—
Total reclassifications for the period, net of taxes	$	(14	)	$	(8	)	$	(22	)


(1)	Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions and gain on sales of assets, net in our consolidated statements of operations for the years ended December 31, 2017 and 2015, respectively.


(2)	Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in our consolidated statements of operations.


(3)	Reclassified out of accumulated other comprehensive loss to income tax benefit (expense) in our consolidated statements of operations.


(4)	The tax benefit was less than $1 million for the years ended December 31, 2017 and 2016.


(5)	Reclassified out of accumulated other comprehensive loss to general and administrative expenses in our consolidated statements of operations. These amounts were included in the computation of net periodic pension cost. See Note 15: "Employee Benefit Plans" for additional information.


(6)	Reclassified out of accumulated other comprehensive loss to interest expense in our consolidated statements of operations. Refer to Note 11: "Derivative Instruments and Hedging Activities" for additional information.

Note 19: Business Segments

We are a hospitality company with operations organized in two distinct operating segments: (i) management and franchise; and (ii) ownership. These segments are managed and reported separately because of their distinct economic characteristics.

The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels operated or managed by someone other than us. As of December 31, 2017, this segment included 656 managed hotels and 4,507 franchised hotels consisting of 825,808 total rooms, which includes 67 hotels with 35,406 rooms that were previously owned or leased by Hilton or unconsolidated affiliates of Hilton and, upon completion of the spin-offs, were owned or leased by Park or unconsolidated affiliates of Park. This segment also earns fees for managing properties in our ownership segment and, effective upon completion of the spin-offs, a license fee from HGV.

As of December 31, 2017, the ownership segment included 73 properties totaling 22,206 rooms, comprising 64 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and six hotels owned or leased by unconsolidated affiliates.

The performance of our operating segments is evaluated primarily on operating income, without allocating corporate and other revenues and other expenses or general and administrative expenses.

The following table presents revenues for our reportable segments, reconciled to consolidated amounts:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Management and franchise(1)	$	1,983		$	1,580		$	1,496
Ownership	1,450			1,452			1,596
Segment revenues	3,433			3,032			3,092
Other revenues	105			82			71
Other revenues from managed and franchised properties	5,645			4,310			4,011
Intersegment fees elimination(1)	(43		)	(42		)	(41		)
Total revenues	$	9,140		$	7,382		$	7,133


(1)	Includes management, royalty and intellectual property fees charged to our ownership segment, which were eliminated in our consolidated statements of operations.

The following table presents operating income for our reportable segments, reconciled to consolidated income from continuing operations before income taxes:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Management and franchise(1)	$	1,983		$	1,580		$	1,496
Ownership(1)	121			115			141
Segment operating income	2,104			1,695			1,637
Other revenues, less other expenses	49			16			22
Depreciation and amortization	(347		)	(364		)	(385		)
General and administrative	(434		)	(403		)	(537		)
Gain on sales of assets, net	—			8			163
Operating income	1,372			952			900
Interest expense	(408		)	(394		)	(377		)
Gain (loss) on foreign currency transactions	3			(16		)	(41		)
Loss on debt extinguishment	(60		)	—			—
Other non-operating income, net	23			14			51
Income from continuing operations before income taxes	$	930		$	556		$	533


(1)	Includes management, royalty and intellectual property fees charged to our ownership segment by our management and franchise segment, which were eliminated in our consolidated financial statements.

The following table presents total assets for our reportable segments, reconciled to consolidated assets of continuing operations:



	December 31,
	2017		2016
	(in millions)
Management and franchise	$	11,454	$	10,825
Ownership	964		1,032
Corporate and other	1,890		2,529
	$	14,308	$	14,386

The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated capital expenditures of continuing operations:



	Year Ended December 31,
	2017		2016		2015
	(in millions)
Ownership	$	32	$	45	$	52
Corporate and other	26		17		15
	$	58	$	62	$	67

Total revenues by country were as follows:



	Year Ended December 31,
	2017		2016		2015
	(in millions)
U.S.	$	7,033	$	5,315	$	4,935
United Kingdom	547		955		1,017
All other	1,560		1,112		1,181
	$	9,140	$	7,382	$	7,133

Other than the countries included above, there were no countries that individually represented more than 10 percent of total revenues for the years ended December 31, 2017, 2016 and 2015.

Property and equipment, net by country was as follows:



	December 31,
	2017		2016
	(in millions)
U.S.	$	105	$	92
Japan	94		87
United Kingdom	82		79
Germany	36		35
All other	36		48
	$	353	$	341

Other than the countries included above, there were no countries that individually represented more than 10 percent of total property and equipment, net as of December 31, 2017 and 2016.

Note 20: Commitments and Contingencies

We provide performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified operating performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of December 31, 2017, we had six contracts containing performance guarantees, with expirations ranging from 2019 to 2030, and possible cash outlays totaling approximately $79 million. Our obligations under these guarantees in future periods are dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of December 31, 2017 and 2016, we recorded $12 million and $11 million, respectively, in accounts payable, accrued expenses and other and $9 million and $17 million, respectively, in other liabilities in our consolidated balance sheets for two outstanding performance guarantees that are related to VIEs for which we are not the primary beneficiary.

We are involved in litigation arising in the normal course of business, some of which includes claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of December 31, 2017 will not have a material effect on our consolidated financial position, results of operations or cash flows.

Note 21: Related Party Transactions

Equity Investments

We hold equity investments in entities that own or lease properties that we manage. The following tables summarize amounts included in our consolidated financial statements related to these management contracts:



	December 31,
	2017		2016
	(in millions)
Balance Sheets
Assets:
Accounts receivable, net	$	2	$	4
Management and franchise contracts, net	20		20

Liabilities:
Accounts payable, accrued expenses and other	1		1



	Year Ended December 31,
	2017		2016		2015
	(in millions)
Statements of Operations
Revenues:
Franchise fees	$	1	$	1	$	1
Base and other management fees	6		8		6
Incentive management fees	3		4		2
Other revenues from managed and franchised properties	22		21		31

Expenses:
Other expenses from managed and franchised properties	22		21		31

Statements of Cash Flows
Investing Activities:
Contract acquisition costs	—		—		4

Blackstone

Blackstone directly and indirectly owns or controls hotels that we manage or franchise and for which we receive fees in connection with the related management and franchise contracts. Our maximum exposure to loss related to these hotels is limited to the amounts discussed below; therefore, our involvement with these hotels does not expose us to additional variability or risk of loss. Due to continued sales of the Company's common stock, Blackstone was no longer considered a related party of the Company as of October 1, 2017. As such, only financial information related to Blackstone as of December 31, 2016 and for the nine months ended September 30, 2017 and the years ended December 31, 2016 and 2015 is included in the following tables, which summarize amounts included in our consolidated financial statements related to their management and franchise contracts:



	December 31,
	2016
	(in millions)
Balance Sheets
Assets:
Accounts receivable, net	$	18
Management and franchise contracts, net	13

Liabilities:
Accounts payable, accrued expenses and other	8



	Year Ended December 31,
	2017(1)		2016		2015
	(in millions)
Statements of Operations
Revenues:
Franchise fees	$	19	$	29	$	34
Base and other management fees	5		10		11
Incentive management fees	1		3		3
Other revenues from managed and franchised properties	113		144		160

Expenses:
Other expenses from managed and franchised properties	113		144		160

Statements of Cash Flows
Investing Activities:
Contract acquisition costs	11		—		—


(1)	Includes amounts only for the nine months ended September 30, 2017, the period in 2017 during which Blackstone was a related party of the Company.

Note 22: Supplemental Disclosures of Cash Flow Information

Interest paid during the years ended December 31, 2017, 2016 and 2015, was $314 million, $478 million and $485 million, respectively.

Income taxes, net of refunds, paid during the years ended December 31, 2017, 2016 and 2015 were $526 million, $677 million and $475 million, respectively.

The following non-cash investing and financing activities were excluded from the consolidated statements of cash flows:


•	In 2017, we had non-cash financing activities of $25 million in connection with the spin-offs.


•	In 2016, we transferred $116 million of Park's property and equipment to HGV's timeshare inventory for conversion into timeshare units.


•	In 2015, we assumed a $450 million loan as a result of an acquisition for Park.


•	In 2015, one of our consolidated VIEs modified the terms of its capital lease resulting in a reduction in long-term debt of $24 million.

Note 23: Condensed Consolidating Guarantor Financial Information

In October 2013, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (the "HWF Issuers"), entities that are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, issued the 2021 Senior Notes. In September 2016, Hilton Domestic Operating Company Inc. ("HOC"), an entity incorporated in July 2016 that is 100 percent owned by Hilton Worldwide Finance LLC and is a guarantor of the 2021 Senior Notes, 2025 Senior Notes and 2027 Senior Notes, assumed the 2024 Senior Notes that were issued in August 2016 by escrow issuers. In March 2017, the HWF Issuers, which are guarantors of the 2024 Senior Notes, issued the 2025 Senior Notes and 2027 Senior Notes, and used the net proceeds and available cash to repay in full the 2021 Senior Notes. The 2024 Senior Notes, 2025 Senior Notes and 2027 Senior Notes are collectively referred to as the Senior Notes. The HWF Issuers and HOC are collectively referred to as the Subsidiary Issuers.

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by HWP, the Parent and certain of the Parent's 100 percent owned domestic restricted subsidiaries that are themselves not issuers of the applicable series of Senior Notes (together, the "Guarantors''). The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of our senior secured credit facility will guarantee the Senior Notes. As of December 31, 2017, none of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guarantee the Senior Notes (collectively, the "Non-Guarantors").

In September 2016, certain employees, assets and liabilities of a guarantor subsidiary were transferred into HOC. This transfer was considered to be a transfer of assets rather than a transfer of a business. Accordingly, we have separately presented HOC as a subsidiary issuer in our condensed consolidating financial information prospectively from the date of the transfer. Due to the timing of the transfer, our condensed consolidating statements of operations include the results of operations of HOC beginning October 1, 2016.

In connection with the spin-offs, certain entities that were previously guarantors of the 2021 Senior Notes and 2024 Senior Notes were released and no longer guaranteed these senior notes. The condensed consolidating financial information presents the financial information based on the composition of the Guarantors and Non-Guarantors as of December 31, 2017.

The guarantees are full and unconditional, subject to certain customary release provisions. The indentures that govern the Senior Notes provide that any Guarantor may be released from its guarantee so long as: (i) the subsidiary is sold or sells all of its assets; (ii) the subsidiary is released from its guaranty under our senior secured credit facility; (iii) the subsidiary is declared "unrestricted" for covenant purposes; (iv) the subsidiary is merged with or into the applicable Subsidiary Issuers or another Guarantor or the Guarantor liquidates after transferring all of its assets to the applicable Subsidiary Issuers or another Guarantor; or (v) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied, in each case in compliance with applicable provisions of the indentures.

The following tables present the condensed consolidating financial information as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors.



	December 31, 2017
Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations				Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—		$	—		$	2		$	18		$	550		$	—			$	570
Restricted cash and cash equivalents	—			—			61			10			29			—				100
Accounts receivable, net	—			—			21			702			275			—				998
Intercompany receivables	—			—			—			—			40			(40		)		—
Prepaid expenses	—			—			6			24			84			(3		)		111
Income taxes receivable	—			—			—			60			—			(24		)		36
Other	—			—			1			15			155			—				171
Total current assets	—			—			91			829			1,133			(67		)		1,986
Intangibles and Other Assets:
Investments in subsidiaries	2,081			7,451			8,713			2,081			—			(20,326		)		—
Goodwill	—			—			—			3,824			1,366			—				5,190
Brands	—			—			—			4,405			485			—				4,890
Management and franchise contracts, net	—			—			2			634			273			—				909
Other intangible assets, net	—			—			1			283			149			—				433
Property and equipment, net	—			—			20			67			266			—				353
Deferred income tax assets	6			—			105			—			124			(122		)		113
Other	—			20			31			183			200			—				434
Total intangibles and other assets	2,087			7,471			8,872			11,477			2,863			(20,448		)		12,322
TOTAL ASSETS	$	2,087		$	7,471		$	8,963		$	12,306		$	3,996		$	(20,515	)		$	14,308
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	15		$	20		$	256		$	1,229		$	633		$	(3	)		$	2,150
Intercompany payables	—			—			40			—			—			(40		)		—
Current maturities of long-term debt	—			32			—			—			14			—				46
Income taxes payable	—			—			—			—			36			(24		)		12
Total current liabilities	15			52			296			1,229			683			(67		)		2,208
Long-term debt	—			5,333			983			—			240			—				6,556
Deferred revenues	—			—			—			97			—			—				97
Deferred income tax liabilities	—			5			—			1,180			—			(122		)		1,063
Liability for guest loyalty program	—			—			—			839			—			—				839
Other	—			—			233			581			656			—				1,470
Total liabilities	15			5,390			1,512			3,926			1,579			(189		)		12,233
Equity:
Total Hilton stockholders' equity	2,072			2,081			7,451			8,380			2,414			(20,326		)		2,072
Noncontrolling interests	—			—			—			—			3			—				3
Total equity	2,072			2,081			7,451			8,380			2,417			(20,326		)		2,075
TOTAL LIABILITIES AND EQUITY	$	2,087		$	7,471		$	8,963		$	12,306		$	3,996		$	(20,515	)		$	14,308



	December 31, 2016
Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors				Eliminations				Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—		$	—		$	3		$	22		$	1,037			$	—			$	1,062
Restricted cash and cash equivalents	—			—			87			9			25				—				121
Accounts receivable, net	—			—			7			484			264				—				755
Intercompany receivables	—			—			—			—			42				(42		)		—
Prepaid expenses	—			—			6			21			65				(3		)		89
Income taxes receivable	—			—			—			30			—				(17		)		13
Other	—			—			1			5			33				—				39
Current assets of discontinued operations	—			—			—			—			1,502				(24		)		1,478
Total current assets	—			—			104			571			2,968				(86		)		3,557
Intangibles and Other Assets:
Investments in subsidiaries	5,889			11,300			12,583			5,889			—				(35,661		)		—
Goodwill	—			—			—			3,824			1,394				—				5,218
Brands	—			—			—			4,404			444				—				4,848
Management and franchise contracts, net	—			—			—			716			247				—				963
Other intangible assets, net	—			—			1			296			150				—				447
Property and equipment, net	—			—			12			62			267				—				341
Deferred income tax assets	10			2			167			—			82				(179		)		82
Other	—			12			30			213			153				—				408
Non-current assets of discontinued operations	—			—			—			12			10,345				(10		)		10,347
Total intangibles and other assets	5,899			11,314			12,793			15,416			13,082				(35,850		)		22,654
TOTAL ASSETS	$	5,899		$	11,314		$	12,897		$	15,987		$	16,050			$	(35,936	)		$	26,211
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	—		$	26		$	293		$	1,091		$	414			$	(3	)		$	1,821
Intercompany payables	—			—			42			—			—				(42		)		—
Current maturities of long-term debt	—			26			—			—			7				—				33
Income taxes payable	—			—			—			—			73				(17		)		56
Current liabilities of discontinued operations	—			—			—			77			721				(24		)		774
Total current liabilities	—			52			335			1,168			1,215				(86		)		2,684
Long-term debt	—			5,361			981			—			241				—				6,583
Deferred revenues	—			—			—			42			—				—				42
Deferred income tax liabilities	—			—			—			1,919			38				(179		)		1,778
Liability for guest loyalty program	—			—			—			889			—				—				889
Other	—			12			277			490			713				—				1,492
Non-current liabilities of discontinued operations	—			—			4			—			6,900				(10		)		6,894
Total liabilities	—			5,425			1,597			4,508			9,107				(275		)		20,362
Equity:
Total Hilton stockholders' equity	5,899			5,889			11,300			11,479			6,993				(35,661		)		5,899
Noncontrolling interests	—			—			—			—			(50		)		—				(50		)
Total equity	5,899			5,889			11,300			11,479			6,943				(35,661		)		5,849
TOTAL LIABILITIES AND EQUITY	$	5,899		$	11,314		$	12,897		$	15,987		$	16,050			$	(35,936	)		$	26,211



	Year Ended December 31, 2017
	Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise fees	$	—		$	—		$	143		$	1,127		$	129		$	(17	)	$	1,382
Base and other management fees	—			—			1			201			134			—			336
Incentive management fees	—			—			—			76			146			—			222
Owned and leased hotels	—			—			—			—			1,450			—			1,450
Other revenues	—			—			31			70			11			(7		)	105
	—			—			175			1,474			1,870			(24		)	3,495
Other revenues from managed and franchised properties	—			—			154			4,893			598			—			5,645
Total revenues	—			—			329			6,367			2,468			(24		)	9,140

Expenses
Owned and leased hotels	—			—			—			—			1,286			—			1,286
Depreciation and amortization	—			—			5			247			95			—			347
General and administrative	—			—			327			—			113			(6		)	434
Other expenses	—			—			17			29			27			(17		)	56
	—			—			349			276			1,521			(23		)	2,123
Other expenses from managed and franchised properties	—			—			154			4,893			598			—			5,645
Total expenses	—			—			503			5,169			2,119			(23		)	7,768

Gain (loss) on sales of assets, net	—			—			—			(1		)	1			—			—

Operating income (loss)	—			—			(174		)	1,197			350			(1		)	1,372

Interest expense	—			(244		)	(106		)	—			(59		)	1			(408		)
Gain (loss) on foreign currency transactions	—			—			10			124			(131		)	—			3
Loss on debt extinguishment	—			(60		)	—			—			—			—			(60		)
Other non-operating income (loss), net	—			(3		)	4			7			15			—			23

Income (loss) before income taxes and equity in earnings from subsidiaries	—			(307		)	(266		)	1,328			175			—			930

Income tax benefit (expense)	(3		)	122			48			69			98			—			334

Income (loss) before equity in earnings from subsidiaries	(3		)	(185		)	(218		)	1,397			273			—			1,264

Equity in earnings from subsidiaries	1,262			1,447			1,665			1,262			—			(5,636		)	—

Net income	1,259			1,262			1,447			2,659			273			(5,636		)	1,264
Net income attributable to noncontrolling interests	—			—			—			—			(5		)	—			(5		)
Net income attributable to Hilton stockholders	$	1,259		$	1,262		$	1,447		$	2,659		$	268		$	(5,636	)	$	1,259

Comprehensive income	$	1,455		$	1,276		$	1,463		$	2,662		$	436		$	(5,832	)	$	1,460
Comprehensive income attributable to noncontrolling interests	—			—			—			—			(5		)	—			(5		)
Comprehensive income attributable to Hilton stockholders	$	1,455		$	1,276		$	1,463		$	2,662		$	431		$	(5,832	)	$	1,455



	Year Ended December 31, 2016
	Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise fees	$	—		$	—		$	21		$	1,031		$	112		$	(10	)	$	1,154
Base and other management fees	—			—			—			126			116			—			242
Incentive management fees	—			—			—			16			126			—			142
Owned and leased hotels	—			—			—			—			1,452			—			1,452
Other revenues	—			—			10			61			11			—			82
	—			—			31			1,234			1,817			(10		)	3,072
Other revenues from managed and franchised properties	—			—			32			3,777			501			—			4,310
Total revenues	—			—			63			5,011			2,318			(10		)	7,382

Expenses
Owned and leased hotels	—			—			—			—			1,295			—			1,295
Depreciation and amortization	—			—			1			272			91			—			364
General and administrative	—			—			90			204			109			—			403
Other expenses	—			—			1			31			44			(10		)	66
	—			—			92			507			1,539			(10		)	2,128
Other expenses from managed and franchised properties	—			—			32			3,777			501			—			4,310
Total expenses	—			—			124			4,284			2,040			(10		)	6,438

Gain on sales of assets, net	—			—			—			—			8			—			8

Operating income (loss)	—			—			(61		)	727			286			—			952

Interest expense	—			(261		)	(30		)	(51		)	(52		)	—			(394		)
Gain (loss) on foreign currency transactions	—			—			11			(150		)	123			—			(16		)
Other non-operating income, net	—			1			1			8			4			—			14

Income (loss) from continuing operations before income taxes and equity in losses from subsidiaries	—			(260		)	(79		)	534			361			—			556

Income tax benefit (expense)	193			100			32			(319		)	(570		)	—			(564		)

Income (loss) from continuing operations before equity in losses from subsidiaries	193			(160		)	(47		)	215			(209		)	—			(8		)

Equity in losses from subsidiaries	(211		)	(51		)	(4		)	(211		)	—			477			—

Income (loss) from continuing operations, net of taxes	(18		)	(211		)	(51		)	4			(209		)	477			(8		)
Income from discontinued operations, net of taxes	366			366			366			428			374			(1,528		)	372
Net income	348			155			315			432			165			(1,051		)	364
Net income attributable to noncontrolling interests	—			—			—			—			(16		)	—			(16		)
Net income attributable to Hilton stockholders	$	348		$	155		$	315		$	432		$	149		$	(1,051	)	$	348

Comprehensive income	$	131		$	153		$	320		$	361		$	15		$	(834	)	$	146
Comprehensive income attributable to noncontrolling interests	—			—			—			—			(15		)	—			(15		)
Comprehensive income attributable to Hilton stockholders	$	131		$	153		$	320		$	361		$	—		$	(834	)	$	131



	Year Ended December 31, 2015
	Parent			HWF Issuers			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise fees	$	—		$	—		$	998		$	101		$	(12	)	$	1,087
Base and other management fees	—			—			125			105			—			230
Incentive management fees	—			—			18			120			—			138
Owned and leased hotels	—			—			—			1,596			—			1,596
Other revenues	—			—			61			10			—			71
	—			—			1,202			1,932			(12		)	3,122
Other revenues from managed and franchised properties	—			—			3,510			501			—			4,011
Total revenues	—			—			4,712			2,433			(12		)	7,133

Expenses
Owned and leased hotels	—			—			—			1,414			—			1,414
Depreciation and amortization	—			—			288			97			—			385
General and administrative	—			—			424			113			—			537
Other expenses	—			—			37			24			(12		)	49
	—			—			749			1,648			(12		)	2,385
Other expenses from managed and franchised properties	—			—			3,510			501			—			4,011
Total expenses	—			—			4,259			2,149			(12		)	6,396

Gain on sales of assets, net	—			—			—			163			—			163

Operating income	—			—			453			447			—			900

Interest expense	—			(281		)	(50		)	(46		)	—			(377		)
Gain (loss) on foreign currency transactions	—			—			77			(118		)	—			(41		)
Other non-operating income, net	—			—			14			37			—			51

Income (loss) from continuing operations before income taxes and equity in earnings from subsidiaries	—			(281		)	494			320			—			533

Income tax benefit (expense)	(7		)	108			189			58			—			348

Income (loss) from continuing operations before equity in earnings from subsidiaries	(7		)	(173		)	683			378			—			881

Equity in earnings from subsidiaries	883			1,056			373			—			(2,312		)	—

Income from continuing operations, net of taxes	876			883			1,056			378			(2,312		)	881
Income from discontinued operations, net of taxes	528			528			528			460			(1,509		)	535
Net income	1,404			1,411			1,584			838			(3,821		)	1,416
Net income attributable to noncontrolling interests	—			—			—			(12		)	—			(12		)
Net income attributable to Hilton stockholders	$	1,404		$	1,411		$	1,584		$	826		$	(3,821	)	$	1,404

Comprehensive income	$	1,248		$	1,404		$	1,546		$	727		$	(3,665	)	$	1,260
Comprehensive income attributable to noncontrolling interests	—			—			—			(12		)	—			(12		)
Comprehensive income attributable to Hilton stockholders	$	1,248		$	1,404		$	1,546		$	715		$	(3,665	)	$	1,248



	Year Ended December 31, 2017
	Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Operating Activities:
Net cash provided by (used in) operating activities	$	—		$	(113	)	$	(103	)	$	988		$	322		$	(170	)	$	924
Investing Activities:
Capital expenditures for property and equipment	—			—			(12		)	(12		)	(34		)	—			(58		)
Contract acquisition costs	—			—			—			(38		)	(37		)	—			(75		)
Capitalized software costs	—			—			—			(75		)	—			—			(75		)
Other	—			(13		)	—			(1		)	3			(3		)	(14		)
Net cash used in investing activities	—			(13		)	(12		)	(126		)	(68		)	(3		)	(222		)
Financing Activities:
Borrowings	—			1,822			—			—			2			—			1,824
Repayment of debt	—			(1,852		)	—			—			(8		)	—			(1,860		)
Debt issuance costs and redemption premium	—			(69		)	—			—			—			—			(69		)
Repayment of intercompany borrowings	—			—			(3		)	—			—			3			—
Intercompany transfers	1,086			225			122			(865		)	(568		)	—			—
Dividends paid	(195		)	—			—			—			—			—			(195		)
Intercompany dividends	—			—			—			—			(170		)	170			—
Cash transferred in spin-offs of Park and HGV	—			—			—			—			(501		)	—			(501		)
Repurchases of common stock	(891		)	—			—			—			—			—			(891		)
Distributions to noncontrolling interests	—			—			—			—			(1		)	—			(1		)
Tax withholdings on share-based compensation	—			—			(31		)	—			—			—			(31		)
Net cash provided by (used in) financing activities	—			126			88			(865		)	(1,246		)	173			(1,724		)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—			—			—			—			8			—			8
Net decrease in cash, restricted cash and cash equivalents	—			—			(27		)	(3		)	(984		)	—			(1,014		)
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	—			—			90			31			1,062			—			1,183
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	—			—			—			—			501			—			501
Cash, restricted cash and cash equivalents, beginning of period	—			—			90			31			1,563			—			1,684
Cash, restricted cash and cash equivalents, end of period	$	—		$	—		$	63		$	28		$	579		$	—		$	670



	Year Ended December 31, 2016
	Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Operating Activities:
Net cash provided by (used in) operating activities	$	—		$	(37	)	$	—		$	912		$	1,095		$	(605	)	$	1,365
Investing Activities:
Capital expenditures for property and equipment	—			—			—			(9		)	(308		)	—			(317		)
Issuance of intercompany receivables	—			—			—			(192		)	(42		)	234			—
Payments received on intercompany receivables	—			—			—			192			—			(192		)	—
Proceeds from asset dispositions	—			—			—			—			11			—			11
Contract acquisition costs	—			—			—			(46		)	(9		)	—			(55		)
Capitalized software costs	—			—			—			(73		)	(8		)	—			(81		)
Other	—			(6		)	—			(35		)	5			—			(36		)
Net cash used in investing activities	—			(6		)	—			(163		)	(351		)	42			(478		)
Financing Activities:
Borrowings	—			—			1,000			—			3,715			—			4,715
Repayment of debt	—			(266		)	—			—			(4,093		)	—			(4,359		)
Debt issuance costs	—			(17		)	(20		)	—			(39		)	—			(76		)
Intercompany borrowings	—			—			—			42			192			(234		)	—
Repayment of intercompany borrowings	—			—			—			—			(192		)	192			—
Intercompany transfers	277			326			(890		)	(854		)	1,141			—			—
Dividends paid	(277		)	—			—			—			—			—			(277		)
Intercompany dividends	—			—			—			—			(605		)	605			—
Distributions to noncontrolling interests	—			—			—			—			(32		)	—			(32		)
Tax withholdings on share-based compensation	—			—			—			(15		)	—			—			(15		)
Net cash provided by (used in) financing activities	—			43			90			(827		)	87			563			(44		)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—			—			—			—			(15		)	—			(15		)
Net increase (decrease) in cash, restricted cash and cash equivalents	—			—			90			(78		)	816			—			828
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	—			—			—			109			524			—			633
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	—			—			—			—			223			—			223
Cash, restricted cash and cash equivalents, beginning of period	—			—			—			109			747			—			856
Cash, restricted cash and cash equivalents from continuing operations, end of period	—			—			90			31			1,062			—			1,183
Cash, restricted cash and cash equivalents from discontinued operations, end of period	—			—			—			—			501			—			501
Cash, restricted cash and cash equivalents, end of period	$	—		$	—		$	90		$	31		$	1,563		$	—		$	1,684



	Year Ended December 31, 2015
	Parent			HWF Issuers			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Operating Activities:
Net cash provided by operating activities	$	—		$	184		$	975		$	723		$	(436	)	$	1,446
Investing Activities:
Capital expenditures for property and equipment	—			—			(11		)	(299		)	—			(310		)
Acquisitions, net of cash acquired	—			—			—			(1,402		)	—			(1,402		)
Proceeds from asset dispositions	—			—			—			2,205			—			2,205
Contract acquisition costs	—			—			(23		)	(14		)	—			(37		)
Capitalized software costs	—			—			(57		)	(5		)	—			(62		)
Other	—			—			13			7			—			20
Net cash provided by (used in) investing activities	—			—			(78		)	492			—			414
Financing Activities:
Borrowings	—			—			—			48			—			48
Repayment of debt	—			(775		)	—			(849		)	—			(1,624		)
Intercompany transfers	138			591			(693		)	(36		)	—			—
Dividends paid	(138		)	—			—			—			—			(138		)
Intercompany dividends	—			—			(184		)	(252		)	436			—
Distributions to noncontrolling interests	—			—			—			(8		)	—			(8		)
Tax withholdings on share-based compensation	—			—			(31		)	—			—			(31		)
Net cash used in financing activities	—			(184		)	(908		)	(1,097		)	436			(1,753		)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—			—			—			(19		)	—			(19		)
Net increase (decrease) in cash, restricted cash and cash equivalents	—			—			(11		)	99			—			88
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	—			—			119			509			—			628
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	—			—			1			139			—			140
Cash, restricted cash and cash equivalents, beginning of period	—			—			120			648			—			768
Cash, restricted cash and cash equivalents from continuing operations, end of period	—			—			109			524			—			633
Cash, restricted cash and cash equivalents from discontinued operations, end of period	—			—			—			223			—			223
Cash, restricted cash and cash equivalents, end of period	$	—		$	—		$	109		$	747		$	—		$	856

Note 24: Selected Quarterly Financial Information

The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in our opinion, reflects all adjustments necessary to fairly present our financial results. Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.



	2017
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(in millions, except per share data)
Revenues	$	2,161	$	2,346	$	2,354	$	2,279	$	9,140
Operating income	277		365		382		348		1,372
Net income	75		167		181		841		1,264
Net income attributable to Hilton stockholders	74		166		179		840		1,259
Basic earnings per share(1)	$	0.22	$	0.51	$	0.56	$	2.63	$	3.88
Diluted earnings per share(1)	$	0.22	$	0.51	$	0.55	$	2.61	$	3.85



	2016
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Year
	(in millions, except per share data)
Revenues	$	1,726	$	1,950	$	1,867	$	1,839		$	7,382
Operating income	170		273		265		244			952
Income (loss) from continuing operations, net of taxes	191		100		89		(388		)	(8		)
Income from discontinued operations, net of taxes	119		144		103		6			372
Net income (loss)	310		244		192		(382		)	364
Net income (loss) attributable to Hilton stockholders	309		239		187		(387		)	348
Basic earnings (loss) per share(1):
Net income (loss) from continuing operations	$	0.58	$	0.29	$	0.27	$	(1.20	)	$	(0.05	)
Net income from discontinued operations	0.36		0.44		0.30		0.02			1.11
Net income (loss)	$	0.94	$	0.73	$	0.57	$	(1.18	)	$	1.06
Diluted earnings (loss) per share(1):
Net income (loss) from continuing operations	$	0.58	$	0.29	$	0.27	$	(1.20	)	$	(0.05	)
Net income from discontinued operations	0.36		0.43		0.30		0.02			1.11
Net income (loss)	$	0.94	$	0.72	$	0.57	$	(1.18	)	$	1.06


(1)	The sum of the earnings (loss) per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted average shares outstanding in interim periods.

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